No, that’s not true. It’s 10 years and it doesn’t apply to income generated by a foreign PE, such as when a company moves to another country.
Low tax burden life plan suggestion for freelancer
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Exit tax is a concept to tax the value of assets before they are no longer taxable because the taxpayer has left the country.
You have a successful Polish startup that makes $1mln a year in profits and you pay 19% corporate income tax.
You decide that the EU sucks and you can’t grow the company enough there, so you move your company with all its employees to the US and close the Polish office.
The EU doesn’t want to see their tax slaves leave, so the︀ Polish tax office says: “Fine, but we think your company is worth $15mln if you︁ sold it now. So you will pay 19% exit tax on those $15mln if you︂ leave the EU.”
You’re not making a single zloti more than before. You just want︃ to move. But they want their $2.85mln in taxes just to let you go.
That’s the reason many businesses are stuck in the EU, they simply can’t afford to pay︄ the exit tax. Avoiding exit tax is tricky.
You have a successful Polish startup that makes $1mln a year in profits and you pay 19% corporate income tax.
You decide that the EU sucks and you can’t grow the company enough there, so you move your company with all its employees to the US and close the Polish office.
The EU doesn’t want to see their tax slaves leave, so the︀ Polish tax office says: “Fine, but we think your company is worth $15mln if you︁ sold it now. So you will pay 19% exit tax on those $15mln if you︂ leave the EU.”
You’re not making a single zloti more than before. You just want︃ to move. But they want their $2.85mln in taxes just to let you go.
That’s the reason many businesses are stuck in the EU, they simply can’t afford to pay︄ the exit tax. Avoiding exit tax is tricky.
This could be the case if somebody leaves the EU but what if he simply relocate to another EU state like Cyprus where dividends are tax free?
In any case i don't think he will need to worry about exit tax right now because his turnover is 100K per year.
In any case i don't think he will need to worry about exit tax right now because his turnover is 100K per year.
I think EU law prohibits enforcement of exit tax in such cases, but as soon as you leave the EU, you have to pay.
Hi everyone,
Really interesting to read some interesting discussions. Thanks for your help and to study this case.
For now, my time in Poland is uncertain. I know first step is to know where you will︀ live to properly determine the tax residency. Let's say if I can stay in Poland,︁ it will be good. But if I have to move some time in a great︂ country to save interesting tax amount, it shouldn't be a big problem. I am really︃ thinking and able to relocate.
So what's the point here?︈ I can have US LLC, controlling for another country and just pay Personal Income Taxes︉ in my tax residency country?
It seems too simple, no relocation nothing.
This is tricky. LLC has a lot of disadvantages from my point of view.
First, if you want to save on social contributions, you need to have a second shareholder with at least 5%.
Second, if you want to move and close the LLC in future, it's almost impossible or a difficult progress. I mean really difficult. You need a lawyer, unregister︀ the company at the National Court and at the end you spent 6 months and︁ 10 000/20 000 euros just to close a LLC! My tax advisor already told me︂ at beginning, in Poland people try to sell the company. It's common or if you︃ want you just do nothing and the company stays frozen. But I am not comfortable︄ with that. First, I am freelancer so I don't know how to find someone who︅ would like to buy a company like that and why buy to someone and not︆ build yourself (cheap setup and done in one week). Second, I am not comfortable to︇ have "frozen" asset like that.
Third, you are not really free with the money you︈ want to take off from your company.
Polish system for LLC is called Progressive Tax.︉ It's 17% until 19k€ and 32% after. It's the same rule for dividends.
So, it's︊ like having a french company from my point of view (a little bit cheaper only).︋
Last, don't forget it's a double taxation system. Self-employed in my own company with high︌ rate and taxation on personal level with high rate (and need to pay ZUS there).︍ Small example I had from tax advisor as attachment.
From 37k PLN monthly, you seems︎ to finish with 12k PLN ..
Really interesting to read some interesting discussions. Thanks for your help and to study this case.
For now, my time in Poland is uncertain. I know first step is to know where you will︀ live to properly determine the tax residency. Let's say if I can stay in Poland,︁ it will be good. But if I have to move some time in a great︂ country to save interesting tax amount, it shouldn't be a big problem. I am really︃ thinking and able to relocate.
So what's the point here?︈ I can have US LLC, controlling for another country and just pay Personal Income Taxes︉ in my tax residency country?
It seems too simple, no relocation nothing.
This is tricky. LLC has a lot of disadvantages from my point of view.
First, if you want to save on social contributions, you need to have a second shareholder with at least 5%.
Second, if you want to move and close the LLC in future, it's almost impossible or a difficult progress. I mean really difficult. You need a lawyer, unregister︀ the company at the National Court and at the end you spent 6 months and︁ 10 000/20 000 euros just to close a LLC! My tax advisor already told me︂ at beginning, in Poland people try to sell the company. It's common or if you︃ want you just do nothing and the company stays frozen. But I am not comfortable︄ with that. First, I am freelancer so I don't know how to find someone who︅ would like to buy a company like that and why buy to someone and not︆ build yourself (cheap setup and done in one week). Second, I am not comfortable to︇ have "frozen" asset like that.
Third, you are not really free with the money you︈ want to take off from your company.
Polish system for LLC is called Progressive Tax.︉ It's 17% until 19k€ and 32% after. It's the same rule for dividends.
So, it's︊ like having a french company from my point of view (a little bit cheaper only).︋
Last, don't forget it's a double taxation system. Self-employed in my own company with high︌ rate and taxation on personal level with high rate (and need to pay ZUS there).︍ Small example I had from tax advisor as attachment.
From 37k PLN monthly, you seems︎ to finish with 12k PLN ..
As it was pointed out before, I don't have a big turnover and my goal will be to cashout the maximum without thinking about to change tax residency again after just to take dividends in future. I can leave on savings without problem but I don't see the point to have money going in company during many years and live with a︀ small salary. Except if it's to invest the money in something like real estate directly︁ from company etc. But again, a way to be rich (time is limited in life)︂ for me it to use the power of mortgages to build a real estate empire.︃
Some questions I asked to the tax advisor:
"Not true in my opinion. You will have︆ to add your income from LLC (outside Poland) to your annual declaration after 1 year.︇ So for 2019 you do annual declaration until end of April 2020. Accountant will have︈ to first calculate the % of the tax you should pay and the calculate the︉ amount to pay (it may happen you will not have you pay any tax in︊ Poland as your LLC paid already it in the country the LLC is based). You︋ will provide your all income you made outside Poland.
Annual calculation is done based on︌ two methods of avoiding double taxation: progression off method and the method of proportional deduction.︍ In each of the agreements, the method of avoiding double taxation is set out in︎ the chapter of the bilateral agreement entitled 'Avoiding double taxation'."
"That is popular in UK and indeed easy to do – my brother has it in the UK, but you need to do that this year as that is the last year due to Brexit."
It's a question I forgot to ask you before. Based on Brexit situation, UK LTD is still a good solution?
Here it could really interesting for my case no?︁
It's like the LLC + soletrader solution I present in posts before without the disadvantage︂ to have the LLC in Poland and use the easy company to maintain named UK︃ LTD? 😀
Some questions I asked to the tax advisor:
"Not true in my opinion. You will have︆ to add your income from LLC (outside Poland) to your annual declaration after 1 year.︇ So for 2019 you do annual declaration until end of April 2020. Accountant will have︈ to first calculate the % of the tax you should pay and the calculate the︉ amount to pay (it may happen you will not have you pay any tax in︊ Poland as your LLC paid already it in the country the LLC is based). You︋ will provide your all income you made outside Poland.
Annual calculation is done based on︌ two methods of avoiding double taxation: progression off method and the method of proportional deduction.︍ In each of the agreements, the method of avoiding double taxation is set out in︎ the chapter of the bilateral agreement entitled 'Avoiding double taxation'."
"That is popular in UK and indeed easy to do – my brother has it in the UK, but you need to do that this year as that is the last year due to Brexit."
It's a question I forgot to ask you before. Based on Brexit situation, UK LTD is still a good solution?
Here it could really interesting for my case no?︁
It's like the LLC + soletrader solution I present in posts before without the disadvantage︂ to have the LLC in Poland and use the easy company to maintain named UK︃ LTD? 😀
Concerning Malta, it doesn't really seems interesting/trending now and I had the quotation to maintain the company: around 5000€. With the refund risk for this turnover, it's not the best solution in my situation I think.
Concerning Cyprus, I took contact with Certified Accountant in Limassol. Here are answers to my questions:
I didn't really get the 4th bullet.
Does it mean its:
Company level:
100k turnover
CEO minimal salary: 10 200€
Social contributions for CEO: 200*12 = 2400€
CIT 12.5% on the️ 100k? : 12 500
-> 74 900€ left in company
On personal level,
200* 12 = 2400€ for social contributions on the minimal salary
Dividends tax free
-> 72 500€ net of all taxes?
Poland doesn't seem so bad, something is wrong for sure. Thanks for your light here.
So right now, it seems that the discussion is around: UK Ltd, Polish "something" and Cyprus company only (no need for dual structures to take tax free dividends as she said right?).
Thank you for your help, I am looking to read you.
Concerning Cyprus, I took contact with Certified Accountant in Limassol. Here are answers to my questions:
I didn't really get the 4th bullet.
Does it mean its:
Company level:
100k turnover
CEO minimal salary: 10 200€
Social contributions for CEO: 200*12 = 2400€
CIT 12.5% on the️ 100k? : 12 500
-> 74 900€ left in company
On personal level,
200* 12 = 2400€ for social contributions on the minimal salary
Dividends tax free
-> 72 500€ net of all taxes?
Poland doesn't seem so bad, something is wrong for sure. Thanks for your light here.
So right now, it seems that the discussion is around: UK Ltd, Polish "something" and Cyprus company only (no need for dual structures to take tax free dividends as she said right?).
Thank you for your help, I am looking to read you.
What do you think about the suggestion of @jscargo in this thread:
https://www.offshorecorptalk.com/threads/cyprus-non-dom-plus-hk-offshore-tax-strategy-opinion.28909/
US LLC/ UK LLP, it can be suitable for my case?
https://www.offshorecorptalk.com/threads/cyprus-non-dom-plus-hk-offshore-tax-strategy-opinion.28909/
US LLC/ UK LLP, it can be suitable for my case?
I don't really know who you spoke to but the progressive tax system is not for LLC's. The LLC pays flat corporate tax at 19% or 9% reduced rate if turnover is less than 2 million euros (your case).
Also the part where you spend 6 months and 10 000/20 000 euros just to close the branch seems a bit unrealistic.
If your accountant said that the LTD + sole trader in Poland is a popular option i would definitely run.
If you follow that route sooner or later you will be in trouble because you are managing a foreign︀ company from Poland and since you are not behind the shield of a LLC but︁ a sole trader in Poland your liability is unlimited.
I already said earlier that accountants︂ will always suggest the easier option for them and not the best option for you.︃
This is a clear example.
Try with another accountant.
Also the part where you spend 6 months and 10 000/20 000 euros just to close the branch seems a bit unrealistic.
If your accountant said that the LTD + sole trader in Poland is a popular option i would definitely run.
If you follow that route sooner or later you will be in trouble because you are managing a foreign︀ company from Poland and since you are not behind the shield of a LLC but︁ a sole trader in Poland your liability is unlimited.
I already said earlier that accountants︂ will always suggest the easier option for them and not the best option for you.︃
This is a clear example.
Try with another accountant.
Exit tax would be on the increased value︀ of your shared in a foreign company. If a UK company is not polish resident︁ or a cfc then you don't have any income from the company (if no dividends),︂ and your shares will increase in value as the company value grows.
You would deduct the︅ salary from the profit before paying corporate taxes.
And the salary is off course also︆ your money.
So 2400€ + ((100000-10200)*12.5) is the taxes you should pay.
You would deduct the︅ salary from the profit before paying corporate taxes.
And the salary is off course also︆ your money.
So 2400€ + ((100000-10200)*12.5) is the taxes you should pay.
The parent/subsidiary directive makes it clear that no WHT will be applied inside EU. Brexit makes that more unclear, and Poland does have WHT so this is something you might want to check.
What I could find was somewhat incomprehensible
https://taxsummaries.pwc.com/poland/corporate/withholding-taxes
The UK-Poland DTA limits︀ dividends WHT to 10% (from 19%), and 0% if the following holds:
"When dividends are︁ paid to a company that is the resident of the other contracting state and that︂ directly holds at least 10% of the capital, paying the dividends on the day they︃ are paid and has done (or will do so) for an uninterrupted 24-month period from︄ which that date falls."
I'm not sure if I can parse the bolded text.︅ There seems that there is a condition where it can be 0%, but you need︆ to talk to someone who knows this.
What I could find was somewhat incomprehensible
https://taxsummaries.pwc.com/poland/corporate/withholding-taxes
The UK-Poland DTA limits︀ dividends WHT to 10% (from 19%), and 0% if the following holds:
"When dividends are︁ paid to a company that is the resident of the other contracting state and that︂ directly holds at least 10% of the capital, paying the dividends on the day they︃ are paid and has done (or will do so) for an uninterrupted 24-month period from︄ which that date falls."
I'm not sure if I can parse the bolded text.︅ There seems that there is a condition where it can be 0%, but you need︆ to talk to someone who knows this.
May be I was not clear again (it’s not first term you told me that) and especially with the table. I am not an expert but I understand some basics.
LLC is paying 9% CIT because of smallpayer tax︀ regime in my case (rather than 19%).We agree on that.
When I said progressive tax︁ of 17% up to 85kPLN/19k€, and after 32%, I wanted to say for the CEO︂ salary. Because I am self-employed in the company to be able to have salary and︃ a health coverage.
And on personal level, PIT, I have same taxation again .. that’s︄ why a Polish branch or a Polish LLC (Sp z.o.o) is the same for the︅ disadvantages.
You spoke about keep money in company to pay yourself in future with dividends︆ tax free, after changing tax residency. But for my turnover, I think it’s good to︇ find a low tax solution to cash out the maximum.
I mean, I want to︈ take now a good decision to improve my situation. I would like it’s not a︉ temporary solution to move again my tax residency and never be able to get the︊ dividends without moving ..
The matter here for me is more: what’s the cost efficient/tax︋ saving system I can have and so where to be resident NOW?
I am on it, yes. You already give me︌ really good information.
Ok perfect for explanation. Thanks.
But if the company is « treaty non resident », I guess it’s polish resident or the branch so ..?
This is an uncertain matter and I have doubts to find someone with good knowledges about it in Poland right now. Do we have other interesting option like UK? I saw some threads about Estonia and US LLC, what do you think?
If I want to stay in Poland, what’s the best solution do you think?
LLC is paying 9% CIT because of smallpayer tax︀ regime in my case (rather than 19%).We agree on that.
When I said progressive tax︁ of 17% up to 85kPLN/19k€, and after 32%, I wanted to say for the CEO︂ salary. Because I am self-employed in the company to be able to have salary and︃ a health coverage.
And on personal level, PIT, I have same taxation again .. that’s︄ why a Polish branch or a Polish LLC (Sp z.o.o) is the same for the︅ disadvantages.
You spoke about keep money in company to pay yourself in future with dividends︆ tax free, after changing tax residency. But for my turnover, I think it’s good to︇ find a low tax solution to cash out the maximum.
I mean, I want to︈ take now a good decision to improve my situation. I would like it’s not a︉ temporary solution to move again my tax residency and never be able to get the︊ dividends without moving ..
The matter here for me is more: what’s the cost efficient/tax︋ saving system I can have and so where to be resident NOW?
I am on it, yes. You already give me︌ really good information.
Ok perfect for explanation. Thanks.
But if the company is « treaty non resident », I guess it’s polish resident or the branch so ..?
This is an uncertain matter and I have doubts to find someone with good knowledges about it in Poland right now. Do we have other interesting option like UK? I saw some threads about Estonia and US LLC, what do you think?
If I want to stay in Poland, what’s the best solution do you think?
Totally support the fact that it just does not make sense to set up a company with this level of income but individually the same 5k euro per year will land you a dubai residency where you can set up individual accounts and get your clients pay you in eur/usd there.
Sorry for the late reply:
Polish policy makers aren’t stupid. Poland isn’t a third world country either where they are hoping to attract foreign investments through tax loopholes.
It is extremely unlikely that you would be able to legally save substantial taxes by simply registering a company somewhere else. That’s not how this works. Then nobody in Poland would be paying any taxes anymore.
For anything like that to work, you would have to pay a lot of money to create a structure with substance. That’s what the big corporations do. There’s no point in doing that in your case because you just don’t make︀ enough money.
For all other legal tax savings, you can talk to different Polish accountants︁ and hear what they recommend you. You already got one recommendation, maybe another accountant will︂ have a different recommendation. If the tax savings are small, that’s because that’s how things︃ are. It’s not because your accountant is an idiot or lazy.
Your only other option︄ is to either move to a different country or to pretend that things are different︅ from how they really are.
Polish policy makers aren’t stupid. Poland isn’t a third world country either where they are hoping to attract foreign investments through tax loopholes.
It is extremely unlikely that you would be able to legally save substantial taxes by simply registering a company somewhere else. That’s not how this works. Then nobody in Poland would be paying any taxes anymore.
For anything like that to work, you would have to pay a lot of money to create a structure with substance. That’s what the big corporations do. There’s no point in doing that in your case because you just don’t make︀ enough money.
For all other legal tax savings, you can talk to different Polish accountants︁ and hear what they recommend you. You already got one recommendation, maybe another accountant will︂ have a different recommendation. If the tax savings are small, that’s because that’s how things︃ are. It’s not because your accountant is an idiot or lazy.
Your only other option︄ is to either move to a different country or to pretend that things are different︅ from how they really are.
So 2400€ on personal level + this previous calculation on company level. Perfect.
From 100k€ turnover, to sum up:
Company: 2400 + 11 225€ = 13625€
-> Finally:
Salary : 10 200€
Dividends tax free : 100k - 13625 - 10 200 = 76 175€
-
Personal: 2400
= 73 775€
So turnover to money in pocket (without company maintenance fees), it's around 26%. Am I right?
Is it legal to trade without︃ a company, is what you say? I am really suprised.
May be you have in︄ mind the freelance Dubai VISA?
By the way, I think I need to be tax︅ resident in Dubaï and so live there, right?
Thank you in advance.
From 100k€ turnover, to sum up:
Company: 2400 + 11 225€ = 13625€
-> Finally:
Salary : 10 200€
Dividends tax free : 100k - 13625 - 10 200 = 76 175€
-
Personal: 2400
= 73 775€
So turnover to money in pocket (without company maintenance fees), it's around 26%. Am I right?
Is it legal to trade without︃ a company, is what you say? I am really suprised.
May be you have in︄ mind the freelance Dubai VISA?
By the way, I think I need to be tax︅ resident in Dubaï and so live there, right?
Thank you in advance.
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