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Register Estonian Company with Local Tax Authorities

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eRabbit

eRabbit

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May 3, 2020
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Hi,
I was told by a tax advisor that if I am a tax resident of Cyprus and open an Estonian company I can then register it with local tax authorities in Cyprus and, that way, if I don't receive a salary and only pay myself through dividends, I wouldn't have to pay income tax or social security, all due tax would be corporate tax at a 12,5% rate, is this correct? If it is it sounds like a great idea since Cyprus is in Europe and has great weather. (I'm already an EU citizen sound it would be a simpler solution then moving to South/Central America or Asia).
Also, solutions like Georgia or Bulgaria aren't really attractive to me due to the weather and culture in general.
Would Malta work similarly to Cyprus or is it not a solution?
Thank you in advance!
 
You should clarify with‌ your tax advisor what "registering with local tax authorities" means because you can't operate in‍ Cyprus with an estonian company without establishing at least a branch.
 
He says that by registering with tax authorities in Cyprus⁠ you pay Cyprus corporate tax instead of Estonian corporate tax due to their double taxation⁤ agreement.
 
Why not just form a local company in Cyprus? What's the upside of adding an‌ Estonian company and all the overheads/extra work involved in navigating a tax treaty?
 
If it’s a local company you’d have to pay income tax +⁠ social security, right?
 
So, if you‌ run a Cypriot company and you only receive dividends you’ll only have to pay 12.5%‍ corporate tax? No need to pay income tax and social security?
 
Income tax and social security depend on where the receiver lives and (in case of‌ a salary) where the work was carried out. I don’t know the rules for Cyprus,‍ but most countries don’t charge social security contributions on dividends.
 
Speak to a tax adviser in Cyprus to confirm, but generally‍ speaking, you're just looking at 12.50% CIT and then tax free dividends to yourself.
 
You typically do this sort of setup with UK companies, not Estonian companies. With your‌ proposed setup, you need to pay both Estonian tax and Cyprus tax, or you need‍ to at least create dual sets of accounts.

With a UK company instead, you don't⁠ need to file anything, as if nothing happens in the UK, then you are "treaty⁤ non-resident", a special status in the tax code.
 
I thought that there still were some annual filings required for all UK Ltd. companies?‌
What would be the difference between a non-resident UK Ltd. and a UK LLP regarding‍ taxes? If nothing happens in the UK, wouldn’t both be exempt from UK taxes, while⁠ also offering limited liability?
I thought that with a Ltd., there would always be some⁤ tax to pay, unless you could prove that the profit was generated by a permanent⁣ establishment in another country.

“Treaty non-resident” sounds like there must be a tax treaty between⁢ both countries and the other country must agree that the company will be taxed there,︀ due to its effective place of management? Or does the term refer to something else?︁
 
That’s good to‌ know! Perhaps I’d use Revolut or DiPocket instead!

Thank you for your reply! That’s good to know!︀ Any site or service you recommend for establishing a UK company? Also, are you referring︁ to an LLC?

It’s all so confusing, I wish governments︊ would make taxing and stuff like that simple, straight to the point and easy to︋ understand! Governments and all its bureaucracy suck! That’s one of the reasons why I like︌ what I’ve read about Estonia, I was able to understand everything, it’s clear and simple...︍
 
Treaty non-resident means exactly what you say. In a standard︂ OECD tax treaty, there is always a definition for where a company is located. What︃ the UK says is that if, through a DTA treaty, the company is located in︄ the other state, then it's a "treaty non-resident" and pays no taxes in the UK.︅ You need to do some annual filing, but it's basically just copying the balance and︆ results sheets from your accounts. The complexity in taxation usually comes from matching your accounts︇ to various classes of income in the tax system, and you don't need to do︈ that. Also you can't do any business in the UK. The cost of having someone︉ do the filing, secretary services, and address for you is around GBP 200 / year︊ or cheaper. You also only need GBP 1 in equity for a UK Ltd company.︋

What I like about this setup is that while you have a real UK Ltd︌ company and a real UK ltd company number, you do your business registered as a︍ branch in another country (a country which has a DTA with the UK, but the︎ UK has the most extensive network of DTAs in the world, or close to it).️ If you need to, you can stop being a treaty non-resident and pay taxes in‌ the UK. You can also often use the identity of your branch when that is‍ advantageous.

Compared to the LLP, the Ltd is not transparent. With both the LLP and⁠ the Ltd taxes must be paid, but with the Ltd the taxes are paid by⁤ the branch, while for the LLP by the members. With the Ltd, depending on the⁣ situation, you might talk about having a UK company, or a [insert other country]-company. Not⁢ all forms will ask about where a company is tax resident. For example, some EMI︀ might not like Georgian companies, but might accept UK companies. Will it accept a Georgian︁ tax-resident UK company? Who knows, but I assign it a higher probability than a UK︂ LLP with a Georgian member for example.
 
Thanks, that makes sense. But why wouldn’t that work with an Estonian company? The DTAs‌ are usually very similar. I agree that a UK company probably would make more sense‍ because there are so many precedents and the reputation is better. But just in theory,⁠ that should also work with an Estonian company?
 
Could you please explain more how this would work? I'm thinking about bank accounts,‍ payment processors and so on. For example will you register stripe, paypal, bank account and⁠ so on for your UK LTD or Cyprus branch? Or you can do both? I'm⁤ thinking about potential problems arising when you use UK stripe and UK bank account when⁣ the company is managed from cyprus.
 
Yes in⁤ theory it should work, but say you want to pay dividends from your Estonian company⁣ with a branch in Cyprus. What sort of papers do you need to fill out⁢ to prove your situation?

Alternatively, let's say your company is a german GmbH and you︀ need to file full branch tax reports in Germany according to german rules even if︁ you in the end pay no taxes? In both cases it could be a lot︂ of $$$ for accountants and tax lawyers.

In most cases I have opened bank accounts for the branch.
 
I would think that once you have successfully applied for “treaty non-resident” status, the filing‌ requirements should be minimal?
Estonia especially is said to have very simple filing requirements as‍ there is no corporate income tax until profits are distributed. But I don’t know.
I certainly wouldn’t be surprised if Germany has massive filing requirements regardless.
 
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