Singapore and Estonia, a good or a bad mix, let's dive in.

[ActionMan]

Hello folks,

So I was thinking the other day about the possibility of combining a truly tax-free setup with both Singapore and Estonia.

1. Establishing an Estonian company first: Estonian law allows me to reinvest money into new businesses/startups.
2. Opening a Singapore company: By having the majority controls and key decisions outside Singapore and all directors (besides the nominee director) in Singapore, it's usually good enough to be granted a tax exemption. Auditing is required, but it typically costs around 1-2k SGD per report. According to the IRAS site (Tax Residency of a Company/ Certificate of Residence), there's no mention of restrictions on remitting money in and out of Singapore, so I don't think banking plays a big role here.

So, the plan would look like this:

1. Establish the Estonian company first.
2. Conduct business through this company initially.
3. When it's time to distribute profits, allocate about 30-40% to salaries, director fees (aka operational costs) Salaries will be paid to associates who will essentially pay back to me.
4. Keep about 10% to maintain the company or in the company bank account.
5. Reinvest the remaining 50%:
   • 20% will be invested in crypto (allowed as long as crypto investments are not the main business activity).
   • 30% will be reinvested into my other companies (in which I own no more than 20% in each).
6. Here's where Singapore kicks in: Invest some of the 30% funds into my Singapore company. If confirmed that banking won't be an issue, open a real retail bank account in Singapore with DBS (I already have a couple but not with this kind of setup).

This setup would provide the best rates for PSPs using my EU company, the best banking within Singapore, and an overall 0% tax rate. Plus, it offers a good reputation and the ability to purchase other assets tax-free with any of these companies.

Let me know your thoughts!

Last edited: May 22, 2024
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[ActionMan]

any thoughts?

@Marzio @Sols

 

[Marzio]

Non resident salaries are tax free but Estonian rules‍ provide that directors’ fees paid by an Estonian company to a non-resident director are always⁠ subject to 20% personal income tax.

Also, non resident salaries has to be credible⁤ AKA at market rates, you can't pay yourself $500.000 salary.

You'll pay Estonian taxes on⁢ dividends distributed to the SG holding.

 

[ActionMan]

Kindly re-read. what I'm saying is⁤ for operational costs, paying 30-40 for salaries isn't that much of a stretch, the people⁣ employed however could be your associates or close family members, whom in turn, pay you⁢ back the amount paid to them!

and paying 200-400k for personal salary isn't that far︀ of a stretch as well for a general manager of the company, doesn't have to︁ be a director.
I'm talking about taking money from the Estonian company to invest︃ in a Singaporean company which I won't owe more than 20% in. Estonian law allows︄ you to re-invest your company profits into other companies, they are quite flexible in that︅ regard actually.

I don't think there is that much of drawbacks aside from the upfront︆ cost to get this properly done. But I always like to plan ahead and think︇ long-term.

But that's just me, I'm interested in what others has to say about this︈ as well

 

[daniels27]

I think it is probably possible. My questions would be:
1. How much is the‌ annual cost for this setup?
2. How much is the saving on PSP in percent‍ of turnover compared to a US LLC?
I estimate the gain to be in the⁠ order of 2% for EU consumer sales and about 0.5% for non-EU sales at a⁤ cost of about 10k. Hence, it would make sense from 500k EU turnover with the⁣ inconvenience of not being able to get all money out.

 

[Don]

What kind of business you conduct?

 

[daniels27]

Consumer sales digital or‌ physical in large amounts?

 

[uplana]

You have made a good plan that is missing some key information!

 

[Marzio]

People employed‍ need to pay taxes where they are resident on the amounts earned plus you are⁠ running the risk of creating a PE in the country where they are tax resident.⁤

It would be a better idea to hire them through a EOR like remote.com but⁣ still, they will have to pay taxes on the amount earned.

I must be missing something bcase AFAIK taking money︂ out of the EE company is considered a dividend distribution subject to taxation.

 

[CyprusLawyer101]

The employees being paid and in turn give you the funds, this is tax fraud.‌ I stopped reading there.

 

[Marzio]

I don't think it's tax fraud if employees live in‍ a place where personal income taxes are tax exempt like UAE for example.

 

[CyprusLawyer101]

If when‍ you recieve the income from these employees you account for it as personal income, declare⁠ it and pay taxes due then its not tax fraud. If you gain a tax⁤ benefit from this i.e. resulting to better tax rate by interposing the employees , in⁣ the absence of commercial rationale behind this, it can be regarded as an artificial arrangement⁢ and a harmful tax practice which will fall within the ampit of tax avoidance which︀ would generally be caught by a GAAR.

 

[ActionMan]

Not much probably, once everything is set up it should be around 5-10k.
Alot. we︀ stroke a deal with Go cardless and Checkout.com on paying a flat 0.5% for ourselves︁ and our customers.
It's in my signature.

like what exactly?
most of them are working for my UAE companies and third world︉ countries where the concept of PE doesn't even exist.

Taking money for investment purposes will︊ not be considered dividend distribution. See. the list of these investments are vast, and︋ you are only limited by how creative your mind can be to utilize these investments.︌

I'm only interested in these from the list:

• Buy-sell cryptocurrencies for investment purposes only
  
• Invest in start-ups or other private companies registered in the EU or in the UK (from︍ January 2021) (either a convertible loan or equity), receiving a minority stake and no controlling︎ rights (less than 20%)
  
• Lending to/from start-ups or other private companies registered in the EU️ or in the UK (from January 2021) based on a loan agreement (incl. parties' details,‌ loan amount, market interest rate, payment deadline)
  

the first one (crypto investments) is the most‍ straightforward option, while the second one is more trickier, in the past they allowed investing⁠ in worldwide private companies as long as you don't own more than 20% on them.⁤ I see now things have changed! maybe putting a UK LLP or an Ontario LLP⁣ to the mix would help? I don't know, would need to ask some of my⁢ accountants to confirm whether this is doable or not!
How is it tax fraud? the employees are doing actual verified work︂ for ALL of my and my customers' companies, when it comes to salaries, would it︃ really matter if I paid them from my UAE company or the Estonian one?
Correct!
I would gain︋ a tax benefit, but they are doing work and instead of taking money from the︌ Estonian company, I would take the same amount from the UAE company. plain and simple.︍

 

[Marzio]

Well i think it‍ matter because if you pay salaries from the UAE company you can't extract profits from⁠ your Estonian company.

To get profits out from the Estonian company it's the Estonian company⁤ that needs to pay salaries.

You can pay salaries with the UAE company but UAE⁣ workforce need to be hired by the UAE company first to get the working permit⁢ and then the UAE company will invoice the Estonian company for the work done in︀ UAE but this income could be taxed in UAE at the company level (if you︁ are over the AED 375,000 threshold)

To make it work the UAE worker need to︂ be hired both by the Estonian company (to get salary) and the UAE company (to︃ get the working permit).

The UAE company will invoice the Estonian company just below the︄ relief threshold so that everything will be tax free in UAE.

Yes, i knew︆ that but i understood that you wanted to invest through the SG company so what︇ is not clear is how do you plan to move company profits tax free from︈ the EE company to SG company if only investments in UE/UK companies are permitted.

 

[ActionMan]

That's exactly what I was saying, they are hired by all of⁠ my companies, they get paid from the Estonian company, and I keep the money from⁤ the UAE company, invoicing can be from the
Small business relief would be around 800k I think, So I think the invoicing will be︂ below that by a mile, but it's just a piece of the puzzle.
Yes.
by investing into a UK LLP? then the funds are transferred to︉ the partners of the LLP. The SG Company could be one of the partners.

It's a headache I know, but it's worth it in my opinion in the long run.︊ something stable and you can have the prestige and low costs of both the EU︋ and the stability of the SG financial system.

 

[daniels27]

For all countries? On what‍ turnover? Sounds like a good plan for manufactured spending with US credit cards.

 

[Marzio]

Most likely not because‌ Estonia will not see a UK LLP as a UK tax resident entity but i‍ could be wrong.

Speak with @Don about this piece because you could leverage an Estonian⁠ limited partnership.

The Estonian company could be the general partner of the partnership that will⁤ invest in the parthership and the SG company will be the limited partner.

 

[ActionMan]

Could be.
I'm in talks with him already, seems like a level headed guy, I will see how⁤ it goes with him.

send me a⁢ PM.

 

[DeepDrilling]

So you suggest an Estonia company and not⁣ a UK LLP ?

 

[Don]

In Estonia you have multiple type of partnerships:⁣
1) Transparent partnerships which are unincorporated and can be anonymous as well.
Such entities are⁢ treated as tax transparent.
In case you set up such a partnership that is managed︀ by an Estonian company, then this Estonian company pays tax only when it distributes dividends︁ (and not when it receives profits from partnership). The other partner can be a person︂ or entity not exposed to tax, potentially limiting its (and overall) tax exposure to zero.︃
2) Limited and general partnership companies. These are companies similar to private limited companies and︄ taxed like them as well, however they are less regulated compared to private limited companies︅ providing additional opportunities for tax planning.
Importantly they are companies, not like in many other︆ jurisdictions where these entity types might share the same name but might not even be︇ considered legal entities, and are thus very different.