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Tax Strategy for Zero Tax UAE & Estonia Setup

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rowena

rowena

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Hello,
I'm planning to create another setup for my business. I already have 2 UAE‌ companies but this time I need to incorporate outside UAE(for better banking options).

I'm a‍ UAE resident(zero income tax) and I can provide a tax residency certificate from UAE. I'm⁠ planning to incorporate an Estonia company remotely. As you know there are taxes for dividend⁤ distributions so I will pay salary(employee) to myself to avoid Estonia Corporate Tax. It is⁣ a very simple setup and I don't see any problematic or illegal part. I want⁢ to distribute at least 80% of profits and this means I need to receive approx︀ 90-100k euro salary per month.

It looks very easy and legit but am I missing︁ something?
 
Correct me If i'm a wrong, but aren't you︂ gonna pay a 20% taxes on your "personal" income this way even as a non-resident?︃ Or did you think that as long as you're not gonna do any business in︄ Estonia, you're not liable to taxes? Is that correct?

So If that's the case, you︅ want to keep reinvesting the profits into the company and leave the money there and︆ not take out any dividends but pay yourself a salary (approximately 80% of the profits)︇ to yourself and you won't pay any taxes in Estonia as you're tax resident in︈ UAE and have no businesses in Estonia!.

If this is gonna work, this could solve︉ a lot of problems for doing business in Europe as Estonian laws are pretty straightforward︊ and there is no red tapes or Ifs or whats.
 
This will absolutely not work otherwise any non-resident will open an Estonian company and take‌ all the money out as salary and pay 0% tax. The company will need to‍ pay tax on the salary paid to you.

Also don't forget that Estonian company registrar⁠ is completely public, all the directors, revenue, profits are shown online.
 
Why? Aren't⁠ all undistributed corporate profits are tax exempt? so, as long as he pay him self⁤ a "Reasonable" salary instead of taking out dividends, he could "theoretically" receive his salary tax⁣ free. But I don't know if he ,the employer, has to pay health or⁢ social contribution though, from what I remember, it was something like 33% or something like︀ that but I'm not sure. Any way, to OP, make sure to contact a tax︁ advisor or contact the nonresident department in Estonia thru [email protected] and please update us about︂ what they told you 🙂
 
Yes, exactly this is the case. I will keep︀ profits in the company and pay out by non-resident salary as you described also no︁ need to pay any kind of health or social contribution for non-resident salaries.

It won't work with︅ any non-resident person because you need to pay income tax where you are resident. It︆ is the UAE for my case and there is a 0% income tax. Check the︇ link below:

https://www.xolo.io/faq/xolo-leap/c...xes-i-need-to-pay-in-estonia-when-receiving-f
 
Yes, you are right!. this really is a great solution for a lot of projects that⁣ I had in mind, and I believe this could be a great solution for some⁢ people here who live in a low/zero tax jurisdiction or a territorial tax country with︀ no/lax CFC or PE rules.

the question is how much money could you take out︁ as a "salary"?. could you take out 70, 80 or even 90% of the profits︂ as a salary?. is these percentages even reasonable or doable?.
 
That's a great news!.

So, why people go thru all the hops of Cyprus and malta‌ non dom and bla bla bla when they could incorporate a company in Estonia without‍ any of the red tapes? or is it because they don't live in a low⁠ tax jurisdiction and therefore pay income taxes to their respective countries?. Either way, this is⁤ a very very good solution.

the problem is you have to find a "real" bank⁣ that will accept your company, because it seems that the people behind the E-residency program⁢ push EMIs (i.e. transferwise) a lot instead of promoting real Estonian banks!. So, do you︀ have banks in mind? As lots of bank in Estonia won't work with you unless︁ you have some sort of connection to Estonia, do you have a solution for this?︂ or do you have any other EEA/EU jurisdiction in mind? Liechtenstein or Switzerland maybe?.
 
It should⁤ be because of zero income tax residency difference.

Since I work with marketplaces, TransferWise is enough︄ for my business but also there is an LHV bank. They accept e-residency backed companies.︅
 
@rowena , check first if there is no withholding taxes on dividends or salary paid‌ to a non Estonian resident but residing outside EU in a low tax country.
 
I'm 100000% sure it won't work, even if you personally won't pay taxes on the‌ salary, the company itself will need to pay taxes on the salary it pays you.‍ You know there is a difference between a GROSS salary and NET salary.

If that⁠ was true, you can open company in any jurisdiction, claim the entire profits as salary⁤ and pay 0% tax, you don't need Estonia for that 😉

But I'm happy to be⁣ proven wrong if that is indeed the case, make sure to send an email to⁢ the Estonian tax office and ask them if this will work.

Source 1:
https://www.emta.ee/eng/business-cl.../taxation-salary-and-wages-foreigners-estonia
And here you can see the cost for the EMPLOYER for paying a salary:
https://www.kalkulaator.ee/en/salary-calculator
 
@maxmmm
We're talking about non-resident salary and outside Estonia. The link you shared is‌ about foreigners in Estonia. Check below:

http://erhub.ee/articles/taxation-outside-estonia/

Also, check the link you shared for foreigners inside Estonia. Even if you⁢ stay inside Estonia for less than 30 days, you won't have a tax liability for︀ your salary(the red circle):



Can you check the link below? As far as I︆ see there is zero withholding tax between Estonia and UAE.

https://taxsummaries.pwc.com/united-arab-emirates/corporate/withholding-taxes
 
No, @rowena is right, the link you provided @maxmmm has a︂ certain key point that you seem to miss, it assumes that the non resident employee︃ is doing the work "temporarily" while in estonia.
So, it's about a non resident Alien who is on a business trip︈ or do some sort of temporary work while in Estonia, this has nothing to do︉ with non residents that lives and do the work outside of Estonia.

theoretically, there is︊ no taxes to be paid to as long as you keep the profits and do︋ not take out dividends. Instead, you pay yourself a salary, and you do not pay︌ taxes on it in Estonia but rather on your country of tax residence, which in︍ this is case is the UAE. So overall, the taxes is 0%.

This hat the︎ op mentioned talk about this in detail and in easy language, and this service is️ widely known and respected in Estonia like other services, so they not talking BS that‌ would get them in trouble.

this cannot be done in other countries as in other‍ countries, you have to pay social contributions generally which it seems is not the case⁠ in Estonia for non residents.

this really seem like an easy and clean solution to⁤ incorporate a business in an EU jurisdiction with 0 taxes if you do it right.⁣ No BS. No Red tapes. No what ifs.
 
It's not me that you need to convince, it's the Estonian tax office and I'm‌ pretty sure they will not allow such a blatant thing fly. But good luck and‍ please keep us updated ....
 
This Estonian service provider goes through an example showing that paying a salary to a‌ non-resident shareholder can be done tax-free: https://yourcompanyinestonia.com/how-taxes-and-vat-works-for-estonian-companies/

“In 2019, Estonia has approved new legislation that‍ allows solopreneurs and freelancers to assign themselves an employee salary only, without the need of⁠ appointing a board member salary. This is suitable for one-member companies only. In this scenario,⁤ you only pay yourself employee salary.

This has tremendous advantages if you are a digital⁣ nomad, without a personal tax residence. In that scenario, you won’t need to pay taxes⁢ for the salaries of your Estonian company.”

I have met with their tax advisors via︀ their online consulting service and the tax advisor I met confirmed that this would work︁ and mentioned that a lot of their customers run Estonian companies from Thailand, and pay︂ themselves a salary tax-free from an Estonian point of view + no tax in Thailand︃ as it’s considered foreign-sourced and no CFC rules. I am in the process of getting︄ eResidency and will try this out as well. I’ll report in a few weeks as︅ the eResidency process takes a few months to get.
 
Obviously because of their residence. Setting up companies anywhere is quite easy. However⁤ paying yourself when you're from a high tax country... I currently have the Estonia company⁣ but until I have a low tax residence it's not that valuable

OP should not⁢ forget that if he lives permanently in UAE, then his estonian company will however follow︀ UAE laws. It becomes a permanent establishment in UAE because he is running it from︁ there. Unless he is not there permanently.
 
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