Advice on new company formation jurisdiction

[Yeskou]

I’m currently providing consultancy services with a monthly revenue of around €15k. Both my client and I are based in Germany.

I’m considering setting up either a UK LTD or an Estonian OU, as the corporate taxes in both countries are lower than in Germany. The main goal is to avoid withdrawing dividends to my personal account in order to sidestep dividend taxes in Germany. I plan to keep the earnings within the company for future expenses, as the amounts aren’t significant at the moment.

Do you have any suggestions for structuring this? The challenge with a German company is the high costs for accounting and legal services, and not all expenses are considered deductible. I’m exploring other jurisdictions that might offer more flexibility in terms of expenses and lower costs for accounting and legal services.

Best regards.

 

[Marzio]

I’m considering setting up either a UK LTD or an Estonian OU, as the corporate taxes in both countries are lower than in Germany.

If you are thinking about incorporating offshore because you want to save on German taxes while bing german tax resident you are on the wrong path.

FYI managing an offshore company from Germany will make it tax resident in Germany.

 

[Yeskou]

If you are thinking about incorporating offshore because you want to save on German taxes while bing german tax resident you are on the wrong path.

FYI managing an offshore company from Germany will make it tax resident in Germany.

I agree, but how a UK LTD will be tax resident in Germany when it's incorporated in the UK ? will the UK accountant change UK corporation taxation for it ?

 

[daniels27]

The challenge with a German company is the high costs for accounting and legal services

They are actually quite cheap in Germany if you compare with other countries.

I agree, but how a UK LTD will be tax resident in Germany when it's incorporated in the UK ? will the UK accountant change UK corporation taxation for it ?

You have register your "Zweigniederlassung einer Kapitalgesellschaft (AG, GmbH) mit Hauptniederlassung im Ausland", you can do this here for example:

Zweigniederlassung einer Kapitalgesellschaft (AG, GmbH) mit Hauptniederlassung im Ausland anmelden - Verwaltungsportal Hessen

Kapitalgesellschaften mit Hauptsitz im Ausland müssen Zweigniederlassungen in Deutschland zur Eintragung in das Handelsregister anmelden. Die Anmeldung erfolgt über einen Notar* bei dem Registergerich...

verwaltungsportal.hessen.de

The company will then work like a German company, just that you do not have to bring up the capital to incorporate in Germany. No benefits but a lot of tax problems ahead. And your accounting and legal expenses will only grow by this.

If your profit is higher or you have some friends, you can start looking into incorporating elsewhere and having a local director, while you are a low paid employee in Germany. But then, you still have to pay the taxes on dividends unless you move all into a UK trust. But that will add more costs.

 

[Yeskou]

They are actually quite cheap in Germany if you compare with other countries.


You have register your "Zweigniederlassung einer Kapitalgesellschaft (AG, GmbH) mit Hauptniederlassung im Ausland", you can do this here for example:

Zweigniederlassung einer Kapitalgesellschaft (AG, GmbH) mit Hauptniederlassung im Ausland anmelden - Verwaltungsportal Hessen

Kapitalgesellschaften mit Hauptsitz im Ausland müssen Zweigniederlassungen in Deutschland zur Eintragung in das Handelsregister anmelden. Die Anmeldung erfolgt über einen Notar* bei dem Registergerich...

verwaltungsportal.hessen.de

The company will then work like a German company, just that you do not have to bring up the capital to incorporate in Germany. No benefits but a lot of tax problems ahead.

am not considering opening a branch, but a whole new company in the UK or estonia and my client will pay directly that new company

 

[fanban]

You as the owner of the company get taxed for all income the company has in Germany. The era where you could incorporate a offshore company and avoid taxed in your local country is far over, maybe 10 years it was so, not today.

Only option is to get substance in your company i.e. office, employee, utility and even then you can get a hard time to convince your local tax office. Best is relocate or tax optimize with a good accountant.

 

[daniels27]

am not considering opening a branch, but a whole new company in the UK or estonia and my client will pay directly that new company

It the Finanzamt that considers your computer to be a branch of the foreign company. You have little to say in that regard.

No joke, but we all agree here. Your proposed setup won't work. Trust us.

You either need an office with employees in the country or incorporation or you need to go work there yourself.

 

[PhantomOf ThePits]

also keep in mind, besides all the topics the other guys wrote already, that you will have exit taxes if/when you personally move out of Germany.
In German it's called Wegzugsbesteuerung and this is even more nasty (even if you have a foreign company and are shareholder more than low % of shareholding - before it was like 10%, but I think they lowered the percentage even more....)

Best is to move personally out of Germany before you start to make money ......

 

[daniels27]

also keep in mind, besides all the topics the other guys wrote already, that you will have exit taxes if/when you personally move out of Germany.
In German it's called Wegzugsbesteuerung and this is even more nasty (even if you have a foreign company and are shareholder more than low % of shareholding - before it was like 10%, but I think they lowered the percentage even more....)

Best is to move personally out of Germany before you start to make money ......

Yes and for self-employed or KG, it is called Entstrickungsbesteuerung. You basically pay tax on the goodwill, which is up to 15 years on profits.

Wegzug ins Ausland: Steuerrisiko Geschäftsanteile

Bundesweite und internationale Beratung zur Wegzugsteuer beim Wohnsitzwechsel durch Fachanwälte für Steuerrecht und Steuerberater.

www.rosepartner.de

But just to be warned, they have the same in Switzerland and many other places in the EU.

A single person consulting business may not have that much goodwill, but still better close down slowly.

 

[Yeskou]

You guys mean it's better to first close the germany company then open the new enty.

But guys let focus on the new entity please do you have feedback on uk ltd, estonia OU or US. WY LLC ?

 

[daniels27]

You guys mean it's better to first close the germany company then open the new enty.

But guys let focus on the new entity please do you have feedback on uk ltd, estonia OU or US. WY LLC ?

If you are not willing to move away from Germany, there is nothing you need to do.

If you want to move away, you can save taxes. But then which country you want to go to?

A US LLC has a very limited scope of application and is mainly used by either digital nomads, people in developing countries with restricted banking access and then some people in counties that don't or cannot enforce PE rules. In most other cases you are better off with a local company.

 

[PhantomOf ThePits]

You guys mean it's better to first close the germany company then open the new enty.

But guys let focus on the new entity please do you have feedback on uk ltd, estonia OU or US. WY LLC ?

Your main problem is, whatever foreign company you open while living in Germany, it'll bite you as you are controlling it from Germany.
If you create a foreign company you will need to have a lot of substance requirement in the foreign country and even then Tax office will challenge you.
In addition, if you move away from Germany, you'll risk pretty hefty exit taxes..

Best is to move to a tax friendly country and then open new company

All the other things can become a problem for you while still being German tax resident

And then, in the new country you become tax resident, you can check which type of entity makes the most sense for your case as there's no 'perfect company' (all are trade-offs you need to evaluate for your situation

 

[Despina]

guys let focus on the new entity please do you have feedback on uk ltd, estonia OU or US. WY LLC ?

People told you how many times that controlling a foreign company from Germany doesn’t work? Instead of asking the same stupid question accept the reality: your country want to tax the s**t out of you and the only real option is to move to a lower taxation country.

 

[brianK]

But just to be warned, they have the same in Switzerland and many other places in the EU.

Switzerland is not EU but they have the same true.

Instead of asking the same stupid question

there are no stupid questions only stupid people.