Best LEGIT Country to Incorporate to minimise Corporate Tax?

[fshore]

Then you're facing a potential net 25% tax bill.

I've seen this mentioned before, but I can't understand it. Yes, from a profit/dividend of 100 you'd pay 20 tax (20 percent) and can withdraw 80. Yes 20 is 25% of 80. However that is the same for all countries/taxes. In any country where it's 20% tax you'd pay 20 tax on a profit of 100. What am I missing?

 

[Sols]

I've seen this mentioned before, but I can't understand it. Yes, from a profit/dividend of 100 you'd pay 20 tax (20 percent) and can withdraw 80. Yes 20 is 25% of 80. However that is the same for all countries/taxes. In any country where it's 20% tax you'd pay 20 tax on a profit of 100. What am I missing?

Here's an example (that I am loosely copy-pasting from an email from an Estonian lawyer):

Let's say you have a dividend of 10,000 EUR.

The taxable basis is 10,000 / 0.80 = 12,500.

Of this, you pay 20% tax, i.e. 2,500 EUR.

2,500 / 10,000 = 25%

 

[fshore]

Here's an example (that I am loosely copy-pasting from an email from an Estonian lawyer):

Let's say you have a dividend of 10,000 EUR.

The taxable basis is 10,000 / 0.80 = 12,500.

Of this, you pay 20% tax, i.e. 2,500 EUR.

2,500 / 10,000 = 25%

Pwc says this, it's a bit unclear to me if they mean that the 20 should be paid out of the 80 (so you'll receive 60), or distribute and receive 80 and pay 20 tax. If they mean pay 20 tax out of the 80, then what happens to the last 20 not distributing in this example?

Distributed profits are generally subject to the 20% CIT at 20/80 of the net amount of profit distribution. For example, a company that has profits of 100 euros (EUR) available for distribution can distribute dividends of EUR 80, on which it must pay CIT of EUR 20.

Edit, ok i get it. In your example, if you distributor 10k then you have to pay 2.5k tax. So that's the same as if you had earned 12.5k and paid 20% tax, you could also distribute 10k and pay 2.5k tax.
So the tax is the same as other 20% regimes.

Here's an example (that I am loosely copy-pasting from an email from an Estonian lawyer):

Let's say you have a dividend of 10,000 EUR.

The taxable basis is 10,000 / 0.80 = 12,500.

Of this, you pay 20% tax, i.e. 2,500 EUR.

2,500 / 10,000 = 25%

It's much easier to think about it this way:
You have 12500 profit. Then you pay 20% tax (2500) and distribute 10000.
Its very confusing when calculated starting with the distributed amount.

 

[aragon]

2,500 / 10,000 = 25%

2,500 / 12,500 = 20%

12,500 being the company's income out of which the dividend is paid and upon which tax is paid.

Georgia works the same by the way, just the CIT rate is 15% instead of 20%.

 

[RAGAV]

Estonia being marketed as 0% tax is one of the biggest scams in this industry. It's true until it's time to distribute profits. Then you're facing a potential net 25% tax bill. Sure, it might say 20% on distribution but if you read the fine prints, you'll find the 20/80 rule. There are use cases for Estonia, though, of course.

Unless you're comfortable committing tax evasion in Canada, it might be too late to take action if the deal has to go through quickly. You're tax resident in Canada and will continue until you stop being tax resident, which doesn't necessarily happen the moment you get on a plane. Earliest is probably sometime next year. Check your situation: Determining your residency status - Canada.ca

Have a doubt. If profit is 100 USD, and we decide to distribute entire profit as dividend, tax will be 20 USD. Am I right? Remaining 80 USD will be distributed as dividend which is tax free for residents.

That means, tax percentage is 20/100 = 20%. Am I missing anything?

 

[daniels27]

Have a doubt. If profit is 100 USD, and we decide to distribute entire profit as dividend, tax will be 20 USD. Am I right? Remaining 80 USD will be distributed as dividend which is tax free for residents.

That means, tax percentage is 20/100 = 20%. Am I missing anything?

You are correct. It is 20%.

If you take 20 USD of 80 USD, it would be 25%.

The are countries where taxes are deductible business expenses. But for withholding taxes, it is almost always non-deductible. Hence the 20% are correctly worded. It has the same effect as a 20% non-deductible corporate tax when distributed.

Of course @Sols can find a jurisdiction where corporate taxes are deductible (25% becomes 20%, 20% becomes 16.667%, etc.) but there aren't that many.