Best setup for a royalty income company

[JustAnotherNomad]

Hmm, seems risky, even with a virtual office, if I still live in Greece and manage the company here, won't the Estonian company be considered a tax resident of Greece?

Yes, you are correct. Greece will tax your Estonian-registered company as a Greek company since you manage the company from Greece.

 

[Martin Everson]

It's a corporate income tax, not a withholding tax. Your math is wrong.

You really pay 20% on 100, then you can pay out 80 without any withholding tax.
The only difference is that the payment of those 20% is deferred.

https://www.emta.ee/eng/private-client/taxation-tax-system/e-residency

Example​

An e-resident has established an Estonian company, whose activity is in Estonia and has received the Estonian profit of 1000 euros in year 2017 and 500 euros in 2018.
Income tax is not paid in 2017 and 2018, since the profit is not taken out. In 2019, dividends in the amount of 1200 euros are distributed to the e-resident owner.
Income tax of 300 euros, calculated as 1200 × 20 ÷ 80, has to be paid by the company in the month following the dividend payment in 2019.
The e-resident receives dividends in the amount of 1200 euros, no income tax will be withheld.

https://www.xolo.io/zz-en/faq/xolo-...xes-i-need-to-pay-in-estonia--operating-in-es

 

[JustAnotherNomad]

Yes, that is basic math, what are you trying to say? The tax is 20%, it's not 25%.

You complaining about that sounds like you're complaining that France officially states its VAT rate is 20%, but when you buy something for €120, the included VAT is €20/€120=16.67%.
The confusion with Estonia is simply due to the fact that the tax payment is deferred. They cannot say that the tax is 25%, since it's not a withholding tax.

And as others have pointed out, it's like saying you earn a salary of €10k and you pay €4500 tax, so you receive a net salary of €5500. Then the tax rate is 45% and not 81%. It doesn't make sense to calculate the tax in relation to a net amount.

 

[Martin Everson]

Not sure what withholding tax has to do with this and why you keep bringing it up?

I am just giving you the figures. When you pay dividend of 1200 into your personal account. You pay tax of 300 from your company account to the Estonia tax office. Thats a 25% loss but you can call it 20% if it makes you happy.

 

[JustAnotherNomad]

Because withholding tax would be subtracted from the dividends you pay out.
You're just mixing up things. When you pay out 1200 in dividends, you receive 1200 in dividends. No tax is paid on the dividends. What is really happening is you pay out 1500, and out of those, 300 (20%) is paid as tax and the net amount of 1200 is paid out.

To put it differently, imagine that the 20% tax were automatically deducted, as soon as money is deposited into the business bank account:
€1500 goes in, €300 tax is paid immediately by the bank. Half a year later, you pay out the remaining €1200. Would you still claim that you had paid 25% in taxes?
I doubt you would, but that's where the confusion comes from.

 

[Martin Everson]

Because withholding tax would be subtracted from the dividends you pay out.

Withholding tax is always determined by your DTA. Estonia has no withholding tax on dividends itself btw.

You're just mixing up things. When you pay out 1200 in dividends, you receive 1200 in dividends. No tax is paid on the dividends.

Thats what I said...lol.

Bottom line just look at the balances. Your losing 25% of what you pay yourself in dividends. So as I said if you pay out 1200 to yourself you pay 300 from the company account to taxman. That's how it works. How you want to look at that is up to you .

 

[uplana]

Wish I had seen this nonsense post earlier. Everything in this post is completely wrong information. Should be a reminder to everyone to always check with licensed lawyers.

you don't always want to blind trust what is posted public. Information found here can be a guideline or a clue to where to look.