Hi guys, I have an Estonian company and it finished its operations and however it has 1.5M Euros in its account. How can I move this amount without paying CIT etc.?
The company has 2 shareholders., both are non-resident natural person. So if we pay this amount as
dividends, 25% tax cut will happen.
I have read on a website something like this;
"Dividends from an Estonian company to a foreign company: As a rule, especially if there is a
double taxation avoidance agreement, foreign companies who are shareholders of an Estonian company are not taxed when they receive dividends from
Estonia."
Does it mean that if I open a freezone company in UAE and transfer our shares in Estonina company to UAE FreeZone company so the shareholder will be foreign company and then pay dividend from Estonian company to
UAE company, CIT will not be applied in Estonia???
If this doesn't work, what is your suggestions? I know I can take the money as salary without tax from Estonian company but it can take a lot of time as we have to pay reasonable salary like 10k-15k Euro maximum.
I will be glad if someone can help us.
Here are some common tactics used by Estonian corporations to erode their tax base. These tactics are often perfectly legal and commonly used but can be controversial due to their impact on the corporate tax base:
1. Transfer pricing: This involves manipulating the price at which goods or services are sold between different entities within the same corporate group. Companies might artificially set these prices to shift profits to low or zero tax jurisdictions.
2. Income Shifting: This involves moving profits to lower-tax jurisdictions. A parent company in Estonia might set up a subsidiary in a low-tax country, and then transfer profits to the subsidiary.
3. Use of
intangible assets: Intellectual property such as patents and trademarks can be assigned to subsidiaries in low-tax jurisdictions. Royalties paid for use of these assets can then be used to shift profits to these subsidiaries.
4. Debt shifting: You can finance
investments other countries with debt. The interest on this debt is then tax-deductible in the other country, reducing the tax base there, and at the same time you don't pay it in Estonia if you don't distribute profits.
5. Debt pushdown schemes:
In a debt-pushdowm scheme the acquired company will continue to service the
loan taken for its acquisition, and the state will not receive any tax revenue. The following simplified example is given to illustrate this.
If company A wants to acquire company B, it acquires all the shares of B from the latter's shareholders. Now, if A finances the purchase through a bank loan or other similar instrument (e.g. bonds), the money to service the loan usually comes from B's profit. When profit is distributed by B to A, however,
income tax is due, which is why servicing the loan is always more expensive by income tax. This is what a so-called conventional acquisition transaction looks like.
In a debt push down structure, A establishes company C before acquiring B, and the acquisition transaction is carried out between C and B. C is then a separate company established specifically for acquisition. In that case, C, not A, takes a loan to finance the transaction. After the acquisition transaction, A owns a stake in B through C, which has obligations to the bank. However, in addition to the acquisition, according to the debt push down structure, the merger of C and B also takes place, as a result of which C ends and merges with B (among other things, the obligation to pay the loan to the bank is transferred to B). In this case, however, in order to service the loan, it is no longer necessary to distribute the profit on which income tax would be payable, but the loan is serviced by B from the income obtained from his daily economic activities, and this is what the impermissible tax advantage consists of.
The tax authority has been expressing its position in one way or another for years, and in their opinion, the repayments of the loan taken by the acquired company for its own acquisition and the interest paid must be considered as non-business related payments, on which corporate income tax is due. Among transaction advisors, this topic continues to be divided, with some taking a more conservative approach and others taking a more liberal approach. This is, among other things, caused by the fact that, according to the current income tax law, all domestic mergers and divisions are theoretically tax-neutral, and the fact that as a result of the merger, all the assets, liabilities and rights of the merging company are included, should not be considered a tax advantage, which contradicts the content and purpose of the income tax law.
So far, the tax authority is not known to have challenged any such transaction and tried to tax loan and interest repayments. However, relevant answers to inquiries have been given. Different approaches can also cause some uncertainty among foreign investors. It is also true that when the current income tax law was drafted, the use of the so-called debt push down structure was not intended, therefore it is not regulated, and the tax authority is based on the provisions for the requalification of transactions/payments.
To conclude - with a little planning and cost zero tax is possible.
