Company in Bulgaria or Estonia: what are the downsides ?

[vanishtech]

I agree Bulgaria has better banking options, although it seems your problems are because of the lack of substance in Estonia.

Indeed Estonian tax authorities can bombard your mailbox. It's their way of working. Instead of them starting a tax audit (which they rarely do) they kindly send you emails with inquiries. With tax audits, you are obliged to send all your documents within 5 days.

If you pay someone a salary that is below the market rate they see a higher risk that you are paying an undeclared (“envelope”) wage, so it kind of triggers them to conduct a tax audit or send you an inquiry, but no way they can determine the amount of salary you pay.

But it is not mandatory to pay a salary if you open a company in Estonia, right? I can use the company to invoice clients in the EU, for example, and then from there I make a service invoice to my LLC in the USA. From this LLC, I can use it for my expenses as salary.

 

[Don]

But it is not mandatory to pay a salary if you open a company in Estonia, right? I can use the company to invoice clients in the EU, for example, and then from there I make a service invoice to my LLC in the USA. From this LLC, I can use it for my expenses as salary.

Yes, many people use US LLC and Estonian company together.
Very good would be also to have a branch of Estonian company in Bulgaria since youll benefit from the reduced withholding tax. Profits repatriated by a branch to its head office abroad are not subject to WHT, and you can redistribute such profits to yourself tax free paying 10% effective tax.

 

[vanishtech]

Forget Estonia. When you get your VAT number you have to file an accounting report every month (if your turnover is above 15k EUR you are obliged to do it). The first year the taxmen don't touch you but then it's a nightmare if you go above 7 figures in turnover.

Banking - 0 options. Even if you manage to open a bank account they'll close it down in around 3-4 months without an explanation. If you manage to find a good bank in Switzerland or Liechtenstein it'll probably work out but then the taxmen problem won't go away.

If at some point you file a legit VAT return this is the point when the fuckery starts. Your mailbox will get bombed with stupid questions from the tax authorities.

It is possible to have an OU in Estonia, get the European VAT to avoid processing VAT, for example, with clients from Spain. You use the company as a means of billing, but you do not have to submit VAT reports, because there is none. You pay suppliers and use the company as a money store. You don't pay any salary, because the owner of it is me, a resident of Spain, and if I'm interested, I would bring it to me sometime as a dividend, which I wouldn't do. Therefore, it only remains to avoid the double taxation treaty, for example by having one or several foreign partners. Also, to spend freely, I can invoice services from my LLC in the USA, and spend that money instead of withdrawing dividends or paying myself a salary. Is that so?

 

[Don]

It is possible to have an OU in Estonia, get the European VAT to avoid processing VAT, for example, with clients from Spain. You use the company as a means of billing, but you do not have to submit VAT reports, because there is none. You pay suppliers and use the company as a money store. You don't pay any salary, because the owner of it is me, a resident of Spain, and if I'm interested, I would bring it to me sometime as a dividend, which I wouldn't do. Therefore, it only remains to avoid the double taxation treaty, for example by having one or several foreign partners. Also, to spend freely, I can invoice services from my LLC in the USA, and spend that money instead of withdrawing dividends or paying myself a salary. Is that so?

Yes + non-resident salaries for work performed outside estonia are also not taxed (apart from the directors fee).

In regards to reliable banking, indeed you should establish minimum level of substance.

 

[AndyAresa]

Yes, many people use US LLC and Estonian company together.
Very good would be also to have a branch of Estonian company in Bulgaria since youll benefit from the reduced withholding tax. Profits repatriated by a branch to its head office abroad are not subject to WHT, and you can redistribute such profits to yourself tax free paying 10% effective tax.

Dividends from the Bulgarian company to the Estonian holding company should also be exempt from withholding tax due to the Parent subsidiary EU directive? Or is the structure with the branch easier to administer?

 

[Don]

Dividends from the Bulgarian company to the Estonian holding company should also be exempt from withholding tax due to the Parent subsidiary EU directive? Or is the structure with the branch easier to administer?

Less costs, and safer. Easier to setup also and much better for banking. Bulgaria is one of the worst countries I could think of for finding nominees, but with branch setup nominees/substance could be arranged in a safe way.
And by safer I mean that nobody will run away with your money, and not kill you (the latter I have been threatened to in Bulgaria).

 

[vanishtech]

Yes, many people use US LLC and Estonian company together.
Very good would be also to have a branch of Estonian company in Bulgaria since youll benefit from the reduced withholding tax. Profits repatriated by a branch to its head office abroad are not subject to WHT, and you can redistribute such profits to yourself tax free paying 10% effective tax.

From what I understand as a natural person when WHT you pay in Estonia 20%. You recommend Bulgaria, because the WHT would be 10% in your branch. But after that Bulgarian branch the natural person is tax free? When you open a branch in Bulgaria, must you be linked to Estonia as a subsidiary? or is it not necessary?

 

[Don]

From what I understand as a natural person when WHT you pay in Estonia 20%. You recommend Bulgaria, because the WHT would be 10% in your branch. But after that Bulgarian branch the natural person is tax free? When you open a branch in Bulgaria, must you be linked to Estonia as a subsidiary? or is it not necessary?

No, there is no WHT in Estonia. For Estonian tax resident natural persons dividends are not taxed in such case. The setup works best if you become Estonia or UAE tax resident, which is easy to do.
Yes there is corporate tax 20% that you pay only on distributions, but in case of foreign profits that were taxed already it doesn't apply. You pay just 10% tax in BG and these profits can be redistributed to the owner tax free so 10% will be your total tax, and if you keep profits in the Estonian company without distribution the tax is 0%.
Btw Bulgaria will be in Schengen possibly already this year which makes it even better.