LLC Company in Europe

[Don]

Is that information still accurate? My understanding is that in Estonia, if I were to reside there with an LLC and refrain from distributing profits, I could potentially avoid paying taxes on my LLC altogether.

Alternatively, could I establish two LLCs (LLC1 and LLC2), with one serving as a holding company to retain all profits, and the other designated for profit distribution, thereby subjecting it to a 20% tax rate?

For instance, let's assume LLC1 holds 100K and LLC2 holds 20K. If I distribute 20K from LLC2, would I only need to pay 4K in taxes in Estonia, thus remaining entirely compliant?
@Don

Could you clarify if my understanding is correct?

Yes, only distributed profits are taxed, and foreign profits might be exempt or provide tax credit

 

[LosAngeles]

Yes, only distributed profits are taxed, and foreign profits might be exempt or provide tax credit

Thank you. Do I need to report the LLC in any way?

Also the profit distribution would be 20%?

As far as I know, managing an LLC from Estonia shouldn't be an issue. Are you aware of any other countries with similar policies? To my understanding, it's only Cyprus and Malta.

 

[JustAnotherNomad]

Your question isn't clear. Are you planning to move to Estonia yourself?
If you introduce a holding company, I believe there are also changes to the taxation, but I don't remember exactly.
Neither Cyprus or Malta have distribution-based corporate taxation, but I believe Georgia and Kazakhstan have implemented something similar.

 

[LosAngeles]

Your question isn't clear. Are you planning to move to Estonia yourself?
If you introduce a holding company, I believe there are also changes to the taxation, but I don't remember exactly.
Neither Cyprus or Malta have distribution-based corporate taxation, but I believe Georgia and Kazakhstan have implemented something similar.

Yes,
Me I have an LLC and looking to understand what would be if I move in Estonia. EU resident.

 

[Don]

Thank you. Do I need to report the LLC in any way?

Also the profit distribution would be 20%?

As far as I know, managing an LLC from Estonia shouldn't be an issue. Are you aware of any other countries with similar policies? To my understanding, it's only Cyprus and Malta.

Estonia doesn't have management and control test for corporate tax residence, so an US LLC cant be tax resident in Estonia.
Normally people run a local Estonian company and an US LLC together.
In theory LLC could be taxed based on PE (permanent establishment) but even then only when profits are withdrawn from PE, so assuming profits are accumulated into an US LLC theres hardly any risk if you don't have any EU clients.

 

[JustAnotherNomad]

Me I have an LLC and looking to understand what would be if I move in Estonia. EU resident.

You can move to Estonia and only pay tax on money paid out by the company, but then your money would be stuck in the company. How will you get it out if you want to buy a house in the future, for example? Or make some other large purchase?
You also cannot close the company without paying the tax.

Estonia doesn't have management and control test for corporate tax residence, so an US LLC cant be tax resident in Estonia.
Normally people run a local Estonian company and an US LLC together.
In theory LLC could be taxed based on PE (permanent establishment) but even then only when profits are withdrawn from PE, so assuming profits are accumulated into an US LLC theres hardly any risk if you don't have any EU clients.

Hmmm, over here we were discussing SG offshore companies:
https://www.offshorecorptalk.com/threads/gibraltar-vs-bvi.44713/
Say someone was personal tax resident Estonia (declaring Estonia their center of vital interest, maybe renting a cheap apartment), but not actually spending time there or working there.
Wouldn't this mean that Estonia wouldn't be able to tax the offshore company? I have also heard that PE rulings are extremely rare in Estonia - basically the tax authority doesn't really go after PEs, at least not for smaller fish. And if you're really not working from Estonia - how could there be an Estonian PE?
It also seems like Estonian CFC rules only apply to corporate shareholders? Not if you personally own the shares in the foreign corporation?

 

[LosAngeles]

Estonia doesn't have management and control test for corporate tax residence, so an US LLC cant be tax resident in Estonia.
Normally people run a local Estonian company and an US LLC together.
In theory LLC could be taxed based on PE (permanent establishment) but even then only when profits are withdrawn from PE, so assuming profits are accumulated into an US LLC theres hardly any risk if you don't have any EU clients.

If I withdraw profits from my LLC and distribute them to myself, would I be subject to a 20% tax? Does it make sense to have two LLCs or not?

 

[Don]

If I withdraw profits from my LLC and distribute them to myself, would I be subject to a 20% tax? Does it make sense to have two LLCs or not?

Yes, normally personal income is taxed at 20%, but there are exceptions.
For example, gifts are not taxable for Estonian tax residents and such income doesn't even need to be declared, so if distributions can be treated as gifts there is no tax.

 

[JustAnotherNomad]

If I withdraw profits from my LLC and distribute them to myself, would I be subject to a 20% tax?

Yes, if you distribute dividends, there is 20% tax, but it is calculated on the gross amount.
So in order to pay out 80k after tax, 100k has to be distributed and taxed.
So if you want to receive 80k, 20k tax has to be paid, which is 25% of 80k.

I believe there was a reduced rate if you distribute dividends frequently, but I don't remember the details...

Does it make sense to have two LLCs or not?

Probably not, but you should check with an accountant.