Optimal Tax Setup for Fully Digital Professional Services Firm

[vs90]

Hi everyone! I am new to OffshoreCorpTalk. I found the threads so interesting I was up until 2 am reading last night

I am trying to identify the optimal tax setup for my fully digital professional services firm. Let me give you a bit of background. I provide corporate finance services to US, UK and Swiss companies. The profit before tax is circa EUR 250k - 300k, with potential to grow up to EUR 500k, I think.

Currently I am tax resident and living in Italy, where I pay an effective tax rate of circa 15% (including social contributions.) However, this setup will last for another couple of years only, after which I'd like to move out of Italy and find a better solution, e.g. Malta.

I am looking for a structure that is:

• Clean: I'd rather avoid grey areas which could create troubles and take focus away from company building. Also, I prefer not to invoice clients from a place that raises eyebrows
• Easy to maintain: Since I'm not trading millions I'd like something with minimal accounting, reporting and costs
• Future proof: Ideally, I'd like a setup that I can keep for the next 5-10 years. The plan is to move from Italy to a sunnier place such as Malta, Cape Verde, or even Spain. Maybe in the future move closer to the US, in a place like Costa Rica

I have read about a few options I find interesting:

1. Estonian company + Maltese non-dom resident:
   1. Pay pretty much all profit before tax as salary to a non-Maltese bank account, therefore avoiding corporate tax in Estonia and personal income tax in Malta (since not remitted)
   2. Pay as many things as possible with a foreign credit card from a non-Maltese bank account. If I need to remit something to Malta (to pay for things like rent), I do it selling investments so they are capital gains (not taxed.) Pay the minimum EUR 5k tax
   3. Problems I see and/or things I don't understand:
      1. Will Estonia allow me to pay a salary of 250k-300k and no dividends? It can be argued it's market salary, but I assume they won't like giving up on the 22/78 = 28% corporate tax
      2. Do I need to be setup as a contractor in Malta since I don't ever remit any employement/freelance income to the country?
      3. Will Malta see the Estonian company as a Maltese company since its place of effective management and control is in Malta? Are there ways to ensure this is not the case?
      4. If I move out of Malta in another country, will this structure hold? Do I need to go to another country that does not tax foreign income? What happens if I go to a stricter country?
      5. I'm not sure if there are any benefits of adhering to the TRP in Malta since the minimum tax would be 15k + cost to apply instead of 5k
2. Maltese Holding + Maltese Trading Company.
   1. Set them up as a fiscal unit to benefit from the 5% corporate tax. Pay dividends to myself as Maltese non-dom resident and effectively pay no personal income tax because of the full imputation system
   2. Problems I see and/or things I don't understand:
      1. I read about pressure from the EU to increase tax in Malta. How much worse are they planning to make it?
      2. Does it really work that way? Will Malta accept I take no salary although I produce the foreign income while working in Malta?
      3. What are the costs to maintain such setup? Startup + ongoing
      4. If I move out of Malta in another country, will this structure hold? Do I need to go to another country that does not tax foreign dividends? What happens if I go to a more strict country?
3. Other combinations with Estonian Holding and Maltese Trading Company, PEs, etc. I didn't fully understand them and the costs/reporting work associated. Estonia's reputation is not too bad, but if I can have the company set up in a place like Switzerland to have a clean, easy to maintain and future proof setup, but I have to pay a bit more tax, that's acceptable.

I hope I provided relevant information, I am happy to hear ideas from people who know more about this than I do! I hope this can be helpful for other people, too.

 

[bountymounty]

• Easy to maintain: Since I'm not trading millions I'd like something with minimal accounting, reporting and costs

can work for Switzerland.

Currently I am tax resident and living in Italy, where I pay an effective tax rate of circa 15% (including social contributions.)

That's really not a bad tax rate to pay, in that case you have a few options like Switzerland, Cyprus and Malta or even Estonia. If reputation matters personally I can only see Switzerland as an option from the one you mentioned.

 

[dziter]

If I move out of Malta in another country, will this structure hold? Do I need to go to another country that does not tax foreign dividends? What happens if I go to a more strict country?

I am following your topic as I am interesting about similar answer: for Cyprus instead of Malta (should be similar).

 

[Dandoreal]

Following too, thinking of moving from Italy to Malta but with a Cyprus Holding to use as a fiscal unit

 

[Don]

Hi everyone! I am new to OffshoreCorpTalk. I found the threads so interesting I was up until 2 am reading last night

I am trying to identify the optimal tax setup for my fully digital professional services firm. Let me give you a bit of background. I provide corporate finance services to US, UK and Swiss companies. The profit before tax is circa EUR 250k - 300k, with potential to grow up to EUR 500k, I think.

Currently I am tax resident and living in Italy, where I pay an effective tax rate of circa 15% (including social contributions.) However, this setup will last for another couple of years only, after which I'd like to move out of Italy and find a better solution, e.g. Malta.

I am looking for a structure that is:

• Clean: I'd rather avoid grey areas which could create troubles and take focus away from company building. Also, I prefer not to invoice clients from a place that raises eyebrows
• Easy to maintain: Since I'm not trading millions I'd like something with minimal accounting, reporting and costs
• Future proof: Ideally, I'd like a setup that I can keep for the next 5-10 years. The plan is to move from Italy to a sunnier place such as Malta, Cape Verde, or even Spain. Maybe in the future move closer to the US, in a place like Costa Rica

I have read about a few options I find interesting:

1. Estonian company + Maltese non-dom resident:
   1. Pay pretty much all profit before tax as salary to a non-Maltese bank account, therefore avoiding corporate tax in Estonia and personal income tax in Malta (since not remitted)
   2. Pay as many things as possible with a foreign credit card from a non-Maltese bank account. If I need to remit something to Malta (to pay for things like rent), I do it selling investments so they are capital gains (not taxed.) Pay the minimum EUR 5k tax

3. Problems I see and/or things I don't understand:

1. Will Estonia allow me to pay a salary of 250k-300k and no dividends? It can be argued it's market salary, but I assume they won't like giving up on the 22/78 = 28% corporate tax

I think it has never been challenged before for non-tax residents. There is no law to tax work that is performed outside the country by non tax residents, outside a few exceptions (like directors fee).

1. Do I need to be setup as a contractor in Malta since I don't ever remit any employement/freelance income to the country?

I guess you mean sole-proprietorship, and no.

1. Will Malta see the Estonian company as a Maltese company since its place of effective management and control is in Malta? Are there ways to ensure this is not the case?

At minimum, outsource management, so its not seen as tax avoidance.

1. If I move out of Malta in another country, will this structure hold? Do I need to go to another country that does not tax foreign income? What happens if I go to a stricter country?

Depending on where you move, other structures might be better.

 

[vs90]

I think it has never been challenged before for non-tax residents. There is no law to tax work that is performed outside the country by non tax residents, outside a few exceptions (like directors fee).

Thank you, Don! I think I read that you don't necessarily need to pay a director's fee as the owner. Wouldn't this be the smartest setup?

Only one Estonian company that pays out all of the profits via salary, which is then NOT remitted to Malta? It's essentially a 0% tax setup except for the minimum tax payable in Malta (and the Estonian company costs.)

At minimum, outsource management, so its not seen as tax avoidance.

Do you mean having an Estonian local director? Or having an employee/contractor do the day-to-day?

The question is whether the income wouldn't be deemed as earned locally in Malta since I am getting a salary (even if not remitted) for work done while physically in Malta.

Depending on where you move, other structures might be better.

What do you think of the following?

• Malta trading company + Estonian holding company with a branch in Malta (PE)
• They form a fiscal unit so that Corporate Tax is 5%
• Once the dividends end up in the Holding, the Holding passes them through to the owner (me)
• I don't remit the dividend to Malta and only pay the minimum tax in Malta
• The effective tax rate is 5% + minimum tax, plus I have a Holding which I can "reuse" should I move out of Malta

Questions:

1. I have read about a variation with both Trading and Holding companies in Malta. Would this work too, or would it classify as income earned in Malta, and therefore not tax free?
2. Does paying for stuff in Malta with a foreign credit count as remittance? I found different opinions on this

 

[Don]

Thank you, Don! I think I read that you don't necessarily need to pay a director's fee as the owner. Wouldn't this be the smartest setup?

Only one Estonian company that pays out all of the profits via salary, which is then NOT remitted to Malta? It's essentially a 0% tax setup except for the minimum tax payable in Malta (and the Estonian company costs.)



Do you mean having an Estonian local director? Or having an employee/contractor do the day-to-day?

Ideally, a local manager to avoid corporate tax residence in Malta

The question is whether the income wouldn't be deemed as earned locally in Malta since I am getting a salary (even if not remitted) for work done while physically in Malta.

that requires further analysis, but potentially there are some exemptions

What do you think of the following?

• Malta trading company + Estonian holding company with a branch in Malta (PE)
• They form a fiscal unit so that Corporate Tax is 5%
• Once the dividends end up in the Holding, the Holding passes them through to the owner (me)
• I don't remit the dividend to Malta and only pay the minimum tax in Malta
• The effective tax rate is 5% + minimum tax, plus I have a Holding which I can "reuse" should I move out of Malta

yes, this is basically the most efficient structure in the EU.

You should discuss with an adviser to have clearance on all matters.

 

[Nw1]

If you deal with USDT orders then Mica rules of EU will severely effect exchanges support for your organization

So far in the setup you mentioned what is the cost for company formation, company name registration, yearly company annual return fees, do they require annual audits, if so can you use different country auditors or only local auditors? And what is dividend tax rate? And have Paypal, Stripe and Wise business account?

 

[JustAnotherNomad]

1. Will Estonia allow me to pay a salary of 250k-300k and no dividends? It can be argued it's market salary, but I assume they won't like giving up on the 22/78 = 28% corporate tax

Yes, if you have a proper employment contract in place.

 

[JustAnotherNomad]

What do you think of the following?

• Malta trading company + Estonian holding company with a branch in Malta (PE)

I wouldn't recommend Estonia for a holding company if you can help it.
If you sell the business, the profits are taxable in Estonia. If you use a holding company from e.g. Cyprus, there won't be any tax.
(Assuming you can avoid taxation in Malta or wherever you will be based, of course.)

I'm wondering if it could also work with a US LLC with a nominee director in e.g. the Seychelles or whatever.
And then you pay yourself a salary from it into a bank account outside of Malta. Then the tax risk should be even lower.
But I guess access to banking might be tricky.

 

[Don]

I wouldn't recommend Estonia for a holding company if you can help it.
If you sell the business, the profits are taxable in Estonia. If you use a holding company from e.g. Cyprus, there won't be any tax.
(Assuming you can avoid taxation in Malta or wherever you will be based, of course.)

I'm wondering if it could also work with a US LLC with a nominee director in e.g. the Seychelles or whatever.
And then you pay yourself a salary from it into a bank account outside of Malta. Then the tax risk should be even lower.
But I guess access to banking might be tricky.

Yes, Cyprus holding would be better in that sense, or even Swedish, so you can exit the company tax free.

On the other hand you can move your Estonian holding under a Cyprus company before selling it.

Estonia holding company can be good choice when you live on dividends, and are resident there, as dividends are tax free and you don't need to spend any day in the country to maintain residence.

Also the main benefit of Estonia is that profits are not taxed before distribution and you can leverage those profits with loans to grow the capital faster by reinvesting everything.

Estonia residence + Estonia holding company + Malta trading company (forming a fiscal unit):
Total effective tax is 5% (corporate+personal)
No need to spend time in Estonia to maintain tax residence

 

[happyjohn]

You may consult @CyprusBusiness and @CyprusLawyer101 for setting up a Cyprus holding company.

 

[vs90]

Yes, Cyprus holding would be better in that sense, or even Swedish, so you can exit the company tax free.

On the other hand you can move your Estonian holding under a Cyprus company before selling it.

I will unlikely sell the company, but moving it under a Cyprus company in that event makes sense.

Estonia holding company can be good choice when you live on dividends, and are resident there, as dividends are tax free and you don't need to spend any day in the country to maintain residence.

Also the main benefit of Estonia is that profits are not taxed before distribution and you can leverage those profits with loans to grow the capital faster by reinvesting everything.

Estonia residence + Estonia holding company + Malta trading company (forming a fiscal unit):
Total effective tax is 5% (corporate+personal)
No need to spend time in Estonia to maintain tax residence

I thought a similar outcome could be achieved with an Estonian holding + Maltese trading (fiscal unit), with the Estonian holding passing through the dividends to me without any withholding or additional taxes. Since I don't remit the dividends to Malta, and live off of remitted capital gains, I end up paying only the minimum tax (5k) on top of the 5% corporate tax (and, to be precise, a small salary in Malta, with social contributions on top.)

Also, even if Estonia doesn't need me to be a resident there, if I live in Malta for the whole year, Malta will consider me a resident there. Or am I missing something?

 

[Don]

I thought a similar outcome could be achieved with an Estonian holding + Maltese trading (fiscal unit), with the Estonian holding passing through the dividends to me without any withholding or additional taxes. Since I don't remit the dividends to Malta, and live off of remitted capital gains, I end up paying only the minimum tax (5k) on top of the 5% corporate tax (and, to be precise, a small salary in Malta, with social contributions on top.)

Also, even if Estonia doesn't need me to be a resident there, if I live in Malta for the whole year, Malta will consider me a resident there. Or am I missing something?

Regarding missing anything, you should not manage the holding company from Malta but hire a local director for the holding.

In Malta, taking out loans from your company is also possible.

 

[Houdini]

You may consult @CyprusBusiness and @CyprusLawyer101 for setting up a Cyprus holding company.

they are on holidays

In Malta, taking out loans from your company is also possible.

also if you are an director for the company?

 

[Don]

also if you are an director for the company?

Yes, I know of practical cases with the same setup OP was describing.
UBO was staying few weeks per year in Malta at best, yet was able to obtain Maltese tax residency.

 

[vs90]

Regarding missing anything, you should not manage the holding company from Malta but hire a local director for the holding.

I assume the substance requirements are minimal compared to a trading company? What if once per year I travel to Estonia to decide on the dividend distribution + other admin work? Realistically there wouldn’t be a lot more work (management and control) performed from Malta for the holding.

In Malta, taking out loans from your company is also possible.

For what reason would you suggest this? To bridge the dividend distributions?

 

[Don]

I assume the substance requirements are minimal compared to a trading company? What if once per year I travel to Estonia to decide on the dividend distribution + other admin work? Realistically there wouldn’t be a lot more work (management and control) performed from Malta for the holding.

You should build some economic substance in order to be compliant with regulations and avoid tax risks.
Look into ATAD, GAAR, CFC rules,

For what reason would you suggest this? To bridge the dividend distributions?

Not suggesting anything, but I think its a nice feature.

 

[JustAnotherNomad]

Yes, I know of practical cases with the same setup OP was describing.
UBO was staying few weeks per year in Malta at best, yet was able to obtain Maltese tax residency.

But then most likely the UBO was also tax resident somewhere else?
What would be the chance the Maltese tax resiency would "win" against the other country's claim?

 

[Don]

But then most likely the UBO was also tax resident somewhere else?

What would be the chance the Maltese tax resiency would "win" against the other country's claim?

No, some people are genuinely nomadic, and some don't have such high risk of dual tax residency. It boils down to individual circumstances. There are no universal rules in that sense.