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@gnud I think what orangekangaroo is trying to say is, a micro-enterprise that has 1000 EUR of income is subject to 1 % income tax, 10 EUR. But the company might have 500 EUR in expenses, meaning there's only 490 EUR left to distribute as a dividend. The 490 EUR dividend would be subject to 5 % WHT, 24.50 EUR, bringing the total tax bill to 34.50 EUR which is 3.45 % of the 1000 EUR income.
At least this is how I understand it.
At least this is how I understand it.
The plan is to get a second residency in HU, use a HU company as the operation company, get a HU tax id and pay myself salary without the need to declare it in the home country thanks to the DTT.
After a few years, when it's time to cash out, make it a subsidiary of a CY company, establish a tax residency to Malta for myself, and pay dividends from the HU company to the CY holding company and from the CY company to me.
All legal, bulletproof in every way, and no risk of it being reported anywhere.
Yeah, with a HU company it'd be 4.5% in this case. Not much different. The problem with this is that you can't do any other business other than a one-man consulting. Everything else has costs that can't be accounted for in the tax calculation. If you do any sort of a trading or run a web service that has significant expenses this would bankrupt you.
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Are you sure you are not obligated to declare in your home country that you have a foreign company and that you have a foreign bank account? HU will probably not report you to your home country because you are paying taxes there but what if your home country discover your foreign company because of random checks? Wouldn't they demand you to pay taxes also in your home country? Also how are you going to fund your life in your home country? Will you use your HU bank account card to pay for everything? It's really a pain if you also consider that you will have to go to HU to manage the company.
You should read the DTTs and EU directives. Not sure what kind of a random check can lead to an investigation when there's no link, and even if it is, it's all legal. By actually residing in HU, renting an actual office there, and doing all work for it only from there the company and its profits can't be stolen. On top of that it's cheap to hire in HU to solidify the economic substance.
Not really a pain, I have direct flights with Wizzair for 10 EUR multiple times a week.
I intend to use a mix of a local sole proprietorship and a HU salary. HU salary will pay for expenses in HU. Sole proprietorship through 3rd party freelancing sites won't be labelled as a dependent agent and will pay for expenses back home. There are also services where you become an employee and the client pays them instead. In any case, the sole proprietorship won't make any decisions and won't sign any contracts, so it cannot be a dependent agent.
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Lets say that you do some work for somebody in your home country that is investigated by the tax administration. It happens. They will start to ask for every invoice and i guess your will be one of the few invoices from a foreign company and guess what? They will check who is behind the company.
The more people invoice in your home country the higher are the probabilities that a check will eventually happen.
If you don't sell in your home country then this doesn't apply to you.
If that's not a problem for you then go for it.
Don't use UpWork because the invoice will not be from them but from the freealncer, in that case your HU comany.
I tried but i really don't understand WTF they talk about in those DTT
Yeah I know about that. I won't do any business with clients in my home country. Besides they don't pay well anyway.
The DTTs are really simple to understand. They're all more or less the same. Once you understand one you understand them all.
I have used the power of excel, to see where the breaking point is that a Hungarian company gets cheaper than a Single Romanian Company. I have excluded the social cost for minimum wage in Romania, but I have also excluded the expensive setup of holding company structure to extract the Divi at 0% for Hungarian Company. I think these costs are way more than the social costs for a Romanian employee.
The breakeven point is when your expense level hit more than 76.25% of your turnover.
Turnover = 200,000
business cost = 76.25%*200,000 = 152,500
Profit before tax = 47,5000
Turnover tax = 1%*200,000 = 2,000
Divi tax = 5%*(47,5000-2,000) = 2,275
Total tax = 4,275
%Tax on turnover = 4,275/200,000 = 2.14%
% tax on profits = 4,275/47500 = 9%
Love your comments on this, I like the discussion.
You are right it is 3.45% on the 1000 euro turnover, but it is 6.9% of the 500 euro profits.
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The way you write numbers you must not be European.
Anyway, yep, but this is easily achievable if you do some kind of a trading. If you do purely consulting a Romanian company is more tax efficient. To me saving 3% at best is not worth it when it has a capacity to bankrupt me.
Having a holding company is not expensive at all, btw. maximizing the after-tax profit is the whole point of it. It's just a regular company that is a parent.
I am European but have lived in the anglosphere for half my life. So to summarize if you entertain the Romanian micro company setup you have a business with a limit of 1 million euro turnover. This works well up to a 76.5% expense level. Even at a 95% expense level, the tax on profits would only be 24%, not the level that would bankrupt you. What I do question if you work at those expense levels is that, is your business model OK or why do you entertain Romania as with profit margins like that you need to grow your turnover to over 1 million euros, in that case, Romania charges you only 16%.
You will have to hit an expense level of 99% to be taxed 100% on your profits.
I would love to think where you would have the holding company and what your expected costs are. Plus the ease of opening additional bank accounts and compliance.
As I wrote, you can easily reach those expense levels with any trading. Any gainful sale is counted as a revenue in it's entirety, while the costs of purchasing the goods are nondeductible. The same goes for trading financial instruments. If you trade often enough, you can rack up many profits and losses, but profits will be taxable in it's entirety while losses not at all. This way it's also easy to reach that 1M turnover level, and then you'l be taxed at 16%.
Moreover to be able to receive dividends you need to have a tax residence in Romania. So you can as well move there completely. The point of this setup is to be able to live anywhere you want, while not being limited in any way and having to worry if you bankrupt yourself.
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Something does not add up to me. You are having high expense levels plus expensive holding setup plus compliance, banks etc. You must anticipate turnovers of more than 1 million. Otherwise what are you doing it for. It is the business model that might bankrupt you more than Romanian taxes.
The maximum turnover tax is 10,000 when you hit the 1 million turnover.
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Why is a holding setup expensive? A Cyprus company formation is considered expensive and costs only 500 EUR in fact, for example. Opening a bank account is a PITA, but you need to plan for it, and in the EU you have a freedom to open a bank account with any institution anywhere.
To give you an example.
Lets say you trade with 10k 10 times a day. 6 times you win, 4 times you lose, each time 20%. You're in profit. But your turnover is already 12k / day, whereas profit only 4k. In a year that is 2M88 turnover, well above the threshold, and you're taxed with 16% now, not 1% or 3%.
So you have to restrict yourself (terrible for any business growth but ok).
Ok lets say you trade less. You trade only with only 1k. Turnover in a year is only 288k, well within the threshold, profit is 96k, but then oops, you have a series of losing trades or there's a market crash that wipes out your 96k profit (easily done when you use leverage which you have to use if you want to achieve 20% on each trade), yet you still have to pay -2880 tax, and I don't even count into this your salary or your employee's salary, otherwise it'd be -8640 tax.
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Yes, Micro company sucks for trading. In Romania, you can trade on a personal account and you will only pay capital gains at 10%. You keep your non-trading activities in a Micro company, everybody wins. But you will have to establish tax residency in Romania. I personally prefer that over Malta where I have lived for 3 years.
You never made it clear you were using trading and with that you easily reach 1 million turnover. Especially when you want to make a living out of this. Then it is out of the topic of this thread.
Indeed.
Also to add, Budapest is the main hub of Wizzair. You can get there for cheap from almost anywhere. And once you have an apartment there you can use it as a base for cheap travels too.
For me Hungary is optimal, ticks all the boxes. Except the language.
Also to add, Budapest is the main hub of Wizzair. You can get there for cheap from almost anywhere. And once you have an apartment there you can use it as a base for cheap travels too.
For me Hungary is optimal, ticks all the boxes. Except the language.
A UK holding company would work just as well. According the the DTT, the WHT on dividends is reduced to 0%.
That is a much better option than Cyprus. The UK is super competitive in incorporation services and accounting.
Only in case you have to spend every single cent that you are earning.. If you earn more than you spend, why not leaving it in the company and re-invest to grow?
The 5% apply on the profit, not the revenue. So the costs your company generates are determining the nominal amount of the 5%WHT owed to the tax man.
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