Tax-free residency in Estonia

[Konstanz]

I admit I didn’t check for WHT. But you would probably be able to avoid it with an Estonian holding company.

It’s unfair to compare this to UAE residency. Yes, UAE is a clear 0%, but fewer/worse DTAs. But lots of people are getting Cyprus residency for the same reason and Cyprus has 60 days minimum requirement, while Estonia has zero (in theory).

Well, Cyprus non-dom is taxed only what he brings to Cyprus. That's a big difference.
Estonia income tax is on GLOBAL income.
For example, you can trade cryptos as Cyprus resident, use non-cyprus accounts for that and pay 0% tax.
With Estonia you cannot do that, you would have to declare everything, all foreign accounts and income.
Audits in Eastern European countries are very common and you would spend much of your time explaining everything to tax inspectors.
If they find some discrepancies in your tax returns is very common in Eastern Europe to start criminal prosecutions..
Thats why many people stick with non-dom Cyprus or UAE, Monaco etc..

 

[JustAnotherNomad]

Yes, I believe WHT instead of CIT should be fine, too.

And regarding UAE: Portugal’s NHR scheme is extremely Portugal. But there are lots and lots and lots of catches and you can never really be certain that it will work. And it is limited to 10 years on top. Estonia’s rules seem much clearer and it’s a Schengen country. You could probably just drive to whichever other Schengen country where you really want to live. Not that I’d condone or recommend that, but just to show the difference to UAE.

Regarding CFC rules: Switzerland doesn’t have CFC rules. Does that mean your can just register a BVI company and pay no taxes? No, of course not. CFC rules are not that relevant for most people.

 

[JustAnotherNomad]

Well, Cyprus non-dom is taxed only what he brings to Cyprus. That's a big difference.
Estonia income tax is on GLOBAL income.
For example, you can trade cryptos as Cyprus resident, use non-cyprus accounts for that and pay 0% tax.

But you have to spend 60 days in Cyprus. And Cyprus is an island outside the Schengen area. And I don’t know what the cost is for the Cyprus structure. Isn’t there some minimum social security to be paid? Etc.

I’m not saying it’s the solution for everything and everyone. Especially if you enjoy spending time in Cyprus, why go anywhere else? Same with UAE. But Cyprus and UAE aren’t for everyone either, people are different.

Compare it to something like Portugal’s NHR scheme, which is extremely popular despite all the catches. I think Estonia is a better option.

I don’t think it’s a big disadvantage that they tax global income when you can simply use exemptions. No, it’s not as nice as “0% no questions asked,” but there are other advantages with Estonia.

 

[Konstanz]

But you have to spend 60 days in Cyprus. And Cyprus is an island outside the Schengen area. And I don’t know what the cost is for the Cyprus structure. Isn’t there some minimum social security to be paid? Etc.

I’m not saying it’s the solution for everything and everyone. Especially if you enjoy spending time in Cyprus, why go anywhere else? Same with UAE. But Cyprus and UAE aren’t for everyone either, people are different.

Compare it to something like Portugal’s NHR scheme, which is extremely popular despite all the catches. I think Estonia is a better option.

I don’t think it’s a big disadvantage that they tax global income when you can simply use exemptions. No, it’s not as nice as “0% no questions asked,” but there are other advantages with Estonia.

Portugal is a very nice country to live in. Warm, nice nature and surroundings + Schengen area. As you said - Cyprus is an island and not in Schengen. I think that's why someone prefers to choose Portugal.
Again, Portugal's NHR status would not tax your foreign source income. That's the difference between Estonia.

 

[JustAnotherNomad]

I have researched the Portugal NHR scheme in detail. Believe me, Portugal does tax worldwide income. You can find that information everywhere.
As an NHR, you can only receive dividends tax-free, like in Estonia. Any work you carry out in Portugal will NOT be foreign sourced and thus subject to tax. The same applies to “foreign” corporate income if the company is managed from Portugal. There are also very complex CFC rules. The intention of Portugal’s NHR scheme is to attract HNWI “pensioners” - someone who is no longer actively involved in their foreign business at all.
They are not interested in people who are working from Portugal and do all they can to tax them.
They only exempt foreign sourced income IF there is substance AND it is derived from a business in a country that is not a blacklisted tax haven OR there is a tax treaty, AND the other country must have the right to tax the income, and not Portugal.
That means that there is massive risk that income from countries with territorial taxation would not qualify for the exemption because Portugal does not consider the income as “subject to tax.” And then the CFC rules come on top. I decided not to go for Portugal because it seemed very risky.

Read the CFC rules here:

https://www.mondaq.com/CorporateCommercial-Law/119866/CFC-Rules-in-Portugal
I have really researched it thoroughly, I know what I’m talking about. You cannot get an advance ruling in Portugal, everything is extremely slow, there is a lot of bureaucracy, nobody speaks English. It’s a mess.
If you’re unlucky it’ll be fine for 8 years and in the 9th year they audit you and decide you have to pay Portuguese taxes after all. And it’s only valid for 10 years to begin with.
If you want to move to Portugal anyway and are willing to pay the taxes, it’s a nice bonus. But I wouldn’t move to Portugal just because you hope to save taxes, unless you are truly a “pensioner.” But in that case, Estonia would work just as well. Yes, the weather is worse, but it’s a question of whether you want to go there because of the sun or the taxes.

 

[Marzio]

It’s a mess.

Like all the southern European countries. Paradise for holidays, hell for doing business.

 

[Konstanz]

Estonia is also not a tax haven. You should consult the Estonian tax expert before considering such moves.

 

[JustAnotherNomad]

Yes, as I wrote. Obviously you would have to talk to a tax lawyer about the details.
Is Cyprus a tax haven? Or Malta? Or Portugal? No, none of them. You always need proper legal advice.
I also think it’s good that a country isn’t a tax haven, that’s one of the biggest advantages with Portugal’s NHR scheme. When you say you live in Malta or Cyprus as an expat, everyone knows why you’re there.
And even top tier lawyers are very affordable in Estonia. Estonia has clear rules, everything in English, everything is just very straightforward. It is not a bureaucratic mess like Portugal.
I hope you can see how risky NHR is when there are so many hoops to jump through. Get one tiny thing wrong and you’re on the hook for Portuguese taxes.
I’m not saying Estonia is the perfect choice. Clearly UAE is a simpler solution. But there are other disadvantages with the UAE.

 

[Marzio]

I’m not saying Estonia is the perfect choice.

Look, why don't you modify the thread title in "Nearly tax-free residency in Estonia" so Konstanz will stop comparing Estonia with Monaco, UAE and similar tax havens?

I really like Estonia as an option, plus being resident there the opportunity that you will get bank account with LHV for example are much higher than if you are non-resident. Also you get LHV bank account free of charge instead of paying 20€ a month which is a nice bonus.

Having said this there are only 2 problems with Estonia:

1. an Estonian OU company doesn't really have the prestige of a UK LTD
2. you can't get a damn Amex business card in Estonia but you have the same problem in Cyprus, Bulgaria, Romania and Hungary

One last thing is about social security taxes when you distribute dividends in Estonia, do you know if you have to pay something or you only pay social security when you pay yourself a salary?

 

[JustAnotherNomad]

1. As mentioned, I wouldn’t use an Estonian OÜ. Then you have to pay 20% tax. Of course, Romania doesn’t have the greatest reputation either, but you should be able to use some other structure to hide the Romanian/Georgian company. Like a UK Ltd. or something.

2. Just get a private Amex from some other country and reimburse yourself.

I think you only have to pay social security taxes on salaries, not dividends. But that would be worth looking into of course.

 

[Marzio]

Just get a private Amex from some other country

Can you do that? I thought Amex was tied to your country of residence. In this example Estonia.

 

[JustAnotherNomad]

Not officially, of course. But many countries have weak residency checks. So you tell Amex you are a resident of that country, they give you a card and that’s it. It’s probably fraud, but as long as you pay your bills, why would they investigate.
But of course you still shouldn’t do it.

A better (legal) way would be to set up a company in a country with good access to credit cards with the sole purpose of processing payments for the low-tax company. Profits should be minimal. Then you should be able to get credit cards for the company in a legal way.

 

[b2bfoxman]

I think also the similar system works in Latvia. They only tax corporation income when funds are taken out of the company and the actual dividends are tax free to not pay twice, and to keep the system fair for all, also foreign dividends are tax free. And country has cheaper workforce salaries

 

[basil1]

It seems that Slovakia also has similar rules and although the dividend tax is 7% I can't find anything to say that the foreign CIT must be a certain amount. It just needs to be from a state with a dtt with Slovakia. So U.A.E is an option. This could work if following along the same lines as Estonia as long as spending very little time in Slovakia to avoid PE. Depending on how Slovakia treat US LLC's this could be a cheap straight forward option too if they treat them as dividends. Slovakia don't seem to ask for proof of the overseas CIT paid.

 

[blockchain4ever]

Be aware that if you register as tax-resident in Estonia but actually live somewhere else, then the actual tax residency is regulated, not by the rules quoted in this thread, but the DTA. The DTA will make you non-resident in Estonia and liable for income tax on your dividends.

In this case, you will also be liable for a witholding tax of 7% for any profits taxed at the reduced CIT in Estonia. That's not part of the setup discussed here, but it's something to remember.

The setup presented here assumes that you are actually not considered tax resident anywhere else (anywhere = any decent country assuming all decent countries have a DTA with Estonia).

 

[JustAnotherNomad]

Yes and no.

Yes: You are generally correct of course, but I tried to explain that this could be an alternative to spending 60 days in Cyprus.
If you spend 60 days in Cyprus and 200 days in France, it’s pretty clear that your Cyprus residency won’t mean much. The same probably applies if your wife and kids live in the Netherlands. But all those things are the same with Cyprus, so Estonia isn’t any worse in that regard.

No: Whether there is a DTA or not is irrelevant.
If there is no DTA and some other countries decides you should pay taxes there, then you will simply have to pay taxes both in Estonia and the other country. Estonia may unilaterally provide tax relief though.

But the big advantage is that since Estonia has a lot of DTAs (like Cyprus), it will usually protect you from claims other countries might otherwise have to to tax you. Provided that you don’t trigger the tie-breaker rules in the DTA.

 

[blockchain4ever]

No: Whether there is a DTA or not is irrelevant.
If there is no DTA and some other countries decides you should pay taxes there, then you will simply have to pay taxes both in Estonia and the other country. Estonia may unilaterally provide tax relief though.

Estonia has quite steep witholding taxes on most things (except some dividends), so if the DTA says you're non-resident, you have to pay the witholding tax in Estonia as well as the tax in the other country. So there might be no relief to be had.

 

[JustAnotherNomad]

Why would there be Estonian WHT if the company/PE isn’t in Estonia?

 

[blockchain4ever]

Why would there be Estonian WHT if the company/PE isn’t in Estonia?

Not sure I understand what you mean, if the company is considered non-resident, then Estonia only adds complexity to the setup. I am talking about the owner being considered non-resident in the DTA. That does not mean that the company is considered non-resident.

My point is that your legal status, resident or non-resident in Estonia is most cases decided by DTA, not by the law cited in this thread. If you are non-resident, then you have to consider WHT on payments from the company, although with dividends they should in worst case be 7%. There is no relief from WHT in DTAs, but they often limit them.

 

[basil1]

Not sure I understand what you mean, if the company is considered non-resident, then Estonia only adds complexity to the setup. I am talking about the owner being considered non-resident in the DTA. That does not mean that the company is considered non-resident.

My point is that your legal status, resident or non-resident in Estonia is most cases decided by DTA, not by the law cited in this thread. If you are non-resident, then you have to consider WHT on payments from the company, although with dividends they should in worst case be 7%. There is no relief from WHT in DTAs, but they often limit them.

The threads about establishing a personal tax residency in a place like Estonia where you can spend very little time but maintain residency, an alternative to Cyprus and Portugal etc. Its not about the companies residency so there wouldn't be any WHT in Estonia. Estonia is where the dividends would be received personally. There is of course a need not to become tax resident anywhere else.