Tax-free residency in Estonia

[Traveler]

As for company residence, I might be wrong here as I am still learning a lot but from what I understand Estonia does not consider a company incorporated elsewhere to be tax-resident, even if management & control is conducted in Estonia. I've reviewed the tax summaries from Big 4 as well as the domestic legislation and I can't really find anything that is contrary to this. See: Estonia - Corporate - Corporate residence

Estonia has both PE and CFC legislation present in its tax code (CFC as of recently), so the above isn't quite right.

 

[rey skywalker]

is not working like that , if you produce income in estonia you are taxble , be carefull with estonians they can be very aggrssive , tax is low in estonia but you should pay them

 

[CaymanCruiser]

Estonia has both PE and CFC legislation present in its tax code (CFC as of recently), so the above isn't quite right.

This is correct, but it seems like profit from an Estonian PE is exempt from taxation if said profit is taxable in the country where the company is tax-resident.

§ 53. Taxation of permanent establishment of non-resident in Estonia (Income Tax Act)​

(4.1) The income tax provided for in subsection (4) is not charged on profit taken out of the permanent establishment, the basis for which is the dividend derived through or on account of the permanent establishment, provided that at the time the dividend was derived, the recipient of the dividend owned at least 10 per cent of the shares or votes of the company paying the dividend, and if:


1) the dividend was derived from a resident company of a Contracting State or the Swiss Confederation subject to income tax (except for companies located within a low tax rate territory);

2) the dividend was derived from a company of a foreign state not specified in clause (1) (except for a company located within a low tax rate territory) and income tax has been withheld from the dividend or income tax has been charged on the share of profit which is the basis thereof.

 

[sky walsh]

It’s not a requirement to spend time in Estonia (or Portugal for that matter) to be considered tax resident. You only need a place to live there.
If you don’t spend much time there, then it would be harder for the tax authorities to claim that you are managing your company from Estonia.

It’s the same case with Portugal’s NHR system: You can’t work or manage your foreign company from Portugal if you want to get the dividends tax-free. You always need a foreign company and some explanation how your business is really run from Malta/Cyprus/whatever. Having your apartment in Portugal is otherwise good enough to be considered tax resident. So you need to find a balance there.

what about a crypto trader living in portugal that incorporates a crypto trading company in malta for instance. will portugal taxman charge corporate tax from this company on its gains? I understand dividends will not be tax free since cfc rule applies and trading is done from portugal. but curious about the corporate tax part?

 

[sky walsh]

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.

ok I just read the above and it answers my question I posted above. Now I am curious if crypto trading as an individual in Portugal can truly be tax free with someone that made a significant amount with 50 or so trades.

 

[clemens]

If Portugal does not tax crypto which I doubt they don't then you can be doing fine living there.

 

[Marzio]

It’s not a requirement to spend time in Estonia to be considered tax resident. You only need a place to live there.

BTW i asked EMTA about this and they told me that to be tax resident you have to spend 183 days there. Renting an apartment for the whole year looks like wouldn't do the trick.

 

[OTR365]

Now I am curious if crypto trading as an individual in Portugal can truly be tax free with someone that made a significant amount with 50 or so trades.

The claim "Cryptos are not taxed in Portugal" surfaces from time to time. In absence of definite, verified information, my guess (based on this article) is that professional traders will have to pay capital gains tax.

 

[JustAnotherNomad]

BTW i asked EMTA about this and they told me that to be tax resident you have to spend 183 days there. Renting an apartment for the whole year looks like wouldn't do the trick.

That doesn't make sense. You even linked to the article yourself that explicitly states that fulfilling just one of the criteria is enough. And the first criteria is that "your place of residence is in Estonia". I believe that Estonia might be a bit less strict about that, meaning that they will not claim you as a tax resident so easily if you don't spend much time in the country. They would have to prove that your center of interest is in Estonia etc.
But I really cannot imagine that they would say no if you say you want to be considered tax resident in Estonia. After all, it would mean that they can tax your worldwide income. Usually people want to avoid becoming tax resident.
The bigger issue is if you could be considered tax resident somewhere else as well, and then the question would be if there is a tax treaty and which country you have stronger ties to.
And of course the next important thing would be that you can't be controlling the company from Estonia.

 

[Marzio]

That doesn't make sense.

This is the word by word answer that i got from EMTA

Hello

If You live in Estonia and stay here for at least 183 days over the course of a period of 12 consecutive calendar months, You should register yourself as Estonian tax resident.

 

[apa512]

I wouldn't necessarily read EMTA's response as "183 days is the only way to be tax resident". Did you specifically ask about having access to an apartment but choosing not to use it?

 

[mikestachurski]

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.

So just to make sure I really understand what you are saying here about NHR scheme of Portugal

(1) I got dividend paying stocks in my portfolio a withold tax of 15% is taken by my online broker before these dividends are paid to my account so under NHR I would pay 0% income/dividend tax in Portugal correct?

(2) I got an apartment in e.g. Netherlands from which I receive income so under NHR I would pay 0% income tax in Portugal correct?

(3) I got Estonian company, I live in Portugal and I manage my online business from Portugal. My Estonian business made a profit X euros I want to distribute it to myself 20% corporate tax is paid in Estonia but I pay 0% dividend tax in Portugal on that income correct?

(4) I got Estonian company, I live in Portugal and I manage my online business from Portugal. I pay myself a salary (instead of dividend) I pay social tax in Estonia but I pay 0% on my salary in Portugal - correct?

 

[JustAnotherNomad]

So just to make sure I really understand what you are saying here about NHR scheme of Portugal

(1) I got dividend paying stocks in my portfolio a withold tax of 15% is taken by my online broker before these dividends are paid to my account so under NHR I would pay 0% income/dividend tax in Portugal correct?

(2) I got an apartment in e.g. Netherlands from which I receive income so under NHR I would pay 0% income tax in Portugal correct?

(3) I got Estonian company, I live in Portugal and I manage my online business from Portugal. My Estonian business made a profit X euros I want to distribute it to myself 20% corporate tax is paid in Estonia but I pay 0% dividend tax in Portugal on that income correct?

(4) I got Estonian company, I live in Portugal and I manage my online business from Portugal. I pay myself a salary (instead of dividend) I pay social tax in Estonia but I pay 0% on my salary in Portugal - correct?

(1) I think that's correct-
(2) Yes, because you pay tax in the Netherlands (where the property is located). That has nothing to do with NHR though, that is the case with almost all countries.
(3) Wrong.
(4) Wrong.

 

[fabyoga]

Hmmm, I’m not sure if we are talking about the same thing.

The structure I suggested was something like this:
- Romanian microcompany (1% tax on revenue) with some substance
- Apartment (residency) in Estonia where you don’t have to spend much time
- You live where you want, as long as you avoid triggering tax residency or permanent establishment anywhere else

You should be able to receive dividends from the Romanian company tax free, assuming there is no Romanian withholding tax. (If there is Romanian WHT, you should be able to avoid it with an Estonian holding company.)
That’s essentially what people choose Portugal’s NHR or Cyprus’ non-Dom residency for. Estonia is a Schengen country like Portugal, but with a simpler tax code, everything in English, everything online, very modern.

I did not recommend incorporating a company in Estonia, except for a holding company to avoid foreign WHT if necessary.
And again, you need to double check everything with an Estonian tax lawyer. But they are professional and affordable. With Cyprus, you hear lots of stories about shady accountants and lawyers.

Very solid idea! did you move on with this setup?
I am currently planning my move to romania for 1-2 years to setup my company there with some substance. My plan then was to move to Portugal, but Estonia looks like a very attractive alternative as well!
Just one question: you would still need to pay the dividend tax in Romania if you live in estonia / portugal?

 

[JustAnotherNomad]

I did not move on with this setup because I don't want to live in Europe. So I also did not have this checked with a lawyer. It was mostly an idea that I had. The big question here is whether the Estonian tax authorities will say that your foreign company is managed from Estonia. If they agree that it's not, this should be fine.
Regarding the Romanian dividend tax, I would think you'd still have to pay it since it's probably officially a corporate income tax and not a withholding tax, just like the Estonian corporate income tax which is only paid on profit distributions. You should check with a Romanian accountant/tax lawyer about that.

Is there any additional tax on the personal level in Romania? If not, I would probably consider just sticking with Romania. It's much easier to have everything in the same country.