Which Company for B2B DACH Customers

[Gero]

Hi all,


I'm a German (citizen + resident) software developer employed with a German company. I'm planning to leave Germany soon and start IT-Freelancing, hence I'm currently looking into possible company setups. It should be legal, tax-efficient (between 0% - 20% in total is fine) and have limited liability. At least in the beginning, my B2B clients will be German companies.

I've read quite a lot, what I'm missing so far is some real-world experience of people using these "exotic" (from a German point of view) companies to work for and invoice German, Austrian and Switzerland companies. Especially since my company will be created from scratch without history or references.


Options that I'm currently looking into:

- Cyprus Limited: seems to have an ok reputation; EU-company + there is a tax treaty with Germany. I would need to move to Cyprus for substance but that's ok. Bank accounts would be fintech. total tributes (corp. tax + gesy) will be about 15%.

- US LLC: not sure, it's advertised to have a lot of benefits (low cost; own residency is independent from the company) and a cheap structure with low complexity. I'm just not sure if Germany B2B clients won't become skeptic as LLCs aren't really known here afaik. Bank accounts could be fintech or traditional US banks. total tax is potentially 0.

- UK L(L)P: i was thinking about that basically instead of using a US LLC. Residency is also independent from the company + it "feels" european hence could have a better reputation in Germany. Downsides: it'll cost more and requires an additional company to form the partnership. Bank accounts would probably be fintech. total tax is potentially 0.

- Estonia OÜ: might be an interesting solution. as I understand, there are no substance requirements except a "virtual office"; so I don't need to have a residency in Estonia but could be anywhere (as with as US LLC). Setup is easy comparable to US LLC and I guess the costs are also comparable. Reputation should be good, EU-company and no tax heaven reputation at all afaik. Bank accounts could be fintech or traditional US banks. total tax is potentially 10% if half of the revenue is paid as salary (no tax) and half as dividends (20% tax).

I'm afraid Dubai doesn't make a lot of sense currently; I've been there this spring and liked it; 9% corp. tax with 90 days residency requirement seemed attractive. But as the UAE is currently on the FATF grey list and EU black list I guess it's problematic. The reputation with German B2B clients might be a challenge too.


Would be great to hear from your experiences with German clients. Also, I'm open to alternative suggestions. What I like about the options above also is that the capital gains tax is potentially 0% since I wan't to take the earning out of the company and reinvest some of them.


Thank you very much,

Gero

 

[Sols]

- Cyprus Limited: seems to have an ok reputation; EU-company + there is a tax treaty with Germany. I would need to move to Cyprus for substance but that's ok. Bank accounts would be fintech. total tributes (corp. tax + gesy) will be about 15%.

If your income is beyond 180,000 EUR/year, the effective rate dips under 15% since Gesy is capped at 4,800 EUR/year.

- US LLC: not sure, it's advertised to have a lot of benefits (low cost; own residency is independent from the company) and a cheap structure with low complexity. I'm just not sure if Germany B2B clients won't become skeptic as LLCs aren't really known here afaik. Bank accounts could be fintech or traditional US banks. total tax is potentially 0.

Total US tax is zero. There is probably going to be tax somewhere else, though.

- UK L(L)P: i was thinking about that basically instead of using a US LLC. Residency is also independent from the company + it "feels" european hence could have a better reputation in Germany. Downsides: it'll cost more and requires an additional company to form the partnership. Bank accounts would probably be fintech. total tax is potentially 0.

Banks (including EMIs/fintech) view UK LLP or LP as slightly suspicious, especially if there is no economic ties to UK or other economic reason. They have been very popular in tax evasion.

- Estonia OÜ: might be an interesting solution. as I understand, there are no substance requirements except a "virtual office"; so I don't need to have a residency in Estonia but could be anywhere (as with as US LLC). Setup is easy comparable to US LLC and I guess the costs are also comparable. Reputation should be good, EU-company and no tax heaven reputation at all afaik. Bank accounts could be fintech or traditional US banks. total tax is potentially 10% if half of the revenue is paid as salary (no tax) and half as dividends (20% tax).

Estonia is almost always more of a headache than just going for Cyprus or Malta (if you want EU company).

Would be great to hear from your experiences with German clients. Also, I'm open to alternative suggestions. What I like about the options above also is that the capital gains tax is potentially 0% since I wan't to take the earning out of the company and reinvest some of them.

You only mentioned relocation to Cyprus. If you go with for example US, UK, or Estonia but don't relocate, the companies end up tax resident in Germany, meaning they have to pay tax just like a local Germany company. You can avoid double taxation (so you don't pay tax in both Estonia and Germany, for example) if there is an applicable tax treaty.

 

[Don]

Hi all,


I'm a German (citizen + resident) software developer employed with a German company. I'm planning to leave Germany soon and start IT-Freelancing, hence I'm currently looking into possible company setups. It should be legal, tax-efficient (between 0% - 20% in total is fine) and have limited liability. At least in the beginning, my B2B clients will be German companies.

I've read quite a lot, what I'm missing so far is some real-world experience of people using these "exotic" (from a German point of view) companies to work for and invoice German, Austrian and Switzerland companies. Especially since my company will be created from scratch without history or references.


Options that I'm currently looking into:

- Cyprus Limited: seems to have an ok reputation; EU-company + there is a tax treaty with Germany. I would need to move to Cyprus for substance but that's ok. Bank accounts would be fintech. total tributes (corp. tax + gesy) will be about 15%.

- US LLC: not sure, it's advertised to have a lot of benefits (low cost; own residency is independent from the company) and a cheap structure with low complexity. I'm just not sure if Germany B2B clients won't become skeptic as LLCs aren't really known here afaik. Bank accounts could be fintech or traditional US banks. total tax is potentially 0.

- UK L(L)P: i was thinking about that basically instead of using a US LLC. Residency is also independent from the company + it "feels" european hence could have a better reputation in Germany. Downsides: it'll cost more and requires an additional company to form the partnership. Bank accounts would probably be fintech. total tax is potentially 0.

- Estonia OÜ: might be an interesting solution. as I understand, there are no substance requirements except a "virtual office"; so I don't need to have a residency in Estonia but could be anywhere (as with as US LLC). Setup is easy comparable to US LLC and I guess the costs are also comparable. Reputation should be good, EU-company and no tax heaven reputation at all afaik. Bank accounts could be fintech or traditional US banks. total tax is potentially 10% if half of the revenue is paid as salary (no tax) and half as dividends (20% tax).

I'm afraid Dubai doesn't make a lot of sense currently; I've been there this spring and liked it; 9% corp. tax with 90 days residency requirement seemed attractive. But as the UAE is currently on the FATF grey list and EU black list I guess it's problematic. The reputation with German B2B clients might be a challenge too.


Would be great to hear from your experiences with German clients. Also, I'm open to alternative suggestions. What I like about the options above also is that the capital gains tax is potentially 0% since I wan't to take the earning out of the company and reinvest some of them.


Thank you very much,

Gero

Additionally you can create a non tax transparent LLP in Estonia (costs 15 EUR), and requires absolutely no reporting by default depending on who are the partners. Its treated similarly as a private limited company from tax perspective meaning its by default an Estonian tax resident, its profits are not taxed until distributed, and it can be at any time converted to a private or public limited company. Everything can be managed remotely including opening bank accounts.

You can combine it with an LLP in UK.

Alternatively you can form on top of that a tax transparent LLP in Estonia which is not an incorporated entity. This entity would need an operating entity with a bank account (and VAT registration) to service it and issue invoices on behalf of the partnership.

If your income is beyond 180,000 EUR/year, the effective rate dips under 15% since Gesy is capped at 4,800 EUR/year.


Estonia is almost always more of a headache than just going for Cyprus or Malta (if you want EU company).

You can use Estonian entity with a branch in Cyprus to avoid Gesy. This way your effective tax is 12.5% for Cyprus sourced income and you can shift some income to Estonia which can be 0% tax until distributed. With a PE you still benefit from the incentives Cyprus has to offer.
Same with Malta. Estonian entity with fiscal unit in Malta = 5% tax.
Estonian entity with branch in Albania -> can be 5% overall tax.
Estonia is way easier for opening bank accounts.
Many banks have special higher fees for Cypriot entities + even Wise doesn't onboard Cypriot entities.
Estonia does not require any physical presence for tax residence. For many people that mean less headache as they are not locked on an island and can travel freely around Schengen.

 

[Gero]

Hi Sols,

thank you for your input.

Total US tax is zero. There is probably going to be tax somewhere else, though.

Yeah, that's understood. It's basically a "tax transparent" company, so the country where one is tax resident defines the taxes pay on the income generated by the US LLC.

Banks (including EMIs/fintech) view UK LLP or LP as slightly suspicious, especially if there is no economic ties to UK or other economic reason. They have been very popular in tax evasion.

I've read such things - does this mean that bank accounts are impossible or that there is just more documentation required. I think I could provide proofs that I'm a legit software developer and also documentation of my residency.

Estonia is almost always more of a headache than just going for Cyprus or Malta (if you want EU company).

Headache as in higher maintenance costs (bookkeeping, audits, ...) etc. is suppose? But similar to an US LLC or an UK LP/LLP I would not need to need to be located in Estonia, right; so basically no substance (physical office, real director, real employees) required + no issues getting a company bank account, right?

You only mentioned relocation to Cyprus.

I'll move out of Germany. I was thinking as an alternative to Cyprus I could move to another attractive country and work towards a 2nd citizenship. There is currently a law being passed in Germany that allows multiple citizenships even with non-eu countries. That's quite novel and I figured I rather get a 2nd one rather sooner than later; with the current political situation here you can't be sure if this law may be revoked again xD But for that idea to work out I would need an alternative to the Cyprus company - or create real substance in Cyprus. Hence something without substance like a US LLC or alternatives like UK LP/LLP or Estonia OÜ (if these are suitable) seems to be better for a start.


Do you have any experience working with German B2B clients - e.g. were they all fine to be invoiced by a US LLC etc.?

Additionally you can create a non tax transparent LLP in Estonia (costs 15 EUR), and requires absolutely no reporting by default depending on who are the partners. Its treated similarly as a private limited company from tax perspective meaning its by default an Estonian tax resident, its profits are not taxed until distributed, and it can be at any time converted to a private or public limited company. Everything can be managed remotely including opening bank accounts.

Hey Don, thank you for your input - highly appreciated
I'm totally fine to be listed in an company directory or similar. If my name doesn't appear in some official records, my German clients couldn't tax-deduct my bills (the German tax office would reason that they may have created that company themselves).

I actually though the Estonia OÜ is the company where profits are only taxed when distributed (with 20%). I might have mixed that up.

You can use Estonian entity with a branch in Cyprus to avoid Gesy.

That's alright, I'm currently at about 60% total tributes in Germany, so paying a bit of social insurance is ok. From what I've read the Gesy actually is a reasonably good insurance. I'm expecting total revenue / year to be 100.000 - 200.000€, so I maybe a too complex company structure will not bring to much benefits for the additional costs and complexity.

Estonia is way easier for opening bank accounts.
Many banks have special higher fees for Cypriot entities + even Wise doesn't onboard Cypriot entities.
Estonia does not require any physical presence for tax residence. For many people that mean less headache as they are not locked on an island and can travel freely around Schengen.

Yeah that's the idea - I'm think about using that Estonian company as a vehicle to work with Germany B2B customers while being located outside the EU.

 

[bigdaddyleon]

I bill my DACH clients via US LLC.
Has never been questioned, always worked without problems.

 

[Sols]

You can use Estonian entity with a branch in Cyprus to avoid Gesy. This way your effective tax is 12.5% for Cyprus sourced income and you can shift some income to Estonia which can be 0% tax until distributed. With a PE you still benefit from the incentives Cyprus has to offer.

In this particular use case, it sounds like a lot of work just to save 4,800 EUR/year on Gesy. Maybe some people think it's worth the hassle.

Yeah, that's understood. It's basically a "tax transparent" company, so the country where one is tax resident defines the taxes pay on the income generated by the US LLC.

That's not always the case. Some jurisdictions don't recognize US LLC as tax transparent, meaning the entity itself can be subject to tax somewhere else.

I've read such things - does this mean that bank accounts are impossible or that there is just more documentation required. I think I could provide proofs that I'm a legit software developer and also documentation of my residency.

Not at all impossible. Just a little more difficult. You might find yourself having fewer options and

Headache as in higher maintenance costs (bookkeeping, audits, ...) etc. is suppose? But similar to an US LLC or an UK LP/LLP I would not need to need to be located in Estonia, right; so basically no substance (physical office, real director, real employees) required + no issues getting a company bank account, right?

There are very few countries (that are relevant to this context) where you are required to be present in the country. That's not unique to Estonia. You can form a company nearly anywhere without showing up in person and without any local presence (besides a registered address so that the government can send you physical letters, which is also required in UK, US, and so on).

I'll move out of Germany. I was thinking as an alternative to Cyprus I could move to another attractive country and work towards a 2nd citizenship. There is currently a law being passed in Germany that allows multiple citizenships even with non-eu countries. That's quite novel and I figured I rather get a 2nd one rather sooner than later; with the current political situation here you can't be sure if this law may be revoked again xD But for that idea to work out I would need an alternative to the Cyprus company - or create real substance in Cyprus. Hence something without substance like a US LLC or alternatives like UK LP/LLP or Estonia OÜ (if these are suitable) seems to be better for a start.

As described above, substance is optional nearly everywhere for incorporation purposes. But it is required for tax purposes somewhere. You can form a company in Cyprus and live somewhere else, just like how you can form a company in US and live somewhere else. The substance of the company is wherever you are. And if you happen to settle down in a place with zero tax on foreign companies (explicit or through non-enforcement), you can have your Cyprus company be deemed tax resident there and pay zero tax.

Sometimes people form a company in a place like Cyprus or Malta, but remain resident in a high tax jurisdiction like Germany. That introduces a lot of potential complications. Since both are EU member, you often read the advice for founders to relocate to Cyprus and Malta since intra-EU movement is so easy, and thereby enjoy the tax benefits of being resident there.

 

[Gero]

I bill my DACH clients via US LLC.
Has never been questioned, always worked without problems.

Hi Leon, thank you for your response. Could you provide some details; are these mainly German B2B clients?

Not at all impossible. Just a little more difficult. You might find yourself having fewer options and

Hi Sols, I actually found Launch and run your fully-remote EU solo business | Xolo Leap yesterday. Reading what they explain on the website (might just be marketing) it's pretty easy to setup. They got agreements with some banks and even payment gateways.

There are very few countries (that are relevant to this context) where you are required to be present in the country. That's not unique to Estonia.

Yeah, I think I'm mixing CFCs rules (which are defined by the shareholders country of residency) with substance requirements defined by the country where the company established. Might be a German thing, if you own a GmbH here and leave the country you have to close the GmbH (or create substance with a real director etc.). That would then mean that I could use various european companies (e.g. Cyprus or Romania), pay a small corporate tax in that country and distribute profits (either as income or dividends depending on the withholding tax) with very low tax rates to a country without CFC rules (e.g. Dubai).

Sometimes people form a company in a place like Cyprus or Malta, but remain resident in a high tax jurisdiction like Germany.

Yeah, true, German CFC rules are no fun.

Thank you very much Sols, I think that gave a lot new perspectives. I was thinking it is impossible to form companies in most eu countries (except estonia) without having real substance there. Understanding that the substance is driven by the CFC rules in my country of residence opens much more options

 

[bigdaddyleon]

Hi Leon, thank you for your response. Could you provide some details; are these mainly German B2B clients?

Yes

 

[JimBeam]

Apart from Cyprus, you might also consider Bulgaria. 10% CIT and 5% dividends and with lover costs of just about anything compared to Cyprus is a good option.
And you can drive back to Germany without anyone noticing

 

[SoNewToAllShit]

Beside the lowest tax rate, for me it was also important to find a country that people don't find suspicious - when saying I come from XX AG in Switzerland most people say impressive and want to do business with me.

I had not the same experience with Dubai, Cyprus and Malta for that sake.

 

[Don]

Apart from Cyprus, you might also consider Bulgaria. 10% CIT and 5% dividends and with lover costs of just about anything compared to Cyprus is a good option.
And you can drive back to Germany without anyone noticing

Bulgaria is not yet in Schengen. Did they already remove the border controls as suggested?

https://www.schengenvisainfo.com/ne...trols-if-they-are-not-accepted-into-schengen/

 

[benbao]

Bulgaria is not yet in Schengen. Did they already remove the border controls as suggested?

https://www.schengenvisainfo.com/ne...trols-if-they-are-not-accepted-into-schengen/

No, Bulgaria will be the same as Romania, Cyprus and other non Schengen EU members.

 

[Ancova]

Hi all,


I'm a German (citizen + resident) software developer employed with a German company. I'm planning to leave Germany soon and start IT-Freelancing, hence I'm currently looking into possible company setups. It should be legal, tax-efficient (between 0% - 20% in total is fine) and have limited liability. At least in the beginning, my B2B clients will be German companies.

I've read quite a lot, what I'm missing so far is some real-world experience of people using these "exotic" (from a German point of view) companies to work for and invoice German, Austrian and Switzerland companies. Especially since my company will be created from scratch without history or references.


Options that I'm currently looking into:

- Cyprus Limited: seems to have an ok reputation; EU-company + there is a tax treaty with Germany. I would need to move to Cyprus for substance but that's ok. Bank accounts would be fintech. total tributes (corp. tax + gesy) will be about 15%.

- US LLC: not sure, it's advertised to have a lot of benefits (low cost; own residency is independent from the company) and a cheap structure with low complexity. I'm just not sure if Germany B2B clients won't become skeptic as LLCs aren't really known here afaik. Bank accounts could be fintech or traditional US banks. total tax is potentially 0.

- UK L(L)P: i was thinking about that basically instead of using a US LLC. Residency is also independent from the company + it "feels" european hence could have a better reputation in Germany. Downsides: it'll cost more and requires an additional company to form the partnership. Bank accounts would probably be fintech. total tax is potentially 0.

- Estonia OÜ: might be an interesting solution. as I understand, there are no substance requirements except a "virtual office"; so I don't need to have a residency in Estonia but could be anywhere (as with as US LLC). Setup is easy comparable to US LLC and I guess the costs are also comparable. Reputation should be good, EU-company and no tax heaven reputation at all afaik. Bank accounts could be fintech or traditional US banks. total tax is potentially 10% if half of the revenue is paid as salary (no tax) and half as dividends (20% tax).

I'm afraid Dubai doesn't make a lot of sense currently; I've been there this spring and liked it; 9% corp. tax with 90 days residency requirement seemed attractive. But as the UAE is currently on the FATF grey list and EU black list I guess it's problematic. The reputation with German B2B clients might be a challenge too.


Would be great to hear from your experiences with German clients. Also, I'm open to alternative suggestions. What I like about the options above also is that the capital gains tax is potentially 0% since I wan't to take the earning out of the company and reinvest some of them.


Thank you very much,

Gero

Having worked in the largest Dubai Free Zone myself, I can say that German nationals were in the top 5 nationalities in the last 3 years who opened a company in Dubai. Most of them only have clients from the DACH region.

There is a threshold on profits only if exceeded you would be subject to 9% tax.

You can also get a tax residency certificate if you do not stay 90 days in the UAE.

 

[FixieHartmann]

Cyprus is a good choice but consider “erweiterte beschränkte Steuerpflicht”.