I've run and invested in businesses in multiple countries (Spain, Germany, US, UAE, Sri Lanka). One of them (Mobile Jazz - a fully remote company) we've moved to Estonia in 2016. One of the best business decisions we've made admin-wise. While there are for sure better alternatives when it comes to "saving on taxes" (I'd say Estonia is in the European average with 20% corporate tax and an interesting taxation model on capital distribution), it is definitely a huge improvement when it comes to dealing with authorities compared to virtually elsewhere in the world, based on what I've experienced myself of heard from others. Estonian people speak really good English. Typically things just work as they should and it something doesn't, they're super fast in responding and very eager to solve the problem for you. While I don't have visibility on everything that happens in the country, in terms of how they handle their bureaucracy, they're certainly a role model for other countries.
Important to note that this 20% corporate tax is applied to the taxable payment (e.g. dividend payouts).
There are no taxes to pay for the yearly profit, which makes it much easier for companies that do plan to reinvest the income over the years or just hold it.
Also, one should probably have employees or customers physically in Estonia, otherwise the company tax residency might change into other jurisdictions.. IANAL.
I'm curious if there are any other EU countries with a similar flexibility (corporate income tax not applied until the "payout event")?
> Also, one should probably have employees or customers physically in Estonia, otherwise the company tax residency might change into other jurisdictions.. IANAL.
You no longer need physical presence with their e-Residency program.
You no longer need physical presence to register your company and do business through the programme but you should still be very careful about taxation, tax residency whether personal or corporate gets very complex very fast and I highly recommend talking to a tax expert
Yes, the country/countries where your physical office(s) is/are located (or rather, where people - founders or employees - are doing the work that is the basis of the revenue on which you're generating a profit) will likely want a piece of the pie.
Certainly, a decade or so ago, it was popular to register a limited company in the UK whose physical presence was on the continent. Invariably, this meant dealing with both tax authorities.
It seems to have lost its attractiveness after laws for GmbH and similar were relaxed in various countries. Brexit has pretty much killed any remaining demand, at least for real companies. (As opposed to shell companies for tax evasion or money laundering purposes, for which the UK remains as popular as ever - and which are a major reason for big money backing Brexit, as the EU has been looking to crack down on the practice.)
Ah, so it's one of these tax-haven states which accelerates the global "race to the bottom" regarding corporations' tax rate? That's not a good thing IMHO.
It's clearly stated that the tax level is 20%, not a tax-haven at all. Estonia in general is very far from the ultra-liberal country it has been depicted in the past (especially by the US Republicans): it has average EU taxation, minimum wage, taxpayer-funded public healthcare, ...
One thing people don't take into account when opening a company is the process and costs involved. I payed to close mine around 800 euros only to dissolve during the course of the following months. Besides paying the corresponding taxes. Another issue with a company abroad is you have to blindly trust your accountant. If I were to do it again I could have incorporated locally.
Estonia (in fact all the 3 Baltic States) under-taxes at present in a way that’s not sustainable. For example there is a significant NATO presence there to protect them from the Russians. At some point someone will want them to make a fair contribution to that, such as purchasing a few tanks and fighter jets...
According to NATO's 2018 report, Estonia was one of only six NATO countries (out of 29) that met the goal of dedicating 2% of their GDP to defense. Not that dedicating 100% would stop Russia if they wanted to invade.
As the current American President has shown, treaties and obligations only go so far. That destruction of trust may be the most lasting damage that he causes.
It barely has a million people. You have to compare it with other countries of similar size and population. Comparing it to Spain, Germany, US, UAE, Sri Lanka is like comparing mice to dogs, cows, elephants and blue whales.
That said, ofcourse there are things that can be learnt and applied to similar sized towns, cities, states etc that want these features.
As for NATO, it’s better for the big countries if they can hold Russia back in the Baltics and let them be the collateral damage. Sounds win-win to me.
And they get access to lots of cheaper labour directly (migration) and indirectly (outsourcing to people that will still buy your stuff).
As I’ve posted, the big banks in the Baltics are primarily not Baltic.
That access has its benefits, but also its price.
I guess I’m a believer that free trade works out well, well enough to create a system to support those left behind. Often the latter is left out however.
> As for NATO, it’s better for the big countries if they can hold Russia back in the Baltics and let them be the collateral damage. Sounds win-win to me.
Indeed.
Before the eastern expansion I had noticed years ago how portions of Niedersachsen bordering East Germany had been designed as a huge tank trap (dams could be blown up to flood the plains), and the bridges and some other civilian infrastructure was dual use as well (e.g. signed/scaled for tank passage). Likewise I discovered in late 1989 that a lot of the non-local roads between villages in the DDR weren't really passable by passenger cars but would still have bridges able to support heavy armour.
It seemed like a deliberate policy of both NATO and the Warsaw Pact that if there was to be yet another large war in Europe it should start in Germany for a change.
Xolo Leap[1], formerly LeapIn, is probably the most popular way of starting a company in Estonia as a foreigner.
As an EU citizen, I see Estonian e-residency oriented more towards the people who are from outside the EU and want to establish their presence in the EU market.
For instance, it's one of the easiest ways to get access to Stripe for people from Russia, Ukraine, Belarus, Serbia, Israel, Turkey, and many countries from other continents.
But it's not such a good option if you operate from other EU country, such as Germany, because your Estonian company will likely be taxed as a local company there.
In any case, I would personally choose Ireland over Estonia because of the absence of language barrier and almost 40% lower corporate tax, or even the UK, where incorporation is not that much harder or more expensive than in Estonia[2], but regulations are much clearer and laws are much more stable.
I'd say Estonia is one of the few places such companies are not required for setting up, having an accountant to consult before and after is sensible however.
It depends on what your alternatives are. My guess is that it's not worth it because you still have to pay the taxes an employer would and what an employee would - social security and income taxes. You can take a look at the calculator: https://www.calkoo.com/en/salary-calculator
The taxation system itself is very simple, if VAT isn't involved. You can just enter your annual income and the calculator will tell you all of the numbers. Just make sure you use the "salary/wage fund" as the income field for a freelancer.
One thing to keep in mind though is that countries where you actually perform the work usually want a piece of the pie. That can complicate things significantly.
Only yesterday that there was an article in the Finnish newspaper Helsingin Sanomat saying that the e-citizenship is getting increasingly questionable.
Until 2 years ago the e-citizenship was good to open a bank account. After major money laundering scandals (probably unrelated to e-citizenship) you cannot only no longer open a bank account as an e-citizen, but even existing ones of e-citizens are getting closed.
A business without a bank account sounds highly limited to me.
I am French living abroad. I had a one person (freelancing) company when I moved to Japan. It was hell interacting remotely with the administration. I am kind of left wing so I believed in not doing tax optimization and paying the taxes I owe at home, I was told this was suspicious.
If I ever do business again within the EU area, I will give Estonia a try. The prospect of an administration set up for working remotely is very attractive to me.
I share your pain. I was just last night on the phone to France because of a wrangle over a French bank account held by an Australian and German (me and my wife) both currently living in the USA.
I also agree with you on the tax front; at least with regards to the French authorities. Luckily Australia and the US are much simpler in this regard.
