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Setting up a business in Bulgaria vs Estonia

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Malcolm_X

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Nov 6, 2015
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I’m thinking about setting up a company in one of the countries.. I did some research but need to understand the topic of taxes a bit deeper, to see which one would make more sense long term in my specific case.

From what I thought, in Estonia I pay 0% corporate tax and pay 20% income tax (when I withdraw money out of the business account to my personal account).

However, apparently I pay both corporate and income tax in my country of residence (tax residency).

Which leaves me confused.

In Bulgaria on the other side, I pay 10% corporate tax from all revenue and 5% income tax (when I withdraw money out of the business bank account).

They do have double taxation measures in place, so if I am resident in a European country, I don’t have to care about anything else. I do all bureaucracy within Bulgaria and that’s it.

For someone that is more knowledgeable on the subject and ideally has a company either in Bulgaria or Estonia (as a foreigner) - could you explain this a bit further ?
 

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Take a look at this under "Controlled foreign companies (CFCs)":
Germany - Group taxation

Unless you really know what you're doing (and for that, you probably need an experienced international tax advisor), a company you establish outside of Germany will be probably subject to German laws and taxes, meaning that you won't get any tax benefits of incorporating it either in Estonia or Bulgaria. You would need to physically move and become a tax resident there to benefit from the lower tax rates.

Having said that, when it comes to tax advice, the best thing you can do is hire an (expensive) advisor like the guys from PWC. There might be a way to set it up legally and defend yourself in case the German tax authorities question you, but for that you need somebody who lives this stuff, not a random guy on a forum.
 

jonahsr

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Mar 28, 2019
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Lisbon, Portugal
I set up a Bulgarian company, and it is pretty good. Low taxes as you already mentioned, but you need to make sure that your resident county has a DTA as well as certain CFC laws in place in order not to get taxed more than on the Bulgarian side. I live in Portugal with the NHR program, meaning 15% works for me, but you still need to be careful when it comes to running the company. One example would be not to have board meetings in your country of residence, otherwise, that might be used against you if your country of residence tries to enforce CFC laws on you.

If you are not a lawyer with extensive experience regarding the topic, I'd highly recommend you find one that does. Ideally based in your country of residence specialising in international tax laws. You may end up spending a few k, but it's worth it in the end. A lawsuit can cost you way more than that (not just money, but in some cases your freedom).

Wishing you the best with your endeavours. :)
 
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Malcolm_X

Malcolm_X

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Nov 6, 2015
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Germany
Thanks for the response.

Yeah, I should definitely find a lawyer.. since I am originally from Slovakia, but live in Ukraine currently (where I also have my company set up). And I am moving pretty often, so I am clueless on where I am actually a tax resident.

But both Bulgaria and Estonia have the double taxation treaty with both Slovakia and Ukraine..
not sure what exactly I can draw from this fact though.
 

jonahsr

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Mar 28, 2019
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Lisbon, Portugal
Thanks for the response.

Yeah, I should definitely find a lawyer.. since I am originally from Slovakia, but live in Ukraine currently (where I also have my company set up). And I am moving pretty often, so I am clueless on where I am actually a tax resident.

But both Bulgaria and Estonia have the double taxation treaty with both Slovakia and Ukraine..
not sure what exactly I can draw from this fact though.
Look into Ukraine CFC laws.
 

alekssiht

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Mar 15, 2019
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Estonia
I’m thinking about setting up a company in one of the countries.. I did some research but need to understand the topic of taxes a bit deeper, to see which one would make more sense long term in my specific case.

From what I thought, in Estonia I pay 0% corporate tax and pay 20% income tax (when I withdraw money out of the business account to my personal account).

However, apparently I pay both corporate and income tax in my country of residence (tax residency).

Which leaves me confused.

In Bulgaria on the other side, I pay 10% corporate tax from all revenue and 5% income tax (when I withdraw money out of the business bank account).

They do have double taxation measures in place, so if I am resident in a European country, I don’t have to care about anything else. I do all bureaucracy within Bulgaria and that’s it.

For someone that is more knowledgeable on the subject and ideally has a company either in Bulgaria or Estonia (as a foreigner) - could you explain this a bit further ?
Hey, mabye this can give you any clarity
Eesti riigi infoportaal | Eesti.ee
 

GlobalWealth

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Hi @Malcolm_X
This is a pretty complex topic and really outside the scope of a forum conversation due to the nature of personalized planning.

Each person's situation is different and thus someone's solution could potentially create problems for you without knowing all the details.

In each situation, you need to consider; citizenship, legal residency, tax residency, nature of business, location of clients, how you get paid, among a dozen other factors.

For Bulgaria, it could be a decent option depending on the situation. As @jonahsr stated, the taxes are low but you really need to consider CFC rules, which can be incredible confusing.

In fact, I am speaking at a Digital Nomad conference in Bulgaria in May on exactly this topic.

For Estonia, I don't normally recommend this to my clients except in special circumstances. Estonia did a good job marketing their e-residency program but the reality is it is a well-marketed project with very little benefit for most people. There is an ENORMOUS amount of bad information about Estonian companies, most of it promoted by some well-known but entirely ill-informed blogs.

I've read countless articles and had dozens and dozens of client calls about how Estonia has zero tax, or tax holidays, or doesn't tax foreigners, etc. All of this is incorrect.

The main thing most people tend to ignore or forget is the person's tax residency, which may or may not be the same as their legal residency. With CRS in full effect now and enforcement in place for a few months now, this is critically important.

PM me if you want to chat.
 

Remiremi

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I set up a Bulgarian company, and it is pretty good. Low taxes as you already mentioned, but you need to make sure that your resident county has a DTA as well as certain CFC laws in place in order not to get taxed more than on the Bulgarian side. I live in Portugal with the NHR program, meaning 15% works for me, but you still need to be careful when it comes to running the company. One example would be not to have board meetings in your country of residence, otherwise, that might be used against you if your country of residence tries to enforce CFC laws on you.

If you are not a lawyer with extensive experience regarding the topic, I'd highly recommend you find one that does. Ideally based in your country of residence specialising in international tax laws. You may end up spending a few k, but it's worth it in the end. A lawsuit can cost you way more than that (not just money, but in some cases your freedom).

Wishing you the best with your endeavours. :)
How did you created the OOD? Did you moved there to do all the paper work?
 

Remiremi

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No in France, but it looks like there is a dta between both countries
 

maksm9696

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Jan 13, 2020
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Hey

Still, why do we need a business? It is needed in order to move to the right side of the quadrant, into the world of entrepreneurs and investors. First of all, “moving” there mentally, which will entail a qualitative change in your reality in material and value terms.

We examined the basic difference between rich and poor people. A person with the thinking of an employee can understand only himself and his own kind. The investor knows how all four categories of people think and act. To fully understand this difference, you must become a businessman and / or investor. Here is such an imaginary paradox.
Thanks
 

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