Setting up a business in Bulgaria vs Estonia

[Malcolm_X]

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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[MTF]

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]

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.