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Setting up a business in Bulgaria vs Estonia

Malcolm_X

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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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MTF

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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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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. :)
 

Malcolm_X

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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.
 
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jonahsr

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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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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.
 
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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
 

eugene.l

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Lawyer did it for me, just had to sign. But I also moved there for a few months.

If you want me to introduce him to you feel free to reach out, he's doing a great job.

Hey, can you send me the contact of that Portuguese lawyer you mentioned? I am looking into going under the NHR as well this year. Thx.
 
D

Deleted78083

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And I am moving pretty often, so I am clueless on where I am actually a tax resident.

Generally, you are a tax resident where you pay the taxes that go feed your pension fund, and that depends on the treaty signed between the two countries you are concerned with: where you work, and where you live. Indeed, if you live in A and work in B, both countries could ask you to pay taxes, unless they have an agreement.

If I take the example of Luxemburg and Belgium, they pay taxes on their salary where they make the money: the Belgians that work in Luxemburg pay their taxes on their revenues in Luxemburg to the state of Luxemburg and the other way around. If they have some revenues in Belgium though, through real estate for example, they'll have to pay the taxes on these revenues to Belgium.
It's like that because that is what has been convened between Belgium and Luxemburg. As such, each combination (Ukraine-Bulgaria, for example) will be different, depending on the treaty the two countries have convened. Make sure to have a look at these treaties!

Now, if a Belgian that was working in Luxemburg decides to come back to work in Belgium, they can whether ask Luxemburg to transfer the pension fund to Belgium, or leave it as it is and simply start working in Belgium. When they retire, they will therefore benefit from two pensions: the Belgian one, and the Luxemburg one.

But all of this is for slowlaners....so what if you are Polish, have an internet company in Estonia that sells furniture made in Spain to Portugal, while you're living in the Netherlands? Well, you have several solutions:

1. You pay revenue taxes in Poland from your salary drawn from your Estonian company (you will have a Polish pension) and pay resident tax in the Netherlands because you live there, according to what is allowed by the treaties concluded between the Netherlands, Poland and Estonia. Indeed, according to the treaty, the Netherlands may as well ask you to move your pension fund from Poland to the Netherlands because besides your Polish passport, you have no tied with Poland, but I have no idea how it could work, you gotta look at the treaty.
2. You pay revenue taxes in Estonia from your salary drawn from your Estonian company because you decided to become a tax resident there (you will have an Estonian pension). The only Polish thing you have is the passport, but that's it. You also probably pay some sort of resident tax in the Netherlands in accordance with the Dutch-Estonian treaty.
3. You pay revenue taxes in the Netherlands from your salary drawn from your Estonian company in accordance with the treaty concluded between the Netherlands, and Estonia (you will have a Dutch pension).

Mind that I only know as much as I read, and that you shouldn't entirely rely on these explanations. Go consult a professional, I think it's a good idea. If you want to know how the Estonian e-residency tax system works, check this thread:

Setting up a company in Hong Kong

Best of luck,

M.
 

lomb

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Generally, you are a tax resident where you pay the taxes that go feed your pension fund, and that depends on the treaty signed between the two countries you are concerned with: where you work, and where you live. Indeed, if you live in A and work in B, both countries could ask you to pay taxes, unless they have an agreement.

If I take the example of Luxemburg and Belgium, they pay taxes on their salary where they make the money: the Belgians that work in Luxemburg pay their taxes on their revenues in Luxemburg to the state of Luxemburg and the other way around. If they have some revenues in Belgium though, through real estate for example, they'll have to pay the taxes on these revenues to Belgium.
It's like that because that is what has been convened between Belgium and Luxemburg. As such, each combination (Ukraine-Bulgaria, for example) will be different, depending on the treaty the two countries have convened. Make sure to have a look at these treaties!

Now, if a Belgian that was working in Luxemburg decides to come back to work in Belgium, they can whether ask Luxemburg to transfer the pension fund to Belgium, or leave it as it is and simply start working in Belgium. When they retire, they will therefore benefit from two pensions: the Belgian one, and the Luxemburg one.

But all of this is for slowlaners....so what if you are Polish, have an internet company in Estonia that sells furniture made in Spain to Portugal, while you're living in the Netherlands? Well, you have several solutions:

1. You pay revenue taxes in Poland from your salary drawn from your Estonian company (you will have a Polish pension) and pay resident tax in the Netherlands because you live there, according to what is allowed by the treaties concluded between the Netherlands, Poland and Estonia. Indeed, according to the treaty, the Netherlands may as well ask you to move your pension fund from Poland to the Netherlands because besides your Polish passport, you have no tied with Poland, but I have no idea how it could work, you gotta look at the treaty.
2. You pay revenue taxes in Estonia from your salary drawn from your Estonian company because you decided to become a tax resident there (you will have an Estonian pension). The only Polish thing you have is the passport, but that's it. You also probably pay some sort of resident tax in the Netherlands in accordance with the Dutch-Estonian treaty.
3. You pay revenue taxes in the Netherlands from your salary drawn from your Estonian company in accordance with the treaty concluded between the Netherlands, and Estonia (you will have a Dutch pension).

Mind that I only know as much as I read, and that you shouldn't entirely rely on these explanations. Go consult a professional, I think it's a good idea. If you want to know how the Estonian e-residency tax system works, check this thread:

Setting up a company in Hong Kong

Best of luck,

M.

Does CFC controlled foreign company legislation apply if the corporate profits are retained in said company. Persumably after 5 years hen the company has some fat profits you can emigrate and become tax resident elsewhere and draw the funds.
 
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D

Deleted78083

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Does CFC controlled foreign company legislation apply if the corporate profits are retained in said company. Persumably after 5 years hen the company has some fat profits you can emigrate and become tax resident elsewhere and draw the funds.
I am not sure i understand
 

lomb

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I am not sure i understand
I mean if you dont pay out the profits as a salary, keep it in the company.

I looked into it and here in Ireland, a company could be registered in Panama or Isle of Man and if specific requirements are met like majority of directors are resident in Ireland then the company is treated as tax resident in Ireland. Which is crazy if you think about it
 
D

Deleted78083

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I mean if you dont pay out the profits as a salary, keep it in the company.

I looked into it and here in Ireland, a company could be registered in Panama or Isle of Man and if specific requirements are met like majority of directors are resident in Ireland then the company is treated as tax resident in Ireland. Which is crazy if you think about it

Ah, yeah, that's how tax evasion becomes legal.
 
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