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Ask HN: Founders of estonian e-businesses – is it worth it?

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Re: Ask HN: Founders of estonian e-businesses – is it worth it?

#101

Post by alde »

romanovcode wrote: post #93
alde wrote: post #87

Please read up on what a permanent establishment means from a tax perspective. Most countries tax laws, especially EUs unambiguously state that the Estonian company will be taxed as if it was a company in your primary residence country. The e-residence website repeats this many times, with many examples focusing on Germany. https://learn.e-resident.gov.ee/hc/en-gb/articles/3600025428... The whole e-residence thing on…

> non-EU country which doesn’t model its tax code on the OECD model. It's a very narrow list of countries then. Only reason where it would really work if the owner is digital nomad with no tax residency anywhere.

Yes, the specific details are outlined in the bilateral tax treaties between Estonia and the given country, but it is almost always tax evasion.

It mostly makes sense for people from countries with weak corporate tax enforcement that need a limited liability entity in a reputable jurisdiction like Estonia.

Re: Ask HN: Founders of estonian e-businesses – is it worth it?

#102

Post by izacus »

zeroq wrote: post #61
littlecranky67 wrote: post #47

You said you are from Germany but not where you are now. If you are still in Germany, forget it. Just because you incorporate outside of Germany does not exempt your from any taxes (and its beauraucracies) in Germany. That is, even with an estonian corporation, you will owe german corporate taxes (plural - one goes to the state one to the county - a.k.a. Körperschaftsteuer and Gewerbesteuer). That implies you will ha…

You're not wrong, but you're missing the best part. Estonian company does not pay taxes (*). As long as the money stays within the company he's golden. The company can pay for his car, his apartment/office, etc. It is only when he decides to withdraw the money the problem occurs. What you're saying applies to most EU countries. Here where I live you have to reside for majority of the year in given residency to pay ta…

You've literally described direct tax fraud which won't survive audit.

Re: Ask HN: Founders of estonian e-businesses – is it worth it?

#103

Post by romanovcode »

lordnacho wrote: post #52
littlecranky67 wrote: post #47

You said you are from Germany but not where you are now. If you are still in Germany, forget it. Just because you incorporate outside of Germany does not exempt your from any taxes (and its beauraucracies) in Germany. That is, even with an estonian corporation, you will owe german corporate taxes (plural - one goes to the state one to the county - a.k.a. Körperschaftsteuer and Gewerbesteuer). That implies you will ha…

This is why I was wondering what the point was. Surely most countries will claim taxes from you if you work there, so having an Estonian entity will do little? Can someone explain the actual benefit of sitting in a developed country and charging via Estonia?

For customer, unless you are a true digital nomad e.g. have no residency anywhere the benefit is: none.

For Estonia who uses services like Xolo to promote this for unaware people the benefit is: money (in a form of dividend tax, e-residency registration fees and so on).

Re: Ask HN: Founders of estonian e-businesses – is it worth it?

#104

Post by csomar »

Even the simplest of jurisdictions will cost you $3000-5000 of yearly up keep for no revenue. Don’t be deluded with the incorporation cost, later on you’ll discover lots of required things that are not very obvious now like banking fees, mailbox, accountants, some form, VAT, etc..

So until you have $5.000 of yearly revenue (or guaranteed incoming revenue), do not incorporate. Just remind your users that your service is not free and they have to pay up at some point after the beta.

Once you hit that threshold, you can consider incorporating. No one can help you in that. There are three factors here: Where you live, What your passport is (where you are from) and where your income is coming from. Based on these three, you’ll be able to determine which jurisdiction is most suitable. It’s not the one with the least taxes because at this stage, 5% or 40% tax on profit is irrelevant.

Re: Ask HN: Founders of estonian e-businesses – is it worth it?

#106

Post by notpushkin »

registeredcorn wrote: post #28
tpetry wrote: post #19

Oh there will be a lot of issues in the future because Germany says thst your company is in Germany because you work from there. So you have to do taxes in Estonia and in Germany. And prepare for a lot of tax issues if you dont have a good tax advisor.

>Germany says that your company is in Germany because you work from there. Forgive my ignorance, I have never really thought about this before and I may be missing something very obvious here. Isn't that kind of true , though? For instance, if I am a citizen of Japan, live there, and run my remote business from there, but the business that I run exclusively makes money from people in Portugal and Brazil, it would be…

For Japan in specific, you’ll want to look into JCFC. Not a tax or legal advice, but IIRC it boils down to: if your company (assuming 100% ownership) is paying less taxes than a Japanese company would, and you’re a Japanese tax resident, you would need to pay the difference in Japan. It is probably similar in other jurisdictions that have CFC laws.

Also do read up on permanent establishment rules as well.

Re: Ask HN: Founders of estonian e-businesses – is it worth it?

#107

Post by [deleted] »

izacus wrote: post #102
zeroq wrote: post #61

Earlier quoted context omitted.

You're not wrong, but you're missing the best part. Estonian company does not pay taxes (*). As long as the money stays within the company he's golden. The company can pay for his car, his apartment/office, etc. It is only when he decides to withdraw the money the problem occurs. What you're saying applies to most EU countries. Here where I live you have to reside for majority of the year in given residency to pay ta…

You've literally described direct tax fraud which won't survive audit.

[deleted]

Re: Ask HN: Founders of estonian e-businesses – is it worth it?

#108

Post by gcifuentes »

I collected my Estonian non-citizen id card from Madrid. I found their income reports misleading and highly subjective. Plus you have to pay someone to dump the data in Estonian. You are subject to fines on a phone line. Not much security from an owner POV. I finally closed the entity which was much more expensive than opening.

At the end, these kind of stuff is done so they can charge entrepeneurs heftly and throughly with invoices on services which could not be needed if you were in their jurisdiction.

Not worth it.

PD. I forgot to add the ID card is valid for 5 years or so so you might run out of identity while your company is running, risky business.

Re: Ask HN: Founders of estonian e-businesses – is it worth it?

#109

Post by fl7305 »

codethief wrote: post #35
fl7305 wrote: post #21

> As somebody from Germany, establishing a company is a bit tedious and bureaucratic. I'm fairly sure the German tax authority will claim that you have a local German branch office since you live and work there. That might be OK tax wise? But I'd recommend starting with the tax situation in Germany. Having limited liability through some kind of corporation can be nice. But on the other hand, it becomes harder in Germ…

> I'm fairly sure the German tax authority will claim that you have a local German branch office since you live and work there. That might be OK tax wise? If you work from home, your office at home usually does not qualify as a company office unless you make it one. In particular, that alone would not force you to pay Gewerbesteuer to the city, which is the tax specifically addressing local presence. However, you're…

> Could you elaborate? How is this illegal if you declare taxes?

As someone else mentioned, the taxes are different.

Namely: Salary is taxed lower than dividends. So the German tax authorities checks very carefully that you don't pay salary instead of dividends. If they determine that you paid out dividends as a salary, then you'll be charged with tax fraud.

Now you might say, "I don't care about paying a bit extra in taxes, so I'll pay it as dividends as they wish"

The problem is that you can only pay dividends the year after you earn the money.

If you can set a fixed salary which you can keep paying throughout, and then wait for the dividend payments next year, that's fine.

But what if you want to pay yourself wildly different amounts of money each month based on how much you managed to charge your customers? You can't just keep adjusting your salary up and down every month with a corporation.

So here's where something like a sole proprietorship may be simpler from that aspect?

Another thing you want to look at is "how easy will it be to dissolve the operations?" With a GmbH/UG it takes several years and potentially many thousands of euros in accounting fees. Not sure about the foreign corps. I think German sole proprietorships are simpler in either case?

Also, Germany has a "Moving away tax" where you get taxed on the fictious value of your company if you move away from Germany. This fictious value can be quite a lot more than what you'd actually get if selling the company.

Yet another thing: Depending on your setup, you may be covered by different rules regarding health insurance and pensions. If you don't make a lot of money in the beginning, it may be best to stay in the government insurance. But if you think you'll make a lot of money, it can be better to be able to do private insurance instead? There are rules on how you can move back and forth between government/private, so this is another area to consider carefully.

This is my understanding as a layman, please check this with a competent local tax expert before acting on any advice here.

Re: Ask HN: Founders of estonian e-businesses – is it worth it?

#110

Post by fl7305 »

mono442 wrote: post #31
fl7305 wrote: post #21

> As somebody from Germany, establishing a company is a bit tedious and bureaucratic. I'm fairly sure the German tax authority will claim that you have a local German branch office since you live and work there. That might be OK tax wise? But I'd recommend starting with the tax situation in Germany. Having limited liability through some kind of corporation can be nice. But on the other hand, it becomes harder in Germ…

In some countries, it's common to register a sole proprietorship in addition to a limited liability company and bill the company from the sole proprietorship to avoid double taxation. However, I suppose this would not be allowed in Germany.

I don't see how the German tax authorities would allow this since it would completely circumvent their rules about "disguised profit payments"?

https://de.wikipedia.org/wiki/Verdeckte_Gewinnaussch%C3%BCtt...

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