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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?

#111

Post by lbreakjai »

zeroq wrote: post #70
plantain wrote: post #68

Earlier quoted context omitted.

Have you never heard of fringe benefits tax?

Have you read my post? Let say I am a junior SWE in EU. I incorporate in Estonia and issue my employer with an invoice from said company. That company pays for my house, my car, my dental service and whatnot, and what's left I take as a employee salary. I pay local tax for that salary, but that's only a fraction of what I've billed my employer.

Pretty much every country has a concept of benefit in kind. Some countries will allow some expenses to be covered (Part of your phone/internet subscription if you work from home, meals vouchers. Some countries codified some WFH arrangements) but you absolutely won't be able to pay for everything tax free.

You'd be far better-off jumping between countries to leverage the 30% ruling/Beckham Law/HSM tax arrangements if you can.

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

#112

Post by blks »

pier25 wrote: post #25

I've been running a saas like this for the past couple of years. I'm using Xolo which do the accounting and local representative. 99% of my bureaucracy is uploading pdf invoices to the Xolo system. Once a year I have to spend like one hour on the anual report. That's pretty much it. Every 5 years you have to renew your digital id. It costs a little money and if you are in the EU there will be a pickup location not fa…

Do you live in EU? Do you pay yourself a salary from your Estonian company, and is that your main source of income?

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

#113

Post by CRConrad »

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?

I suppose there is one possible rather significant benefit, depending on where you live. If you're going to be an independant contractor, a freelancing "gun for hire", you may want a corporate entity to be your front: As a sole proprietor[1], you'd be personally liable for all your business liabilities -- debts, as well as, say, prosecution. A joint-stock company[2], OTOH, is a legally independent entity, that carries its own assets and liabilities independent of the stockholders. So "as a business", you'd perhaps want not to "be yourself", but rather "be" a joint-stock company.

Those can, AIUI, in many countries be hard, bureaucratic, or expensive to set up. The great advantage of Estonian "electronic residency" (again, only AIUI) is that it enables you to easily and cheaply set up an Estonian "electronic stock company", which might not be so easy and cheap where you live.

It's not just about "charging"; it's about shielding.

___

[1]: https://en.wikipedia.org/wiki/Sole_proprietorship

[2]: https://en.wikipedia.org/wiki/Joint-stock_company

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

#114

Post by registeredcorn »

notpushkin wrote: post #106
registeredcorn wrote: post #28

Earlier quoted context omitted.

>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.

Ah, sorry. I was using Japan as an example of "living somewhere very far outside of the EU" to highlight the sense of distance between the two. I have listened to a little bit about how difficult it is to open a business in Japan (as a foreigner, at least) and how stressful tax time can be [1], but I'm not well versed in the specifics of how they do things.

[1] https://youtu.be/XpvTyyfcBaw?t=416

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

#115

Post by CRConrad »

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…

> Having limited liability through some kind of corporation can be nice.

I think this is the main point and benefit of the whole thing. It can be difficult and/or expensive to set up a limited liabilty company in many countries; as an e-Stonian, it's apparently cheap and simple.

Any possible tax benefits are just a bonus.

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

#116

Post by codethief »

fl7305 wrote: post #109
codethief wrote: post #35

Earlier quoted context omitted.

> 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 i…

> Namely: Salary is taxed lower than dividends.

That very much depends on your tax bracket but at high income levels salaries are usually taxed quite a bit higher (42% vs. ~27%). 42% being the highest tax bracket of course; the first ~69k€ of your salary are taxed at a lower rate.

> If they determine that you paid out dividends as a salary, then you'll be charged with tax fraud.

This might be the case if the company were in Germany, and then it might not even be the taxman that'd complain but social security since you don't pay social security fees on capital gains. However, I doubt German authorities can do much about an Estonian entity paying dividends.

> You can't just keep adjusting your salary up and down every month with a corporation.

Yes, you can. Many companies do that – it's called fixed vs. variable salary (bonuses).

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

You're right in general (and I assume also in the case of an Estonian entity). Though at least in Germany – surprisingly – this is not correct, look up "Gewinnvorabausschüttung".

Either way, this is not a huge obstacle if you're pursuing this long-term: You only have to make it through the first year without any income. Afterwards you can live off of last year's dividends.

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

#119

Post by EnXu »

shrink wrote: post #18

I've had companies in a few different jurisdictions, including a Delaware C Corp[1] and currently an OÜ through Estonia's e-residency program. Yes, it is fantastic and delivers on all of the promises. The only potential headache is that you must collect your e-residency card from an embassy which, depending on your location, might require travel to a nearby country. I used Xolo but there are lots of agents in the dir…

[dead]

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

#120

Post by samus »

codethief wrote: post #89
samus wrote: post #72

Earlier quoted context omitted.

> Could you elaborate? How is this illegal if you declare taxes? Dividends are treated differently from the salary by tax laws.

Sure but that doesn't make them illegal?

Not illegal, but the incorrect amount of taxes will be paid. Also, the financial statements will not be entirely correct. So, not illegal in the sense of "not allowed", but in the sense of "legal requirements and obligations not fulfilled".
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