4 ms·

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

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 have to do the same tax paperwork as with a german GmbH and file them official with the tax authorities (Steuererklärungen, Umsatzsteuerjahresabschluss) and the Bundesanzeiger (Jahresabschlussbilanz). Nothing gets easier with that setup.

abpavel 7mo ago
This is the best answer. Internally, we have to deal with bureaucracies of every country for employment and residencies. Separately.
lordnacho 7mo ago
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?
- romanovcode 7mo ago
  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).
- CRConrad 7mo ago
  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 https://en.wikipedia.org/wiki/Sole_proprietorship [2]: https://en.wikipedia.org/wiki/Joint-stock_company https://en.wikipedia.org/wiki/Joint-stock_company
zeroq 7mo ago
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 taxes over there. Here's the tricky part. Estonia is part of Schengen Area. Which means you can travel there and back without passport. There's no paper trail of your arrangements. You can easily create a reality in which you reside there for majority of time. But again, that's not the selling part of Estonian LTD. Which is - it's extremely easygoing and as long as money stays in the company you're not paying taxes.
- plantain 7mo ago
  Have you never heard of fringe benefits tax?
  - zeroq 7mo ago
    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.
    - d1sxeyes 7mo ago
      That's just tax fraud though. There's also the CFC rule, which means that within the EU, if you control a foreign corporation, your country of tax residence can tax undistributed profits. Often tax offices don't bother and you might not get caught, but 'not getting caught' is not the same as it being legit.
    - littlecranky67 7mo ago
      That would not be possible at in Germany, everything you just listed is considered a "geldwerter Vorteil" and falls under income tax - even if the company gives you a car that you need to do your job, you will have to pay taxes on it.
mbeex 7mo ago
Exactly. I'm German and simulated the constellation some year's ago. Verdict was, if you are inside the EU it won't pay out. The Estonian model is for people trying to participate in the EU market from outside.
KellyCriterion 7mo ago
It is about where the actual "effective management" is considered to be located: If you live in Germany permanently, the tax office can decided to tax you as if you were a Germany company - and yes, most of the times they do it. If you travel regularly and have an office in Estonia and you make the effective management decisions there, you are obliged to Estonian tax system only.
romanovcode 7mo ago
This should be higher up. Xolo deliberately hides this under small-print with vague statement about this issue. If you manage your company in, let's say, Germany, it is de-facto German company in the eyes of German tax authorities. When German tax authorities will find this out they will make you open UG/GmbH and pay back the corpo-tax, plus possibly a fine. Now you will be stuck with 2 companies - Estonian and German, which is way bigger hassle. Not to mention Estonian company becomes useless/liability. I also want to mention that practically every country has offshore-company laws like this, even places like Thailand and other SEA countries. It's not only EU.
udl 7mo ago
I still live in (and don't plan to change it) in Germany. So I guess the whole thing doesn't really work for me. The goal of the whole operation would have been to make bureaucracy easier, but that doesn't seem to work. So ... it's a no do, unfortunately.

abpavel 7mo ago

This is the best answer. Internally, we have to deal with bureaucracies of every country for employment and residencies. Separately.

lordnacho 7mo ago

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?

romanovcode 7mo ago
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).
CRConrad 7mo ago
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 https://en.wikipedia.org/wiki/Sole_proprietorship [2]: https://en.wikipedia.org/wiki/Joint-stock_company https://en.wikipedia.org/wiki/Joint-stock_company

zeroq 7mo ago

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 taxes over there. Here's the tricky part. Estonia is part of Schengen Area. Which means you can travel there and back without passport. There's no paper trail of your arrangements. You can easily create a reality in which you reside there for majority of time. But again, that's not the selling part of Estonian LTD. Which is - it's extremely easygoing and as long as money stays in the company you're not paying taxes.

plantain 7mo ago
Have you never heard of fringe benefits tax?
- zeroq 7mo ago
  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.
  - d1sxeyes 7mo ago
    That's just tax fraud though. There's also the CFC rule, which means that within the EU, if you control a foreign corporation, your country of tax residence can tax undistributed profits. Often tax offices don't bother and you might not get caught, but 'not getting caught' is not the same as it being legit.
  - littlecranky67 7mo ago
    That would not be possible at in Germany, everything you just listed is considered a "geldwerter Vorteil" and falls under income tax - even if the company gives you a car that you need to do your job, you will have to pay taxes on it.

mbeex 7mo ago

Exactly. I'm German and simulated the constellation some year's ago. Verdict was, if you are inside the EU it won't pay out. The Estonian model is for people trying to participate in the EU market from outside.

KellyCriterion 7mo ago

It is about where the actual "effective management" is considered to be located: If you live in Germany permanently, the tax office can decided to tax you as if you were a Germany company - and yes, most of the times they do it. If you travel regularly and have an office in Estonia and you make the effective management decisions there, you are obliged to Estonian tax system only.

romanovcode 7mo ago

This should be higher up. Xolo deliberately hides this under small-print with vague statement about this issue. If you manage your company in, let's say, Germany, it is de-facto German company in the eyes of German tax authorities. When German tax authorities will find this out they will make you open UG/GmbH and pay back the corpo-tax, plus possibly a fine. Now you will be stuck with 2 companies - Estonian and German, which is way bigger hassle. Not to mention Estonian company becomes useless/liability. I also want to mention that practically every country has offshore-company laws like this, even places like Thailand and other SEA countries. It's not only EU.

udl 7mo ago

I still live in (and don't plan to change it) in Germany. So I guess the whole thing doesn't really work for me. The goal of the whole operation would have been to make bureaucracy easier, but that doesn't seem to work. So ... it's a no do, unfortunately.