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Comment by StevenHarlow | Hacker News Reader

I've never entirely been sure what the benefit of this is. If I'm a resident of Spain (citizen of the USA) is there a benefit for me to get an E-residency through Estonia instead of starting my business here in Spain instead (or in the USA)?

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There might be a tax benefit (for the business, income tax would still be paid where you live)

But as far as I understand the main value proposition might be for non-EU citizens to be able to open a business in the EU remotely with access to the EU market, banking system etc

I’d be very careful about the business taxes - it used to be a common model that Germans would form a UK ltd to do mostly business in germany - and they were generally liable for corporate taxes in germany. (1) So depending on your local tax laws and where you perform work/where your customers are located, you might still be liable for taxes.

(1) see the section about “inbound Tätigkeit” here https://www.dittmann-hartmann.de/Fachgebiete/Gesellschaftsre...

Indeed. Many EU countries expect to pay the corporate tax levels of where you live, not where your company is registered. Like say you have a company tax rate in your country of residence of 40%, but you open a company in a country where you'll pay just 5%, then your country of residence will expect you to pay the difference to the local 40%, minus the 5% tax you paid in the country where your company is registered so you save nothing in the end while also making life more difficult for you in attorneys and accountants fees.

I knew people doing this without reporting their foreign company income to their local tax authorities, but if they catch you you're looking at severe fines and possibly jail time. I knew a British guy living in Sweden making money from his UK company without fully paying Swedish taxes on his gain from the UK. He later got slapped with a equivalent ~80k Euros fine by the Swedish tax authorities. Turns out, governments don't like you cheating your tax dues.

Legally avoiding taxes in the EU is pretty difficult for the average person without completely relocating to a tax heaven.

So be careful and hire dedicated tax attorneys with experience in international/EU tax laws before you think you're clever and dream of dodging taxes like you're Amazon all on your own.

It’s not “where you live” but where the company operates. I happen to (indirectly) co-own a UK ltd. It does business in the UK and has UK resident employees. It pays taxes in the UK only. But if that Ltd. would operate in Germany from a German office and have German resident employees, it would likely be classified as German tax subject.

It depends how you extract the company profits (as salary? as dividends? do you reinvest them? etc.), and where you move them after you've taken them out.

If you live in Germany but operate a UK company and all those profits never leave the UK, then you'll pay no German tax on those gains. But if you were to take those profits from the UK to use in Germany, then the German gov will want a sizable piece of your foreign gains.

> If you live in Germany but operate a UK company and all those profits never leave the UK, then you'll pay no German tax on those gains.

From my limited understanding this is wrong and you should consult a tax advisor before attempting do set this up. “Ort der Geschäftsleitung” (smth. like “location where business decisions are made”) seems do be a recurring topic when it comes to taxation of foreign companies in Germany. They might argue you are “unbeschränkt steuerpflichtig” in Germany. (You owe taxes just like if your company was registered there.)

Yup, that’s what I took from discussing this with our tax accountants. The reason our UK ltd is taxed in the UK is that it does it’s business in the UK and our German business is served from the German GmbH which owns the UK ltd.

I was considering to incorporate in UK (not for tax reasons but for transparency of their laws compared with the place where I live). My accountant told me that recently there had been laws introduced making it basically impossible to become significant shareholder unless you relocate. I have not confirmed this myself as I'm yet to review regulations.

We have formed our Ltd in the UK pretty much exactly one year ago and it wasn’t a problem for us - however, the Ltd is a subsidiary of our German company, so I’m not a direct shareholder. This may or may not change things.

It's very easy for companies. Netherlands and Luxembourg are tax havens inside the EU, and of course Ireland tailors her laws specifically to "sell" tax evasion products.

For companies yes, but not for individuals. As an individual, your gains are taxed by your country of residence.

Paying taxes in the Netherlands, doesn't absolve you from also being taxed in your home country, if that's where your profits from the Netherlands will end up eventually.

Not necessarily. If you are rich, then there are many ways to get around that. For instance having another company in a tax haven charging licensing fees to your company in Netherlands or whenever and then loaning money to the individual, which in many countries still is tax free. Of course you don't have to repay the loan or pay just the small interest. These taxes are designed to keep working class being working class and ensure they'll never jump the class ladder.

It's funny that these measures only catch small businesses. Big corporations can register all over the place and divert profits where tax is the lowest and don't be bothered by these laws.

This is a tricky subject, and I’m certainly not expert on this, but my understanding is that where a company is resident depends on where its central management and control are based. So if you are the sole director of a UK registered company but reside in the Netherlands, your company is tax resident in the latter. However, if your board are majority in the UK, hold meetings there, etc. your company is resident there, even if you reside in the Netherlands. Then, if you don’t pay income tax on your foreign income in the latter (the 30% expat deal), you effectively pay no personal income tax on whatever you earn through the UK company.

It really depends on your initial country. You can get double taxation or the taxation in Estonia may be not that favorable. Corporate taxes in Poland are lighter for instance.

IANAL but I've looked into this (I'm a Swiss citizen living in Germany) before starting my business. The upside is all digital and less bureaucracy. But then it gets complicated and unclear tax-wise. Furthermore, if you're doing business mainly in your country anyways, other businesses might find it weird that it's not a German legal entity.

So, for me the uncertainity and tax complications were at the end not worth the upsides of less bureacracy to register an Estonian legal entity.

The biggest question to first answer is, "Who and where are your customers?"

If the customer(s) of your business are in Spain, then you would almost certainly find it least complicated to setup a business in Spain. As a legal resident of Spain, you are already required to pay taxes there.

From what I've seen, the tax rates quickly surpass those of the US; so you'll pay all your taxes to Spain and owe the US nothing (although of course you still have to file).

However... if your customers or clients are US based, then you could setup an LLC in a favorable state like Wyoming (you can search on this topic of course; and my serious search resulted in Wyoming seeming to be best). Then your US clients will not face any perceived or real obstacles in doing business with you; and your tax work should be easier (getting qualified help).

Be horrifly careful with taxes in Spain (am a national). You can involuntarily get into a mess very easily.

Case in point, Shakira.

Oh yeah she fell and accidentality moved money through Malta totally by accident.

Realistically speaking, she probably had no idea what was happening to her money. That's why she pays professionals to handle it.

It's like blaming her for a compromise on her website. Do you think she has any idea that her wordpress (example) was an old version?

Not at all: the poor citizen who has a small business: this is the most persecuted in Spain by the IRS.

This is a complex question. What type of business is it? Are you intending on living in Spain long-term? I'm not sure that having e-residency would be beneficial, but you have many options wrt the set-up of a business (depending on the type of business) and setting up a Spanish SL may not be the best choice for you. (I have a Spanish SL but also for many years had a UK based Ltd as a Spanish resident, which I got rid of after the Brexit vote).

Basically, no. You still owe taxes in Spain and, as a US citizen, you need to report to the US and likely owe taxes there too.

That only applies to personal income, right? Business revenue doesn’t need to be reported I believe.

Also, Spain has a wealth tax outside of Madrid, which may or may not apply based on your financial situation, but it’s significant if it applies to you (1-2.5% of net worth annually).

I believe the principal target market is outside of the EU. So for example; Indians that are looking to start a business that sells to the EU. That is what I believe Estonia is seeking to capture with such offers (they've been offering this for quite some time now).

This. I don't understand why anyone in the EU would want this. But as a non-EU resident myself I have found it useful. In fact I just renewed it.

I guess it depends on how Spain taxes companies.

https://www.e-resident.gov.ee/taxes-in-estonia/

Tax and simplified admin I assume?

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