The obvious advantage to registering in Estonia would be the certainty of continued access to the European Single Market. We're still not entirely sure how Brexit will pan out.
Another option well worth considering is Stripe Atlas. It's not the cheapest way to start a corporation, but Stripe provide a huge amount of added value.
How about the banking system for companies opened by non-residents? Can one get a multi-currency bank account easily?
Alternatives likes Transferwise or Revolut would be the norm for operating across different currencies.
You can't sell equity in an LLP being a big, obvious, one, so basically you can't raise money.
It jumps significantly (next step up is 32.5%) once you move into the higher income tax brackets, which start at £46k: https://www.gov.uk/income-tax-rates
Not sure where you are located, but if you spend the majority of your time in a other EU country (e.g. Germany) you will have a very hard time explaining to the local tax authorities that the company entity is not effectively being managed from Germany. And when you fail to explain this, the company entity becomes a german tax resident and you have to deal with all sorts of paperwork and expensive tax consultants. This is especially true when you have no local employees in Estonia.
I believe many countries would have DTAA with Estonia.
Tax-wise Estonia may not be right for you, but starting a company is a lot easier depending upon where you live. In India, it takes about 30+ days to open a company, not to mention stupid, useless forms and KYC-terrorism.
Not for tax reasons (assuming you would pay the same tax for either a German or Estonian company as others said in the thread) but for bureaucracy reasons. Skipping the whole German procedure.
This is way more complicated than you might think, as improper tax collection may constitute felony charges and fines, leaving small businesses and startups in an awkward spot where not selling to other eu countries is easier than selling to them in a compliant way, putting the idea of a single market ad absurdum. The last thing you would want is pointless market entry barriers affecting every entity offering cross border sales.
I have no idea what the situation is in Poland, but there's no such thing as a "felony" in my country; an honest mistake on my tax return is an honest mistake, not a criminal offence. I'd only be criminally liable if I was unreasonably negligent or acted with the deliberate intent to deceive. As long as I a) record the customer's country for each transaction and b) fill out my VAT MOSS return accordingly every quarter, the tax authorities (HMRC) are perfectly happy.
Doing VAT wrong is really not an option.
So ok, I see in theory it can happen but is there any case where this actually happened in the EU unless it was willfully wrong or fraud in some huge company with an accountants scandal?
- do they send one monthly payment? If so, from which country?
- is VAT-EU number needed?
- if I don't register for VAT (don't reach yearly selling threshold), do I get full payout? Are clients charged for VAT in such scenario?
- what documents do I get from them, in case of tax office review?
- is 3.5% + $0.30 fee applicable to EU customers or is there some additional cost (I assume not, but I ask just to be sure)?
- if I sell digital product, what should I do about e.g. Canadian/Indian/Japanese/whatever sell taxes?
If you think this is easy, tell me how much VAT (and in which currency) you will charge a customer from AX today, and what you'll do about a customer from GB in March. None of this is obvious, and it all changes quickly.
As others have pointed out, there are services that supposedly help with this. I looked at everything that was available a couple of years ago and none of the available solutions did this easily and correctly. It's not an easily outsourceable problem, either, as it has to integrate closely with your billing.
For B2B customers this is not an issue: you don't charge VAT (reverse charge) and you're done.
I am a Canadian resident, my co-founder is an Estonian resident (physical). Both of these may change in the future and the intended market for our startup is global. Estonia was chosen as a common ground with a minimal overhead - it's easy and costs almost nothing.
Using government services with an ID-card was a breeze. For banking we use a "physical" Estonian bank, once set up I have no problem accessing it online either.
We didn't have any revenue the previous year, so cannot say much about taxation story here. It gets more or less complicated depending on your country of residence, but I don't think that having a business entity in Estonia is fundamentally different from other EU countries here.
Slightly more personal and readable story, written by me: https://medium.com/e-residency-blog/how-to-launch-an-estonia...
If you are still a Canadian resident, do remember to file T1134. If you own 50/50 in the business, you can perhaps argue that this is a foreign affiliate only, and not a controlled foreign affiliate.
Also the Dutch tax laws don’t care about the company as long as you pay the personal income tax plus some employee insurance tax.
In my experience of trying to sell a SaaS to small businesses, their only location-based concern is about where the data is hosted and if we are GDPR compliant. If you can offer hosting in some EU AWS or Google Cloud region that will be much more useful.
Because the Estonian government is fairly unique in that it will issue an electronic identification card to anyone who requests it and passes a background check, permitting that person--regardless of nationality--to use most Estonian government services, like business registration and tax filing, from anywhere.
More to the point, though, is that Estonia provides a digital identity and signing system that, among other purposes, allows you to access Estonian government services like forming a company. Since you can form a business under Estonian law, you operate as part of the European Union single market.
In most cases it won't positively benefit people in terms of taxation.
However, it might perhaps be useful for people coming from countries that are looked down upon by some significant EU countries. In that case, having an Estonia registration might increase the credibility of the business from an initial (and sometimes important) external view.
We are in development so don't have any customers yet, so I can't tell you how taxes etc will be but I can tell you the process of dealing with the .ee government so far is paradise compared to the US process.
This doesn't save any taxes, and isn't a strategy to do so. The costs themselves are't that great: a few hundred Euro.
The reasons we did were the following:
- Ease of doing business with clients and vendors in other EU countries: we have an EU bank account in Euros, can generate all the right VAT paperwork etc. Not huge, but for some businesses critical. We also have a US subsidiary in Delaware and a couple of state registrations because that is how you employ people in the US. Ditto for a third country where one of the founders is moving.
- VCs are increasingly comfortable with overseas-registered countries, at least ones not in tax havens. Ten years ago this would have been seen as weird. I've always previously incorporated in Delaware where I've never set foot so this isn't a big deal.
- Our lawyer (!!!) in SV suggested we officially HQ the company overseas (I already had an e-residency so we used Estonia). He said as the founding team was all foreigners (though some in the Valley for decades), it was a good hedge against unforeseen changes in the federal government's attitude towards foreigners. TTTT I would have considered it wide-eyed raving except this lawyer has been working at a big law firm in the valley, for 30 years. But what the hell, it's so easy to do these days why not.
Not everything you need is in English but tbh I don't interact with Estonia any more than I interact with Delaware and this has never been a problem.
The e-residency card comes with a chip reader that plugs into your computer and does a handshake with the bank. There are a bunch of companies who authenticate via the e-e-residency card: https://e-resident.gov.ee/run-a-company/