I dont get it, does this mean there is 0% corporation tax in Estonia? What are the taxes on wages then as in if your estonian company pays you? What other taxes should one be aware? what is the VAT rate
so many questions but their answer is "talk to a professional" which means visiting Estonia, answering some of these questions up front would make things clearer and make it easier to decide whether to apply for one
BTW has anyone here done it? a blog post on experiences pros and cons would be great...
There is a dividend tax, making this business environment expecially lucrative if your plan is to reinvest profits.
VAT is 20%
Income tax for physical person is 20% and the company has to pay on top of it roughly 33% of social taxes. There's a plan in place to reduce social tax by 1%
Other than being able to establish a company in Estonia there doesn't seem to be anything compelling about this. Those tax rates - 20% VAT and 33% social taxes - are not friendly. You have to rely on a third party for a mailing address just to open the company. And if you want to try to open a bank account you have to visit.
> Those tax rates - 20% VAT and 33% social taxes - are not friendly.
If selling in Europe (common tax area), VAT is mandatory at the point of sale. If the seller is outside Europe (common tax area) and purchaser in Europe (common tax area), the receiver of goods or services is liable to need to pay the tax, and buyers don't like tax/price surprises at point of import or use.
As for social taxes... if there are no Estonia resident employees this doesn't seem an issue.
For bank account - this seems like a headache - for banks as much as anyone, as they have to provide anti-money lending screening, which means 'know your customer' which means a physical visit from the customer. I'm sure Estonia has branches of HSBC, Citi, or other international networks, and they're working on, for example, allowing you to walk into a HSBC/Citi/etc located near where you are, and do the KYC from there. For me, this is the deal-breaker. If opening a bank account can happen without need to visit Estonia, then I'd try this, otherwise, without being able to receive or make payment, it is a nice idea but not in my use-case.
I think the small benefit here is that they let you do everything online. And they take that serious. In any other EU country there will probably be something you'll have to do in person.
So this also means you can live the nomad life. Although I guess this isn't their (only) target audience.
Doing business is a separate (though connected) subject. The e-residency is broader than business alone.
For business you'll need an accountant to do tax-related work. You'll probably be able to find one which you can communicate with online, so your nomad lifestyle is still safe.
It gets a lot more attractive (at least compared to other EU countries) if they would take the next step and simplify tax work so you don't need to spend sums like €2000-€3000 on an accountant every year.
I would expect that VAT is only relevant for products sold to Estonian residents and income/social tax only relevant if you employ residents of Estonia.
Income tax is typically based on residency, I believe the US is the only developed country in the world that taxes non-residents on income.
As I understood it, as of 2015 EU digital goods VAT must be paid based on the VAT in the customers country, regardless of whether the sellers business is located inside or outside the EU.
If so, what's the downside of having your business based in Estonia vs the US with respect to VAT?
If you and your small business are based in the US then you could ignore the VAT nonsense when selling to the customers from the EU [1]. It's not in the interest of the IRS to make you pay taxes in Europe.
"Key drivers for Estonia’s high rank are its relatively low corporate tax rate at 21 percent with no double taxation of dividend income, a nearly flat 21 percent income tax rate, a property tax that only taxes the value of land and not the value of building and structures, and a territorial tax system that exempts 100 percent of foreign profits."
I guess related to all tax/business questions "talk to a professional" means "talk to an accountant". An Estonian accountant sounds like a good choice.
As in most (all?) EU countries, all tax/business related work passes through an accountant. Am I right to believe this is different in the US? At least for one-man/small businesses?
Not sure what you mean by "passes through an accountant." In the US, a small business is typically not required to hire an accountant but it's probably a good idea--especially once you have employees and are dealing with payroll taxes, etc. Personally I've always used one even for personal taxes.
I dont get it, does this mean there is 0% corporation tax in Estonia? What are the taxes on wages then as in if your estonian company pays you? What other taxes should one be aware? what is the VAT rate
so many questions but their answer is "talk to a professional" which means visiting Estonia, answering some of these questions up front would make things clearer and make it easier to decide whether to apply for one
BTW has anyone here done it? a blog post on experiences pros and cons would be great...