Estonia E-Residency & CFC


#1

So, I’ve been looking into e-residency and moving my business to Estonia the past few weeks.
I’m still a tax resident in Germany and therefore fear I’ll be suspect to CFC laws. I somehow can’t find any reliable info on this and I don’t feel like reading through the whole law, so just wondering if anyone knows how CFC laws in EU countries come into practice. What taxes do I need to pay exactly? As soon as I cash out (dividends), as far as I can see I need to pay 20% income tax in Estonia. Then what? Of course, I would need to pay income tax in Germany. What taxes do I need to pay besides these?
And if I keep the money in Estonia/reinvest it, am I right that I wouldn’t need to pay any taxes at all? Only for the money I cash out of Estonia/the business?

I’m by the way not doing this to evade taxes, taxes are secondary. I primarily simply want to move my business activities out of Germany + the all-digital concept and the bookkeeping service of agencies like leapIN are interesting.


#2

You will get some varying responses to this, but I did some pretty extensive research on the e-residency possibility last year.

My opinion is that unless you are from outside the western banking world, Estonia E-residency is worthless and expensive. The single benefit it has is giving access to the EU banking system, which could be invaluable for a startup from Nigeria or Kazakhstan. Otherwise, it is simply another step in between you and your income, and it will end up costing you 20%.

For someone from Germany, or the US (like myself) it is literally just an extra tax. The accounting and business registration services are handy, but available almost anywhere else.


#3

I don’t really get how it would cost me an extra 20% though. Sorry for the really dumb question, but I’m not really familiar with CFC & double taxation. Aren’t double taxation treaties in place to safe me from paying double tax? So, wouldn’t every tax I’d pay in Estonia (the 20% income tax?) be offset in Germany, so I don’t have to pay that again? I don’t see how it would cost me more than running the business in Germany.


#4

I’m no tax expert, but for me specifically the double taxation only applies on a personal income level. We have multiple companies registered in different countries, but we are not able to use one company to reduce our tax load.


#5

Hello friedelio, my name is Reinis and last 8 years I have been working in management consulting area in Baltics. Since the e-residency is a big thing in Estonia, we are consulting customers from all over the world about this subject.
gilgildner is partially right about double taxation - it applies on level of personal taxation, therefore by definition you wouldn’t be able to avoid taxation in Germany, however, it is incorrect to state that there would be simply 20% more, because it always depends on double tax agreements between involved jurisdictions - in this case DTA between Estonia and Germany.

I wouldn’t agree that e-residency is a useless tool and even more - I wouldn’t agree that it is a useless tool for people from USA and / or Germany. However, it can’t be considered as tax evasion tool as well.

It always depends on type of your business. If you are working as a freelancer, then there are many benefits to obtain e-residency. Especially when you compare tax administration systems in Estonia and Germany. You would be surprised how easy and convenient it is to do all legal proceedings in Estonia.

If you set up your Estonian company in a right way and you are oriented on development of the business, then overall costs would be lower than business costs in Germany. If you wish to discuss this in private, then feel free to look me up on Linkedin or on facebook and I could tell you more about this depending on your specific business model.


#6

Thanks for all the information. I’ve been wondering about how this works for a while.

When I discussed foreign companies with my German tax consultants last year they told me that the German authorities do a legal fiction and treat a foreign company as if it was in Germany as long as I (officially) live in Germany. If I live in another country those authorities might treat the company as if it was there.

Is that what you guys mean with the additional cost?