What jurisdiction to choose for IT business?

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This topic contains 20 replies, has 11 voices, and was last updated by Profile photo of Imwald Imwald 1 week, 3 days ago.

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  • #2688
    Profile photo of The Bull
    The Bull
    Participant

    Hello,

    I am web developer/programmer, citizen of European Union country. My customers are mostly from European Union countries, about 80% companies, 20% individuals.
    I am OK to open company in Bulgaria or Ireland with 10-12,5% corporate income tax, but I don’t want to charge VAT to my customers, that’s why I am looking on offshore options

    Currently I am looking on Scotland LP/UK LLP with bank account in Estonia. But I don’t understand scheme with nominees and who is UBO. It all looks shady to me and looks that it’s just a question of time when bank will ask me to leave. But this option can be good for my clients as LP/LLP is not considered tax haven.

    OR

    RAK/Fujairah FZ company with bank account in UAE. Probably there is problem with UAE being considered as tax haven or low tax jurisdiction(I checked it with my country, I have not checked this with other countries). And that is problem for my clients, as they need to pay 15% tax from bill paid to tax haven or low tax jurisdiction company if they are from my country, it should be similar in other EU countries.

    OR

    Other options for web developing/programming business(IT services)?? I know that banks don’t like this type of business.

    #2690
    Profile photo of Kevin
    Kevin
    Participant

    UBO is a person who actually runs the business. The ultimate owner behind the structure.

    #2693
    Profile photo of Streber
    Streber
    Keymaster

    You’re not going to be able to get around VAT for your non-corporate clients as long as you live in the EU/EEA. At least not legally. Breaking tax laws to save about 20% on 20% of your income seems like an unnecessary risk. (And to be technical, even a non-EU/EEA based company should charge VAT on certain goods/services for residents in EU/EEA but practically no one does.)

    If you’re starting out, there are some concessions here and there you can use to avoid charging VAT on the first tens of thousands of VAT. EU VAT is horrendously complicated, though, so make sure you’ve researched what VAT applies to you and what the scope is for cross-border payments.

    Your corporate clients, provided that they have a valid VAT number, should not require VAT to be charged under normal circumstances.

    The lowest tax rates in the EU/EEA are probably found in Malta. It’s expensive to set up, but if you can afford a few thousand EUR upfront, you can end up with an effective tax rate of around 5% on your take-home income. That’s different from some other jurisdictions where your company might be taxed (or not) once and then you are taxed again.

    You’ll need to be resident in Malta to make use of it, though, but it’s an EU member with relatively low costs of living and warm weather most times of the year.

    I covered this in an article called Tax Residence.

    Bank account shouldn’t be a problem a programming business, as long as it’s a legitimate business and there is a real business plan backing it up.

    #2698
    Profile photo of NewLife
    NewLife
    Participant

    You’ll need to be resident in Malta to make use of it, though, but it’s an EU member with relatively low costs of living and warm weather most times of the year.

    I covered this in an article called Tax Residence.

    Yes, tax residence is the key here. Speaking of Malta as a tax residence, I wanted to review your 2013 article about the country, one important part is missing, though: https://www.streber.st/2013/08/jurisdiction-spotlight-the-republic-of-malta/#comment-870

    Speaking of you said you may review, rewrite old articles: anything significant has changed in Malta since 2013? Or the 2013 article is perfectly OK today.

    #2700
    Profile photo of Kevin
    Kevin
    Participant

    There are VAT threshold in most countries. That is you don’t have to register for VAT (and charge your clients) until your sales are above the threshold.

    Here’s a list of theresholds by country. UK seems to lead the way:

    VAT registration thresholds EU

    #2702
    Profile photo of NewLife
    NewLife
    Participant

    Sorry, half-off, regarding VAT: https://www.streber.st/2015/06/the-permanent-traveller/#comment-869
    Any tax expert has figured out what he is talking about? 🙂

    #2711
    Profile photo of The Bull
    The Bull
    Participant

    Thanks for answers. I can cut-off my non-corporate clients. I don’t have business related expenses, at least such expenses for which it will be “profitable” for me to be a VAT payer. All incoming money is my revenue and turnover. I know about VAT thresholds and I know that non-EU/EEA companies also need to charge VAT, but almost nobody does. That’s why I am searching for some solution offshore.

    I was not right about UAE, it looks like that UAE is not considered as zero or low tax jurisdiction in my country and I checked some other countries and there also UAE is fine.

    Let’s assume that I am resident of magical country, they do not tax your income from foreign companies and don’t care if you own foreign companies. Also money will stay in this companies account and never will be sent to my residence bank.

    #2712
    Profile photo of Bob
    Bob
    Participant

    The Seychelles offer the CSL (next to the infamous IBC). The CSL pays a nominal tax 1,5% on it global income.

    An advantage of a Seychelles company is that you van have it end in GmbH, Sarl etc. Makes doing business in Europe comfortable for your customers. Add to this an IBAN from LeuPay/PaySera and you basically have everything you need.

    Bob Cares.

    #2724
    Profile photo of Streber
    Streber
    Keymaster

    Thanks for answers. I can cut-off my non-corporate clients. I don’t have business related expenses, at least such expenses for which it will be “profitable” for me to be a VAT payer. All incoming money is my revenue and turnover. I know about VAT thresholds and I know that non-EU/EEA companies also need to charge VAT, but almost nobody does. That’s why I am searching for some solution offshore.

    If you’re only dealing with B2B clients, then VAT should by and large become a non-issue. You could then just form a local company or, if you want it outside of where you live for whatever reason, form a Cypriot non-resident company (paying 0% corporate tax in Cyprus) or go for the more expensive solution in Malta.

    I was not right about UAE, it looks like that UAE is not considered as zero or low tax jurisdiction in my country and I checked some other countries and there also UAE is fine.

    That’s (for the time being) one of the best things about UAE. It has relatively low barriers to entry (setting up a business) and is genuinely tax-free, as opposed to many tax havens which have a separate legislation for offshore/non-resident companies and tax local companies.

    However, I am seeing an increased awareness of RAK international/offshore companies. Compliance departments at banks, tax authorities, and others are becoming aware that there isn’t much of a difference between a RAK IC and a Seychelles IBC. I’m not sure we should expect any major negative changes for RAK IC – maybe just increased paperwork for opening bank accounts with banks that currently do not consider RAK IC as risky or suspicious as Seychelles IBCs.

    Let’s assume that I am resident of magical country, they do not tax your income from foreign companies and don’t care if you own foreign companies. Also money will stay in this companies account and never will be sent to my residence bank.

    Then I hope you have fun on Wednesday when your home country of Malta celebrates its independence day!

    An advantage of a Seychelles company is that you van have it end in GmbH, Sarl etc. Makes doing business in Europe comfortable for your customers. Add to this an IBAN from LeuPay/PaySera and you basically have everything you need.

    A potential concern with this approach (using a familiar European suffix for an offshore company) is that Bull IT Services GmbH will have an official address in Victoria, Mahé, Seychelles. You can get around with by using a virtual office, but if you’re putting down a virtual office address in Frankfurt from someone like Regus while the registered office address is in the Seychelles, you might be committing fraud.

    #2726
    Profile photo of The Bull
    The Bull
    Participant

    The Seychelles offer the CSL (next to the infamous IBC). The CSL pays a nominal tax 1,5% on it global income.

    An advantage of a Seychelles company is that you van have it end in GmbH, Sarl etc. Makes doing business in Europe comfortable for your customers. Add to this an IBAN from LeuPay/PaySera and you basically have everything you need.

    I don’t have trust to these “bank like” systems. It is not a good idea to keep there more than 10k EUR.

    If you’re only dealing with B2B clients, then VAT should by and large become a non-issue. You could then just form a local company or, if you want it outside of where you live for whatever reason, form a Cypriot non-resident company (paying 0% corporate tax in Cyprus) or go for the more expensive solution in Malta.

    I have concerns about Cyprus because of bailout on March 2013. But it looks that it is secure to keep there up to 100k EUR and Cyprus is being used for a lot of IT companies. I will dig deeper on Malta and UAE, most important for my company is jurisdiction which is not on the list of zero or low tax jurisdictions in countries where my partners are and my partners are from almost all EU. I want to keep non-resident corporate tax as low as possible and still have reputable jurisdiction not considered as tax haven in EU, kind of golden mean.

    #2727
    Profile photo of Dave
    Dave
    Participant

    Hello! Can you please elaborate on what you told ealier – that the EU locals have to pay special taxt when dealing with OFFSHORE companies – what is the name for that tax – is it country specific or EU-wide?

    #2728
    Profile photo of Martin
    Martin
    Participant

    withholding tax, usually paid directly at the source for payments to the countries without double tax treaty with country you invoice. So, f.e. non-resident Cypriotic company can’t apply to double tax treaty with f.e. Estonia or Czech Republic, so there is withholding tax, in Czech Republic 35% if Czech company pays invoice to non-resident CY company

    #2729
    Profile photo of The Bull
    The Bull
    Participant

    Probably there are slight differences between EU countries, but main point is like Martin wrote.
    In case what I know, there is a list with countries/territories considered as “Low tax or no tax”. If you pay bill to company located in country from that list you need to pay corporate income tax from bill.
    You can get special permission from local tax authority which allows pay that bill without paying tax, but before bill is being issued you need to ask for permission, they will ask you a lot of questions(like why you are doing business with this company, etc…) and mostly they give permission only when there are real goods trading, no services.

    • This reply was modified 6 months, 1 week ago by Profile photo of The Bull The Bull.
    • This reply was modified 6 months, 1 week ago by Profile photo of The Bull The Bull.
    #2732
    Profile photo of Dave
    Dave
    Participant

    Thank you very much for your reply!)

    Lets say I have a BVI company and I send the invoice for 3000$ to a UK company – will it need to pay any additional tax above 3000$ when sending the wire to my Leupay account?

    is it the same as:

    Lets say I have a HK company and I send the invoice for 3000$ to a UK company – will it need to pay any additional tax above 3000$ when sending the wire to my Leupay account?

    sorry to digress a little – please help me understand this…

    Dima

    • This reply was modified 6 months, 1 week ago by Profile photo of Dave Dave.
    #2735
    Profile photo of Bob
    Bob
    Participant

    You have to make a distinction between invoicing and paying dividends.

    (simplefied)
    For invoicing, with the EU you have to add VAT to B2C transactions.
    For invoicing, with the EU you do not have to add VAT to B2B transactions.
    For invoicing from outside the EU you normally do not need to add VAT.

    Invoicing is where a client pays you. Dividend is where your company distributes part of all of the profits you earned via your shares.

    As for paying dividends it matters a great deal if the jurisdiction where the company (that you own and pays your dividend) is in a jurisdiction that has a double taxation treaty with your home country. Withholding tax can then be offset at your home country.

    Some countries do not have a withholding tax: for dividends Cyprus has a nill tax rate for non-residents. So normally you only pay a flat 12.5% tax on your global income. And a wealth tax in your home country.

    Estonia does not levy taxes on profits untill they are retrieved as dividend. Estonia also does not have withholding tax on dividends paid.

    Bob Cares.

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