How does Uk Limited company compared to E-Estonian company with regards to tax, especially expenses?


(Otto Kampa) #1

(For Estonia, what I can do if I run it on my own)


(Thomas K. Running) #2

I have no personal experience running UK companies, but probably you can deduct a bit more expenses than with an Estonian one. Also keep in mind that you’re also limited with what you can deduct based on where you’re resident.

I assume the reason why Estonian authorities are a bit more conservative regarding what expenses are allowed to be deducted is that it would be an easy way to take out profits from the company tax free (since corporate tax isn’t due until profits are distributed)–rendering it a de facto capital distribution.

As a straight up tax comparison it’s pretty even:

As a non-resident employee you don’t pay tax on employee salary to either country, but rather where you’re resident.

Corporate tax is 20% in Estonia, and 19% in the UK (although it will be reduced to 17% starting April 2020).

Estonia has a reduced rate of 14% corporate tax on regularly paid dividends, but due to added 7% withholding tax that has no positive net effect unless you’re resident in one of these countries: United Arab Emirates, Bahrain, Georgia, Jersey, Cyprus, Isle of Man or Mexico. These countries have a tax treaty with 0% withholding tax on dividends. Bulgaria and Macedonia have treaties with 5% withholding tax, so if you live there you can benefit of a net tax of 18.3% on the Estonian side.

Estonia of course has the benefit of delayed corporate tax until profits are distributed. That way you can time the profit distribution to a time when you’re personally tax resident in a beneficial jurisdiction—at least if your current jurisdiction won’t slap an exit tax in your face on your way out.

If you’re not nomadic and live long term in a particular country, your company will likely be subject to the local laws and taxes where you live—in addition to the ones where it’s incorporated. You might save yourself some headaches by just incorporating where you live instead.