You said you are from Germany but not where you are now. If you are still in Germany, forget it. Just because you incorporate outside of Germany does not exempt your from any taxes (and its beauraucracies) in Germany. That is, even with an estonian corporation, you will owe german corporate taxes (plural - one goes to the state one to the county - a.k.a. Körperschaftsteuer and Gewerbesteuer). That implies you will have to do the same tax paperwork as with a german GmbH and file them official with the tax authorities (Steuererklärungen, Umsatzsteuerjahresabschluss) and the Bundesanzeiger (Jahresabschlussbilanz). Nothing gets easier with that setup.
You're not wrong, but you're missing the best part. Estonian company does not pay taxes (*). As long as the money stays within the company he's golden. The company can pay for his car, his apartment/office, etc.
It is only when he decides to withdraw the money the problem occurs.
What you're saying applies to most EU countries. Here where I live you have to reside for majority of the year in given residency to pay taxes over there.
Here's the tricky part.
Estonia is part of Schengen Area. Which means you can travel there and back without passport. There's no paper trail of your arrangements. You can easily create a reality in which you reside there for majority of time.
But again, that's not the selling part of Estonian LTD. Which is - it's extremely easygoing and as long as money stays in the company you're not paying taxes.
You've literally described direct tax fraud which won't survive audit.
> You can easily create a reality in which you reside there for majority of time.
Cautios when dealing with German tax officers: They are checking the 183-day-limit very very strictly, includin invoices/bank statements if required, hotel bookings etc. They even apply intelligence colleagues if in doubt for big fishes.
183-days rule is NOT a thing in germany for corporate taxes, and I think it is not in income taxes either. It may be an indicator, but it is not a hard proof. Important is, where you have your social life set up ("Lebensmittelpunkt"). That is, you can reside more than 183 days abroad, but if you have a family, golf club membership, permanent residence, your stock brokerage account etc. still in germany, you still count as a german tax resident. There are no hard laws with X days around it, german law revolves a lot around that "Lebensmittelpunkt" which will be decided on a per-case basis.
Its a little bit more complicated:
https://www.vlh.de/wissen-service/steuer-abc/183-tage-regelu...
That articles refers to employees (Arbeitnehmer) which is something completely different.
Yes, and if you are a company owner, you usually have a contract between you and yourself? (https://www.hensche.de/Rechtsanwalt_Arbeitsrecht_Handbuch_Ge..., "Geschäftsführeranstellungsvertrag")
So OP has to clarify on both layers: natural person himself, legal entity, and the relation between them. And the result is affected by the questions OP raised?
If you are a shareholder director (“Gesellschaftergeschäftsführer”) you have a contract but are still treated as self employed for most laws. The 183days rule does not apply in that case.
Have you never heard of fringe benefits tax?
Have you read my post?
Let say I am a junior SWE in EU. I incorporate in Estonia and issue my employer with an invoice from said company. That company pays for my house, my car, my dental service and whatnot, and what's left I take as a employee salary.
I pay local tax for that salary, but that's only a fraction of what I've billed my employer.
That's just tax fraud though.
There's also the CFC rule, which means that within the EU, if you control a foreign corporation, your country of tax residence can tax undistributed profits.
Often tax offices don't bother and you might not get caught, but 'not getting caught' is not the same as it being legit.
> that company pays for my house, my car, my dental service and whatnot, and what's left I take as a employee salary ... I pay local tax for that salary
Until you get audited by your local tax authority who rules that all of that is disguised salary, or the Estonian tax authority says that that's technically (taxable) profit being paid to the director.
If you're currently doing this, I suggest throwing yourself at the mercy of your local tax authority with the help of a lawyer and an accountant, as it's possible they'll show some leniency if you go to them first and not add penalty fines in addition to needing to back-pay the tax and late payment fines.
You've got to get up pretty early in the morning to fool The Revenue.
To me it feels disgraceful to live in a country, benefit from the taxes that everyone else pays there, and try to avoid paying the taxes yourself. It is true that the ultra-wealthy do this. What we should do is try to make them pay their due taxes as well, not try to imitate them. That paths leads to an impoverished country where you have to live in a gated community with armed guards.
That would not be possible at in Germany, everything you just listed is considered a "geldwerter Vorteil" and falls under income tax - even if the company gives you a car that you need to do your job, you will have to pay taxes on it.
Pretty much every country has a concept of benefit in kind. Some countries will allow some expenses to be covered (Part of your phone/internet subscription if you work from home, meals vouchers. Some countries codified some WFH arrangements) but you absolutely won't be able to pay for everything tax free.
You'd be far better-off jumping between countries to leverage the 30% ruling/Beckham Law/HSM tax arrangements if you can.
Oh boy, are you in for a shock..
So, tax fraud?
Exactly. I'm German and simulated the constellation some year's ago. Verdict was, if you are inside the EU it won't pay out. The Estonian model is for people trying to participate in the EU market from outside.
It is about where the actual "effective management" is considered to be located: If you live in Germany permanently, the tax office can decided to tax you as if you were a Germany company - and yes, most of the times they do it.
If you travel regularly and have an office in Estonia and you make the effective management decisions there, you are obliged to Estonian tax system only.
This is why I was wondering what the point was. Surely most countries will claim taxes from you if you work there, so having an Estonian entity will do little?
Can someone explain the actual benefit of sitting in a developed country and charging via Estonia?
I suppose there is one possible rather significant benefit, depending on where you live. If you're going to be an independant contractor, a freelancing "gun for hire", you may want a corporate entity to be your front: As a sole proprietor[1], you'd be personally liable for all your business liabilities -- debts, as well as, say, prosecution. A joint-stock company[2], OTOH, is a legally independent entity, that carries its own assets and liabilities independent of the stockholders. So "as a business", you'd perhaps want not to "be yourself", but rather "be" a joint-stock company.
Those can, AIUI, in many countries be hard, bureaucratic, or expensive to set up. The great advantage of Estonian "electronic residency" (again, only AIUI) is that it enables you to easily and cheaply set up an Estonian "electronic stock company", which might not be so easy and cheap where you live.
It's not just about "charging"; it's about shielding.
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[1]: https://en.wikipedia.org/wiki/Sole_proprietorship
[2]: https://en.wikipedia.org/wiki/Joint-stock_company
For customer, unless you are a true digital nomad e.g. have no residency anywhere the benefit is: none.
For Estonia who uses services like Xolo to promote this for unaware people the benefit is: money (in a form of dividend tax, e-residency registration fees and so on).
This is the best answer. Internally, we have to deal with bureaucracies of every country for employment and residencies. Separately.
This should be higher up. Xolo deliberately hides this under small-print with vague statement about this issue.
If you manage your company in, let's say, Germany, it is de-facto German company in the eyes of German tax authorities. When German tax authorities will find this out they will make you open UG/GmbH and pay back the corpo-tax, plus possibly a fine.
Now you will be stuck with 2 companies - Estonian and German, which is way bigger hassle. Not to mention Estonian company becomes useless/liability.
I also want to mention that practically every country has offshore-company laws like this, even places like Thailand and other SEA countries. It's not only EU.