I've been told the the startup stack exchange was closed due to not having enough activity and this was the closest stack exchange related site where I could ask a business-related question, hence I'm asking here. But If this isn't the proper place, I'll delete whereupon request.

My question is the following: I'd like to open a software company in Estonia but will my estonian company have to pay taxes in my home country? I read that the home country that claim you to pay taxes there, if you company is physically located there and in this case, you would have to report solely the home country's government, losing all the e-residency's benefits. If that's really true, how do any company ever outside Estonian manage to keep under the company under Estonian's legislation?

  • This is relatively off topic, but different countries will have different laws regarding offshore business. So while, for your particular country, e-residency may not seem to be viable, for others it will be. – Gregory Currie May 13 '20 at 2:15
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    Perhaps a country tag would help someone answer more precisely. – Gregory Currie May 13 '20 at 2:16
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    While there may be some vague answers here to help you, what you will need is to hire a chartered accountant (or local equivalent in your country) to help you figure out the tax affairs, so I VTC for that reason. – Tymoteusz Paul May 13 '20 at 6:56
  • Jack, the simple answer is: you can not avoid one dollar in tax by having "an Estonian company". End of story. Just think about it. Say you live in country X (the USA, say) and you happen to work for a large company from country Y (what about Toyota from Japan). Of course, obviously, you pay every cent of tax identically in the USA. It is utterly impossible to "avoid!" tax by owning foreign companies. – Fattie May 13 '20 at 14:58
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    The Double Irish tax loophole was only closed in January of 2020: en.m.wikipedia.org/wiki/Double_Irish_arrangement while there are fewer options than before, I'm sure there still exist other tax havens. – Glen Pierce May 15 '20 at 14:17

You might be able to get some help on our expartiates sister site (?) Or, possibly, even on personal finance & money.

If it helps any, I worked overseas for "several" decades - USA and multiple European and Asian countries.

I know of know country that does not follow the rule "if you live here, we are taxing your worldwide earnings". That's for individuals, who are generally considered to be resident for tax purposes after 183 days in any country.

It's a different matter here, though, as you intend to open a company in Estonia, so the company and you are two separate taxable entities.

Unless you are Google or the likes, that Estonian company will pay taxes in Estonia (and you will pay taxes wherever you are resident).

The bottom line here is that, sooner or later, you are going to need an accountant.

Make it sooner.

Find yourself an accountant, and I highly recommend one with experience in similar setups. I have always been freelance, and have worked over 15 countries, always tax resident. Every dollar I have paid an accountant has brought me back $10, if not $100.

An experienced accountant will give you invaluable advice (might even help set up the company, although you ought to be able to buy one off the shelf). He will tell you how best to balance income to the company and to yourself to maximize retention given the two tax rates. He will also advise on pensions, allowable expenses, and other ways to legally minimize your tax burden, as well as filing the legally required documents for you.

I strongly advise you to set up a limited company (Ltd, GmgH, et cie), and not to be self employed/sole trader.

Btw, you left out one major piece of information

I'd like to open a software company in Estonia

will the company have employees other than yourself?

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    Thank you for your answer! I’m going to check those links. I’m not so sure about the statement: if it’s an Estonian company, then I’ll pay the corporate taxes in Estonian. There are local governments that can claim you company to pay taxes there, that’s my question. See this: micropreneur.life/… I still haven’t seen yet a proper accounting about this, I’m doing some search on topic myself. – Jack May 14 '20 at 19:28
  • Any decent accountant (or lawyer) will give you an initial consultation of 30 minutes (an hour, if you are lucky) for free. That won't answer all of your questions in detail, but it will answer all of the big picture questions, like "in which country do I, and does the company, pay tax?". Or "should I have a limited liability company?". And the always important "how do I get money out of the company (and pay as little tax as possible)?". – Mawg says reinstate Monica May 15 '20 at 7:32

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