Permanent establishment as a key question when establishing an e-resident company
- 5 days ago
- 1 min read
Most countries have certain rules regarding permanent establishment which allow them to tax foreign legal entities even thought they are established in another jurisdiction.
For example the Estonian Tax Board has stated the following regarding rules for Estonia:
To put it more simply, just by establishing a foreign company, does not mean the company can escape the taxation in your own physical residency country (double taxation treaties still apply if in place).
This question is very crucial in case of e-residency where almost no founder actually lives in Estonia (where the company is tax resident). The question has arisen in many countries, most prominently in Spain, Finland and Germany as the local tax authorities also get more information about e-residency and its implications.
The best way to approach this is to work with local lawyers/tax advisors who have experience in these cases and know how permanent establishment in you home country can be avoided. There are many ways depending on the country but some of them could be:
Having a local manager/local office;
Taking management board/shareholder meetings/decisions in Estonia;
Carry actual business through the Estonian entity;
It could help if one of the managers/founders has their residency elsewhere.
As always some tax authorities are more strict than others. To take advantage of the Estonian 0% tax on profits the situation regarding permanent establishment should be clear before you start.
Comments