For some time now, I own my own company in Estonia. This experience has changed my life. In this article, I describe how starting a company in Estonia can help you embrace a simpler, happier life as a freelance developer, digital nomad, designer or solopreneur.
Why Starting A Company In Estonia
Some time ago, my partner and I decided to break the chains of our steady life and become digital nomads. I had a company in Spain, but managing it, complying with the tax office and fulfilling all the legal requirements was impossible for me.
The Spanish administration is not ready for modern types of professional like digital nomads, micropreneurs or startups.
Managing a business there is next to impossible for a developer or a designer who just wants to work, earn money and live a normal life with what he or she earns.
I needed an accountant because I was not able to understand what were my obligations as a professional, or even how much taxes I was supposed to pay.
The whole Spanish business system, in my opinion, seems to have been purposely designed to confuse people. I honestly won’t have been able to say how much I needed to pay on certain quarter, or how many different documents I needed to fill and send to the Tax Office.
The Freelancer Fee
To make things worse, if you want to work as a freelancer in Spain, or found a company, you need to pay a monthly fixed “freelancer fee“, called the “Cuota de autónomo”.
In fact, you need to pay this fee even if you don’t earn any money during that month. This fee is over 340€ if you are the owner of a company.
Conversely, most other countries in Europe have the concept of “micro-company” or “solopreneur company” designed to help developers, designers or startups getting started with their businesses.
These company or professional figures usually benefit from reduced taxes or at least some beneficial conditions.
Feeling Trapped
Back in Spain, I was feeling trapped. I earned a lot of money working as an iOS freelance developer for startups all over the world. However, I had to pay a lot of taxes.
Life in Madrid is certainly expensive, so I had the feeling that I was working a lot (65-70 hours per week) and never earning enough money.
On a certain occasion, the government fined me because some of my customers didn’t pay the taxes on my invoices correctly. I spent a lot of time and energy trying to amend this situation, without success. As you may imagine, all these problems leave you with a feeling of helplessness.
To make things worse, I was never sure why I was paying what I was asked to. The system was obscure to me, full of absurd rules, and every time I asked my accountant, I ended up even more confused.
Thus, I was feeling unhappy and unfulfilled. I worked remotely, yes, and was free to choose my customers, but I never had the feeling that I was in control of my business or my life.
Decided to become fully location-independent, I started looking for alternatives out there. However, I couldn’t find anything until a lucky series of coincidences put me on the right track.
A One Month Trip To Latvia
By the time, we were members of TechHub Madrid at the Google Campus. However, at the beginning of 2017, TechHub announced that they were closing their community in Madrid, with almost no prior advice.
Google wanted to use the space to install their own accelerator. Long-term entrepreneurs and solopreneurs don’t make big success stories and striking headlines, so we were basically out.
As a compensation for such an abrupt end (some of us had just recently paid our yearly subscription fee), we were given a short period of time for free on any TechHub community.
For some time now, we’ve been living a month every year in a foreign country, working there and living like locals. It’s quite an enlightening experience.
Thus, we thought it would be the perfect opportunity to visit another country, merge with a different entrepreneur community and know other people and cultures.
We had a look at the alternatives available and finally settled down for Riga, Latvia.
Latvia is a European country, but it’s certainly an affordable one. Also, I like cold weather and feel more comfortable in small cities. It looked like the perfect place to stay for a month.
Thus, we spent July at Riga and I fell in love with the city.
We talked to the community manager at TechHub Riga, and he told us about the micro-company figure in Latvia. Basically, a company for solopreneurs with reduced taxes, almost no paperwork, and great conditions for people starting a business.
Then I realized that there were other company models outside of Spain, friendlier to people like myself.
Enter Estonia
A company in Latvia still had some problems. Namely, I needed to stay in Latvia and operate my company there. Sometimes, I would physically need to be there to do certain things. I would also need to hire an accountant or agency to take care of the taxes, etc.
However, I talked to my friend Luke Kelly and told him about my plans. He is a designer extraordinaire and has been a digital nomad for years now.
He told me “You need to check out Estonia, they have this e-Residency program and you can own a company and operate it remotely from anywhere“.
I was intrigued, so I checked out the e-Residency program and learned about business service providers allowing you to start a company there, taking care of accountancy and taxes, like LeapIn.
The e-Residency concept seemed revolutionary to me, too good to be true. The more I read about it, the more I was convinced that it was the way to go.
By becoming an e-Resident, you get an ID card issued by the Estonian government with a cryptographic chip allowing you to authenticate and sign documents.
Furthermore, with that ID, you can create a company in Estonia and operate it remotely.
I did read a lot about the e-Residency program. A lot. I also read about companies such as LeapIn, and how easy it was to open and operate a company there. Additionally, I contacted some digital nomads that were successfully running their businesses in Estonia.
Finally, with all the information in my hands, I decided to do it. I was decided to found my company in Estonia.
The Plan
Thus, the plan was simple. We would quickstart our digital nomad lifestyle by moving to Riga. At the same time, we would start a company in Estonia after becoming e-Residents. Next, we will travel the world as digital nomads, operating our companies remotely.
Moving To Riga
By the end of July, before traveling back to Madrid, we went to the PMLP Office in Riga to register as -physical- residents in Latvia. I will talk about this process in another post.
Next, we talked to our AirBnB host and asked her if she would be interested in extending the rental contract for six months.
Turns out, she was very kind and understanding, and we got to an agreement. We had a place to live in Riga, and we were official residents in Latvia.
Then, the next step, probably one of the most difficult ones, was cutting the ties with Spain.
We told our household in Madrid that we were moving, and I started a decluttering project to get rid of all my stuff. As I describe in these posts, it was a hard process for me, especially getting rid of my piano.
Becoming e-Residents in Estonia
The next step, before starting your company in Estonia is becoming an e-Resident. The e-Residency program opens the doors to a whole new world of possibilities, from accessing a series of services online to digitally sign documents from your laptop.
I talk extensively about how to become an e-Resident, how to apply, the requisites and the whole process in this article: “The Process of Becoming an Estonian e-Resident“.
Starting a Company in Estonia with LeapIn
The e-Residency website offers you some service providers for founding and managing your company in Estonia. After considering the alternatives, I settled down for LeapIn.
For starters, they had a clear “Pricing” section with the prices and what services are included, clearly specified.
When I am considering hiring or subscribing to an online service today, that’s one of the very first things I look for on the website of the company.
Additionally, their website and their services looked not only more modern and professional but aimed at people like me. When you click on “Sign Up”, you get asked about your business or your main activity as a freelancer.
Then, you get asked how you are going to get paid (i.e: bank transfers, a payment gateway, the App Store, etc).
Finally, you have to specify who will be your main customers (i.e: B2C, B2B, App stores…).
This, for me, was a major cultural shock. I come from a country where the official form to register as a freelancer doesn’t even include the concept of “developer”.
Instead, you have to specify something like “telecommunications”, like you were selling modems or routers.
Conversely, I could perfectly relate my activity as a freelance developer with these questions. Everything seemed so targeted towards current freelancers and entrepreneurs, I felt like the Spanish administration was stuck at the XIX century.
All these services take care of not only founding the company for you (registering it and doing all the necessary paperwork) but also managing it after the initial setup, i.e: handling invoices and paying the taxes, so you don’t need to bother about that and can focus on your business.
The Four Steps for Starting your Company in Estonia
I mentioned that you need to be an e-Resident before starting a company in Estonia, but actually you can start the process right away before even applying for e-Residency. Here’s how I did it.
Signing Up and Initial Setup
The first thing to do is Signing Up. Once you do, you are taken to the screens I mentioned earlier where you are asked about your business.
What they are trying to understand is if you are an iOS developer who earns money from App Store sells, or a freelancer doing design jobs, a blogger, or maybe an entrepreneur with a SaaS business.
This will allow them to know the work that’s going to take them managing your invoicing and taxes.
Important to note, at this early stage you can check if your company name is valid. Basically, you just enter the desired name for your company and check if it’s already taken.
This, coming from Spain, was another shock for me. In Spain, before starting a company, you need a “Negative name query report” in order to make sure that the company name’s still available.
This report costs you money.
In Estonia, it is as simple as searching for it on a website.
Becoming an Estonian e-Resident
I talked about the Process of Becoming an Estonian e-Resident before. Basically, at this stage, you will need to wait until your application gets approved, and you have your ID card in your hands. It usually takes 2-3 weeks, so be patient!
Registering your Company
Once you have your digital ID, the moment of truth has arrived. You can sign into your LeapIn account with it by using the card reader that came alongside the ID card.
The card comes with two PIN numbers. The first one is used for authentication, and the second one is used to sign documents. Hence, you will use the first one to login into LeapIn.
At that very moment, you start to feel the power of e-Residency. Then, you can proceed to register your company. You will be asked some more details about your company, and asked to sign some documents using your second PIN number.
The registration process is really fast. It only takes about 2-5 days to register your company. Then, you just need to open your bank account.
Opening your Bank Account
This is not a mandatory step. In fact, you have two options:
- Open a standard business bank account with LHV
- Use a payment service online like Transferwise or Holvi.
Edit: Recently, LHV decided to add absurd fees to e-Residents that are non-residents (physically) in Estonia. Concretely, 20€/m for business bank accounts and 10€/m for personal bank accounts. In my view, that’s a huge step back for the e-Residency program. I won’t recommend you to open an LHV bank account currently, especially when there are so many good alternatives such as Holvi, Revolut Business, Transferwise or LeoPay.
In our case, as we were staying in Riga, which is only 4 hours away from Tallinn, and LHV had no fees back then, we decided to travel there and open a bank account in LHV. We traveled by bus. As we were already in Latvia when we started the process, we actually did the trip before the company was even registered.
Thus, you have a lot of flexibility when it comes to when and how to meet the bank representatives.
Once we got to the bus station, we ordered a Taxify. Taxify is a great startup similar to Uber or Cabify that operates in the Baltic countries. I can certainly recommend you to use their services, as they are really cheap, and the service is top-notch.
Finally, at the LHV headquarters, we meet with Marje. LeapIn staff had prepared everything for our meeting, and Marje was really nice with us, making the whole experience a pleasure.
I have found more problems opening bank accounts in my home town in Spain.
We left the bank, and I met a startup that was looking for an iOS developer. The meeting was very positive, and some days later I was joining the startup. We got back to Riga after visiting Tallinn.
I would call that a well-spent trip.
What’s Next
Once the process of starting a company in Estonia is complete, the fun begins! Here are the next steps you might want to take once you are all set.
The Big Day: Issuing your First Invoice
The most exciting event, once everything is ready, is when the big day comes. You issue your first Invoice!
I can hardly describe with words how amazing it feels. I will write a post on how to issue your invoices, register your expenses, etc. However, I still have this first invoice engraved in my mind.
If forced to choose a word, it would be: freedom.
I had my business in front of me, at the LeapIn dashboard. I could issue invoices with just some clicks and get paid. Also, I could register expenses, business trips, and control every other aspect of my business.
Additionally, I understood all I saw. The cash in and cash out operations are simple and easy to understand, and the tax system is crystal clear. You don’t pay any taxes for the money your company earns. You just pay 20% of what you get out of your account (i.e: your salary) in taxes.
That’s all you need to know.
VAT Number and Operating in the EU
As part of the registration process, you get a European VAT number. You can use this VAT number to issue your invoices, and for your business-related expenses, from paying at the gas station on a business trip to the subscription fee of your hosting provider.
Getting a Debit Card
Once you open your account at LHV, you can get a debit card. This card has a very low monthly fee (2€). It gets issued to the LeapIn headquarters, and then LeapIn sends it to your location of choice.
Thus, once your debit card arrives, you have everything you need to run your business.
You have a European company, and a registered VAT number to operate in the European Union, an Estonian bank account and a debit card.
Your business is ready. And the best part, you don’t have to worry about invoices or taxes. You can focus on what you do best: working, finding new customers, and growing your company.
Disclaimer
Since I wrote this post, I have become an affiliate for LeapIn. I want these things to be as transparent as possible. If you use the “DigitalLeaves” code, both you and I will get a 100€ discount.
Thus, if you found this post useful, I would be really grateful if you showed me your appreciation by using my referral code when signing up.
You can enter this code in the “Referral Code” field of the Personal Details section during the Sign Up process. Thanks a lot in advance! 😍
Conclusion
In this article, I describe how starting a company in Estonia changed my life. If you are a freelancer, digital nomad, or solopreneur, I can definitely suggest you to, at least, consider it.
We live in a completely different world now. This new world is all about getting rid of frontiers and being able to work and live anywhere.
This nomad lifestyle is slowly but steadily spreading and being adopted by more and more people every day.
Hence, we need the tools to be able to work without worrying about borders, paperwork, different tax regulations, etc. I think Estonia was one of the very first countries to realize that.
Certainly for me, starting a company in Estonia has been a game changer in my life.
Let's talk!
Years ago, I quit my 9 to 5 job and became a freelancer first, then a solopreneur, and finally a digital nomad. Managing my company back in Spain was a nightmare until I discovered the e-Residency program and opened my company in Estonia. That changed my life.
After some years managing my business, I know the tricks of the trade. I can offer you advice on how to become location independent, found an European company you can manage online while traveling, and avoid unnecessary costs. If you are ready to take the leap, but have some doubts or don't know where to start, let's get in touch.
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Hello Nacho, thanks a lot for sharing your experience. I would like to ask you something about health insurance. As you know, in Spain we have national health care system, but when you became a digital nomad, what do you do if you get ill? Do you have something like a international private health insurance?
Thanks!!!
Hello there Pablo, thanks for asking! As you are from Spain, let me answer you in Spanish:
Depende de donde residas. En nuestro caso, nosotros viajamos sobre todo por Europa. Entonces, si te haces residente de un país Européo (por ejemplo, vas a vivir allí 3 o 6 meses), tienes derecho a sanidad como si fueras local. Esto es igual en toda Europa y paises tipo Islandia o Suiza. En otras areas, depende de país a país. En algunos paises funciona como en Europa (te haces residente y tienes derecho a sanidad), mientras que en otros es mejor pillar un seguro privado. En Asia y Sudamérica estos seguros son muy baratos (en algunos casos pueden ser como 100 euros al año solamente).
También tienes la opción de hacerte un seguro internacional. Hay actualmente muchísimas empresas orientadas a digital nomads que lo hacen. Personalmente nunca lo hemos necesitado.
Muchísimas gracias Nacho!!! Y por favor sigue escribiendo sobre estos temas, creo que son muy interesantes para todos los que nos gustaría ser nómadas digitales
we don’t know Spanish, could you answer in Turkish?
🙂
It would be good if you answer in English, thanks.
Of course, Ferhat. As my Turkish is quite rusty, let me answer you in English 😉
It depends on your country of residence. In our case, we are traveling throughout Europe. Then, when you become a resident there (i.e: you go to Italy and become a resident there for 3-6 months), you get your residence ID card and get access to social security. That applies for Europe and related countries (Iceland, Switzerland…).
In other areas, it greatly varies from country to country. Some countries work like Europe (you become resident and have access to healthcare), while in others it’s better to contract private health insurance. In Asia and South America private insurance is certainly affordable (way less than 100€/year).
You can also hire an international health insurance plan. There are some companies offering that right now. We personally have never used that, but we have gone to private clinics in countries where it’s affordable (i.e: Latvia). Hope it helps!
Thanks Ignacio for share all this info, All the decluttering project is indeed very impressive and very motivating.
Spain is so similar to Chile in so many ways… its like we are living in 1980… so it is very cool that countries like Estonia (it is not germany or england) has this kind of options… they seems to understand the new world we are living now.
by the way, I still can’t understand how you could sell the Pink Floyd’s vynil records…. no one in the world should never ever leave their pink floyd stuff
gracias por compartir
Thank you Daniel, glad to know it helped! Estonia is definitely one step ahead of the game, and I hope others will follow soon.
Yes, selling my stuff has been painful, especially some of my vinyls, like the Pink Floyd ones 🙁
Still, now that I got rid of almost everything, I feel relieved. ¡Gracias a ti!
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Hello,
Thanks for sharing this wonderful experience.
Did you travel to Estonia to open a bank account? How this process works?
Is it possible to get a credit card instead of debit card, so that those payments counted as company expenses (I mean, without taxation) ?
Hi there Robin. Thanks for your comment.
Yes, we traveled to Estonia by bus. We happened to be at Riga when we started the process, so it only took us a short 4h trip to Tallinn. LeapIn stuff makes sure to arrange the meeting and prepare everything, so you just have to go to the LHV office and meet the representatives. Once there, they ask you some questions about you and your business. Nothing complicated, just what you do and why you want an account.
It’s possible to get a credit card, but only after two years of active business activity, so initially you have to settle down for a debit card. However, all justified payments done with your debit card count as business expenses, no need of credit card here.
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Hola Nacho,
He leido tu post y también me hice e-Resident hace un mes.
Better in english 😉 Maybe this can help somebody.
A good option to start right now without visiting Estonia is Bunq or Revolut. You can open a business account for companies 🙂
Hope it help somebody, it really made my day when I know it!
Un abrazo!
Hola Daniel!
Congratulations for being an e-Resident!!! 🎉
It’s funny that you mention it, because I published an article about Revolut, Monzo, and other alternatives just some days ago, here.
I am super-happy with my Revolut card and currently doing all my banking using it and my Estonian LHV account. So if you have any question don’t hesitate to contact me, I’ll be glad to help! 🙂
Un abrazo.
Hi and thanks for the great article, I am thinking about setting up an e-residency, and this helps clarify, but I did have one question: If I understand you correctly, you are saying that your total tax rate is 20%? To what country, Estonia? Is Estonia considered your “tax-residency” home, or is it Latvia or another country? This part confuses me and I would appreciate any clarification. Thanks!
Hello there Stephen, thanks for your message.
My current residency is in Latvia, and my company is in Estonia. As you know, your company and you (as an individual) are two different concepts, so in my case, my company pay taxes in Estonia and I do in Latvia. If you become an e-Resident and open your company in Estonia, you will still be a resident of your home country (or wherever you are a resident right now), so it’s important to have those concepts clear.
I have written an in-depth article on how e-Residents owning a company in Estonia pay taxes, including a salary example, and all the taxes and VAT considerations, you can find it here.
Hope it helps! 🙂
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Thanks for the great writing. Really appreciated how clear you made the process for me to understand. Looking forward reading more about your experiences.
Thanks Burak! Glad to know it was helpful 🙂
Hi Pablo, I am opening my company through the e residence program and I have just found out about Transferwise from reading your post. Is there any disadvantage in using Transferwise instead of a local bank account? Do you use it for your business?
Hi there Juan, I’m actually Nacho 🙂
Nice to know, always glad to meet a new fellow e-Resident and entrepreneur!
Well, having a real bank account has many advantages in this case. To begin with, you will be covered by the European Banking Deposit guarantee. Also, having a real bank account associated to your company gives credibility to your business and gives you a better position if you plan on having a payment gateway for your services/products.
That said, I am a big fan and supporter of not only TransferWise, but digital banking alternatives like Revolut. I wrote a post about that here.
Hope it helps!
Hi Nacho, I am studying in Spain and have been contracted to teach spanish. I am also a Supply Chain professional and would like to offer consulting services. After reading your post, I think it would behoove me to become an e-stonian to be able to invoice clients in Spain. Am I on the right course? Are there any pitfalls or do you have to collect taxes from your customers? Apparently we don’t have to open a bank account if we have Paypal and credit cards from the US?
Thanks for your post.
Hi there Robert. Of course, I think that’s a great idea.
Well, when you issue invoices to your customers and earn money, that money goes to your Estonian bank account or equivalent. You don’t need to pay taxes until you assign yourself a salary or dividends. Have a look here for a more detailed explanation.
You don’t need to open a bank account, although I would recommend you to do that. However, if you want to go bank-free, I can recommend you solutions like Transferwise that are way better than Paypal and have less fees, especially as your company will be in Europe, operating in euros.
Hello Nacho,
Thank you for this informative article. I am a resident of Estonia, but my company starts operating in Barcelona, Spain. Do you know how would this work with the local taxations, since it is a product that I am planning to sell there. Do I need to register a firm in Spain, or Estonian firm would work as well?
Thanks In advance
Hi there Savva,
As your company is in Estonia, Europe, there should be no problem whatsoever in selling your products in Spain. You don’t need to register in Spain at all. Just issue invoices to your customers in Spain.
I recommend you to get a VAT number if you don’t currently have one to avoid including VAT in your invoices to Spanish companies that have VAT number. It will greatly reduce the paperwork and complexity.
Hope it helps!
Best regards.
Hola Nacho,
Me gustaría hacer lo mismo que has hecho e irme fuera, pero tengo dudas de como hacerlo,
Una vez montada la empresa en Estonia, si estas en Latvia, ¿cobras con la empresa Estonia y pagas como autónomo en Latvia o tienes que hacer otra sociedad limitada en Latvia?. Estoy un poco confuso con el modo correcto de hacerlo.
¿Qué impuestos se pagan en el sitio donde estas? y ¿Cómo se hace?
Muchas gracias por tu blog y tus aportaciones!!
Hola Pablo. Gracias por tu comentario.
No, generalmente si tienes tu empresa en Estonia, puedes sacar dinero mediante dividendos o asignándote un salario. En ese aspecto, eres un empleado de tu propia empresa. Entonces, a mitad de año, harás la declaración de impuestos que te corresponda por tus ganancias como cualquier asalariado.
Parte de tu salario lo pagas en Estonia automáticamente, y parte de tu salario lo tendrás que declarar en tu país de residencia. Es como si empezaras a trabajar para Skype (empresa Estona), solo que tu fueras el CEO de Skype y te pagaras a ti mismo un salario.
He escrito un post explicativo al respecto con un ejemplo real de salario aquí: https://micropreneur.life/eresident-taxes-vat/
It’s a credit to our government for coming up with a legal and technical framework that makes e-residency a thing, however, I feel obligated to make a distinction between a sizable level of abstraction provided by companies like LeapIN and the “inner workings” of our governmental processes. The slick onboarding that got you so excited is likely translated into precisely something like “telecommunications” at the end of it all. Nice read.
Thanks Mart!
In my humble opinion, you should give your government a lot more credit. Your country has created not only the infrastructure that you mention, but a whole business framework for digital nomads, blockchain governmental networks, and they are even considering implementing a cryptocurrency (the Estcoin).
Probably you take most of these things for granted, and see them as “normal”. But I come from a country where the official websites from the government have invalid -insecure- self-signed certificates no browser trusts, a country where a politician recently affirmed that Twitter was a paid service, and where one of the most beloved singers said that “Internet should be forbidden, there’s too much freedom there”… That’s my country 🙂
I feel ya. As Patri Friedman said in his piece in Cato Unbound, government is just another industry, where countries offer services to citizens, but since there’s an enormous barrier to entry and high switching costs, this results in a horribly uncompetitive industry, so it is no surprise that existing firms (governments such as yours) tend to exploit customers instead of innovating to attract them. So props to Estonian Government I guess, but most importantly to people like yourself who are “voting with their feet” by making these important jurisdictional choices and thereby increasing competitive pressure on their governments to be more efficient.
Agreed 100%. Thanks again Mart.
Hi Nacho,
I am currently cluster manager of the Galician Health Cluster and working on our relations with Estonia in order to manage to get some of our companies out there. I felt in love with Estonia after one of my events involving this beautiful baltic country. I happened to fall into your blog on my desperate search of information of any Galician (or Spanish) companies there.
Besides brave freelances like you, do you feel the Spanish community entering Estonia to set up companies and develop together? Is the reduction of administration burden still the main reason to go there?
Where in Spain did you have your company previously?
Hello there Gisela, thanks for commenting.
I would say the hassle-free aspect of managing a company in Estonia is probably the main appeal for any Spanish entrepreneur, freelancer or company. In Estonia, you can do everything online and, most importantly, the system is completely transparent. Conversely, the Spanish business system seems to be designed to confuse people. You never know if you are “doing the right thing”.
Apart from that, there are some obvious monetary advantages, but they are secondary in my humble opinion.
Hi Nacho,
thanks for the great post!
I am a web-developer living in London and I have my Ltd here.
For a number of reasons my wife and myself just decided to relocate to Mallorca in a couple of months and I was wondering what would be the best way to manage my business when I’ll become a Spanish resident.
I’ll be working for european / american companies from remote.
Would it be advisable to keep my Ltd or would it be wiser/easier to close it down and found a new company, maybe in Estonia?
thanks for your help
Alessio
Hello there Alessio, thanks to you for your comment.
I guess it all depends on your future plans, i.e: if you plan on staying there, getting back to the UK or even travel regularly.
If you plan on working remotely, and foresee future trips, I would definitely go for an Estonian company, as it will give you peace of mind as you change your residence (and tax residence) to operate globally.
If you are going to stay in Spain, supposing your services are purely digital and you don’t need permanent facilities or an office, I will also consider Estonia, because being a freelancer (autónomo) in Spain or open a company there is simply a nightmare, as I explain in this post.
If being in Marbella is something temporary, and you plan on getting back to the UK soon, you may consider keeping your Ltd. company, however, even in that case, you could consider Estonia as a way of keeping a spot in the European market.
Anyway, if you need help with the Spanish part of the equation (invoicing and taxes there, how to declare them, etc)… send me a message and I could be able to help you further.
Thanks Nacho,
there’s something I didn’t get though… my understanding is that if I move to Mallorca and stay there for more than 183 days/year I become a Spanish resident and I have to pay taxes in Spain. Is that correct?
Now, if I open a company in Estonia my salary will be tax free in Estonia but it will attract taxes in Spain. and the dividends will get taxed both in Estonia and in Spain.
I am sure I got it wrong, it can’t be this way 🙂
Hello Alessio,
Yes, you are right, if you spend 183 or more days in Spain, you’ll become a tax resident there. However, in order to make the change effective, and avoid problems with the British or Spanish administrations, I will recommend you to fill a form in the UK to stop being a tax resident there or declare that your tax residency is in Spain. Conversely, you will need to fill a similar form in Spain when applying for residency there (to get access to public health, etc).
If you open a company in Estonia, your salary won’t be tax free there. A small part of your salary (the Board Member salary) will pay taxes in Estonia, and the rest (the Employee salary) will pay taxes in Spain. I wrote a detailed blog post about it here: https://micropreneur.life/eresident-taxes-vat/
Unfortunately, Spain is one of those countries that apply personal taxes on already-taxed corporate dividends, so yes, you will have to pay taxes twice. I recommend you to stick to salaries. If in doubt, don’t hesitate to contact me! 🙂
Hi Nacho,
thanks for the above.
I just received an offer to work as a fully remote and permanent employee for a British company.
This company doesn’t have a branch in Spain so when I told them that I am planning to move to Mallorca they said that unfortunately they are not able to employ me if I became a Spanish resident, and they are only keen to offer permanent positions.
Is there any advice you can give me to avoid such an unfortunate situation?
I am happy to move this conversation to a private channel and pay for your advice.
regards
A.
Hello there Alessio,
Well, I don’t really see a problem there, what I see is a big opportunity.
Actually, that’s one of the situations where a company in Estonia can be your best advantage. With a company in Estonia, you can ask the company to hire your company on a permanent contract for consulting services, or even sign a private contract with you so that you invoice the company while working on a permanent basis for them.
Of course, without knowing the situation in depth, I may be missing something important. If you want to go through a consulting session so I can give you the best advice, I’m happy to talk!
Hello Nacho,
I tried contacting you through the “consulting” section of this web site.
Just wondering if you received it 😉
A.
Hello there Alessio, just answered back, looking forward to speaking to you 🙂
Hola Nacho:
Gracias por toda la información me está siendo de gran ayuda, tengo un par de dudas y ojála me puedas aclarar un poco lo giguiente:
Para abrir la empresa hay que depositar un mínimo de capital social?
He leido en otros blogs unos 2500 €, pero no lo dejan claro ya que parece ser que exite la posibilidad de no hacer ese deposito.
Nosotros somos varios socios y por la información que leo solo recomiendan abrir sociedades unipersonales, si abrimos cada uno nuestra empresa de manera independiente tendriamos que pagar impuestos por mover el dinero entre las disintas empresas al estar registradas en Estonia verdad?
Sobre el tema de los salarios tendriamos seguridad social en Estonia al pagar parte de los impuestos por ese concepto?
Muchas gracias!
Hola Dalia, gracias por tu comentario.
No es necesario depositar el capital social. En ese caso la única problemática es que no podrás repartir dividendos hasta que no lo hayas hecho. Al no ser no residentes no tendríais seguridad social en Estonia, aunque se pague una pequeña tasa social, me temo. En el tema de los varios socios podría ayudaros. Si me escribes un email puedo darte más información (en la sección “About me” tienes el formulario de contacto ;).
Nacho, I Believe what you are doing doens’t work. I tell you why:
Maybe you didn’t know about the CFC rules:
http://www.m-i-tax.de/content/Wichtige_Links/Alumni_Netzwerk/documents/cfcrules_000.pdf
The problem is that if you are resident somewhere( let’s say Italy), that country will consider EVEN your society in Estonia as Italian. Because the administrator is resident in Italy. You have to be resident somewhere, this is why your trick doesn’t work at all.
In order to work you should be somehow no-resident anywhere so no country can claim that the Estonian company is local to them and thus taxable by them.
Tihs is clairified to avoid any possible doubt in the official website:
https://e-resident.gov.ee/faqs/taxation/#example-cases-of-taxation
If I create a one-person company in Estonia and use it to invoice my clients in the UK for consultancy and I stay tax resident in the UK, wouldn’t UK claim corporate tax from my Estonian company because of the Controlled foreign corporation rules?
Yes, they may make that claim because of the presence in UK. Estonian tax residency may be disputed in this case.
A company incorporated in Estonia can be claimed as tax resident of the country of residency of the single shareholder (because of CFC rules or just because of “management and control”). This would require to fill tax return in both Estonia and the country of residency. What are the benefits in incorporating in Estonia as a single shareholder/director because of the point above?
If your aim to avoid paying taxes in the country in which your company generates value, incorporating in Estonia will not explicitly be beneficial for you. E-Residency allows easy company incorporation and ease of management, which are both useful regardless of tax residency.
Hope you will answer and explain to your readers that the e-residence is completely useless. Even if you sponsor it. Hope you will not delete the question and instead you could answer so anybody can read. Thank you. We are all in the same boat.
Hello there Benedetto,
With due respect, I believe you are quite confused about CFC rules. CFC rules are there to prevent citizens open offshore companies in tax heavens. That doesn’t affect Estonia, which has, in fact, CFC rules itself to prevent its citizens from opening businesses in tax heavens :).
Estonia is not Panama, Gibraltar or Seychelles. It’s a respectable country. Their corporate tax is 25% + 33% social tax. And the goal here has nothing to do with “avoiding taxes”. We are talking about freedom, no hassle, no red tape, and borderless management.
In your home country, the law specifies that a country is subject to CFC rules if (quoting):
In Italy, if I’m not wrong, corporate tax is 27.9% (24% plus 3.9% municipal). So for Estonia to be the target of Italian CFC rules, it’s corporate tax would need to be less than 14%.
Of course you can have a company in Estonia as a European citizen from another country. That’s one of the advantages of being in Europe! What you need to make sure is that Italy -in your example- cannot claim that your permanent establishment is in Italy, of course. As far as I know, many e-Residents are residents in their countries and happily conducting businesses. I wrote about that here, if you want to have a look: https://micropreneur.life/will-my-estonian-company-have-to-pay-taxes-in-my-home-country/
So your statement of “the e-residence is completely useless” is a bit ridiculous for me, and so many other e-Residents successfully conducting their businesses abroad. It may not be the best option for everybody, obviously, concretely for you. In that case, I would recommend you to stay in Italy and open a business there. You need to do what’s best for you 🙂
Hello Nacho,
Very helpful your article. I want to ask you if someone has another company in EU and makes a company also in Estonia, instead then of sharing dividends, is ok to make invoices between those 2 companies and get the dividend this way right?
Also is any problem if both companies owned by the same person and exchange services?
Thank you for your time.