Corporate Tax Heaven in Europe
There probably isn’t a better place in the world to do business than in Europe. Well, to be more specific, in the European Union. In this area you’ll find a market of half a billion people entangled in an environment that includes freedom of movement in: capital, services and workforce. These are all winning conditions for pretty much all kind of business to thrive with.
If you are worried about taxes, the EU also has you covered. Thanks to directives like the Parent-Subsidiary, the EU Mergers and the EU Interest & Royalties, you’ll have the path cleared to avoid double taxation when it comes to international transactions within the Union. Therefore, these directives, along with several other national agreements regarding double taxation, end up being a more than effective way to decrease your tax burden to a minimum.
Nonetheless, it’s safe to say that the EU isn’t exactly a tax haven per se. Most countries actually are part of the high-tax club, and most of them enforce corporate compliance, ultimately reducing the potential of businesses.
But keep your head up! There are plenty of ways to squeeze the potential of your business in several European jurisdictions to be discussed below. As a disclosure, we must say that this overview by the team at Centurion Capital is not intended to be thorough one explaining each and every detail of the financial environment of each country.
It is worth noticing that Europe is not only the European Union, as there plenty of interesting and attractive countries in the continent that aren’t necessarily included in the organization, the Schengen Treaty or the European Economic Area (EEA).
What is certain is that your knowledge of them will be enough to start planning a wealthy future in the continent. Let’s dive in!
ESTONIA
Among entrepreneurs, especially those working through the Internet, there is a lot of talk about the possibility of setting up a company in Estonia.
The electronic residency program makes it very easy to set up a company in Estonia. And the special Estonian corporate taxation system – you only pay taxes after dividends are distributed – makes the country very interesting, especially for fast-growing startups.
The most widespread form of company in Estonia is the Private Limited Company, comparable to those in countries such as Great Britain, which requires a minimum initial capital of €2,500.
Estonia is the ideal place for blockchain-based businesses. It has one of the cheapest and easygoing licensing mechanisms in the whole world for any company utilizing crypto-exchanges or crypto-wallets.
Estonian companies may also be considered by certain e-commerce and internet entrepreneurs as the country offers a low-cost set up and has access to the broad range of payment processing options in the European Economic Area.
Estonia is a very special country when it comes to corporate taxation. It is probably the only country in the world that has implemented a system where corporate tax is only paid on distributed dividends. If, on the other hand, dividends are distributed, the taxation is 20%, while for the income of individuals here too we have a flat tax of 20% on any type of income.
This means – as long as the international tax laws of the home country do not prevent it – that you will not have to pay tax on profits and invested money as long as it remains in the Estonian corporation. Technically, Estonia could also be assimilated as a modern tax haven.
Estonia can be regarded as a leading digital country, as it has invested heavily in the internet and new technologies while evolving into a tech-hub. This has allowed for hundreds of businesses to thrive within its borders, many of which have even been born in Estonia and have become world successes (Skype, Transferwise, Pipedrive and Bolt).
It is the only country in the world that has allowed you to take a digital identity (E-Residency) in this way you can set up a company in Estonia without being resident.Nonetheless, not every business has gotten lucky. There are small-capital companies that have failed to obtain proper banking services due to its lack of connection to the region as a whole.
MALTA
Malta is a jurisdiction with a traditional tax-based tax system and has a number of advantages for foreign companies and non-residents. Due to its advantageous tax system, Malta is the jurisdiction of choice for a large number of international companies and holding companies to establish their headquarters and do business in the European Union.
Malta allowed the creation of offshore companies until 1996 when a change in the regulations limited their commercial activity only until 2004 and without accepting new incorporations. With the entry into the European Union in 2004 Malta has changed the whole system and the legal framework for these companies although it is still considered a tax haven due to the tax advantages and the confidentiality of the operations of these new trading companies.
Currently Malta allows the incorporation of two types of companies: IHC (International Holding Company) and ITC (International Trading Company). An ITC or International Trading Company is a traditional offshore company with the distinction that the commercial activities are carried out exclusively outside the jurisdiction.
The ITC cannot have investments abroad or own shares or property interests. IHC International Holding Company, on the other hand, is a company whose activities are limited to property or stock holdings and similar passive profit generating activities.
Malta has double taxation avoidance agreements with more than 60 countries, making it an attractive option to consider for tax planning and creating an efficient financial structure. ITCs and IHCs pay 35% of their global income but in practice there is a system of credits and refunds for shareholders reducing these taxes to 4.2% for ITCs and 6.5% in the case of IHCs.
Added up, you could be getting a reduction of taxes as far as low as 4 and as high as 10%, which accounts the popularity of Malta as the greatest tax environment in Europe. This makes Malta an interesting jurisdiction for e-commerce businesses, e-gaming, financial services, shipping, aviation, yachting, investment funds, and also cryptocurrency companies.
However, many companies already settled in Malta have found trouble when opening local bank accounts. This is relevant for those who aren’t present in the country or lack EU citizenship. The upside is that many small banks and e-banks are providing financial services for these types of businesses.
SWITZERLAND
It’s no secret for anybody how this country has become the single greatest nation to do business in the whole world. Not only it has both a stable economy and political system, but it also offers international businessmen with an amazing home for their assets.
There are hundreds of firms settled in Switzerland regardless of their origin. From the United States, China or the Arab world, this country’s offering of low taxes, competitive labor market and incredible infrastructure is more than enough to attract the very best of the best when it comes to the financial world.
It is worth noting that even when Switzerland is not part of the European Union per se, it does belong to the Schengen area of free movement of people and has bilateral free trading agreements with many European nations.
The financial vehicle with the most popularity is the corporation, also Aktiengesellschaft ‘AG’ in German language or “SA” Société Anonyme in French language. Shareholders must enter these corporations with at least CHF 100,000 of capital each, and the official board of directors must include at least one Swiss professional.
As with any other European countries, companies registered in Switzerland are subject to many types of taxes, from federal to communal. The upside is that each canton has its own taxation regime, which allows for certain territories inside the country to offer amazing tax opportunities for capital holders.
It’s important to highlight how each canton has a unique tax regime, as communal and capital taxes vary according to it. In the end, the added up effective tax rate of the country can be placed between 11% and 24%.
For example, and to prove that point, it is known how many businessmen choose the canton of Zug to start their companies, as it offers the greatest tax regime in the nation. This canton also offers a great deal for Fintech and Blockchain-based corporations thanks to attractive regulations enacted by financial institutions.
On top of that, working in Switzerland will provide you of a luxury room in the single biggest financial hub in the whole world. You’ll be part of the greatest banking system and protected by one of the most perfectly designed financial legislation. Swiss companies also have access to one of the largest financial centers in the world.
UNITED KINGDOM
As you know, the Brexit left the UK outside of the European Union and the Schengen area. However, during the exit agreements from the organization, it has signed free trade agreements with these countries on economic and social matters of outmost importance.
Moreover, who doesn’t know that London is one of the largest and most important financial communities in the entire planet? Home of some of the biggest corporations, the United Kingdom can’t be left behind when talking about the greatest European opportunities for businessmen.
There are few places on Earth better prepared to provide financing than the streets of financial London. Or Manchester, Liverpool, or Cardiff, for that case. There is a huge amount of capital holdings, angel investors and equity funds more than ready to get any attractive business idea up and going.
Two of the four countries of the U.K. offer competitive taxes for companies. We are talking about England and Wales, which are the countries in which limited companies are commonly incorporated. These have both a 19% corporate tax, which compared with many other EU countries, is just a bargain.
These limited companies are often utilized as holding companies, which then through subsidiaries deployed in high-tax territories can benefit of one of the many tax agreements in which the United Kingdom is part of.
Moreover, tax-exemptions are also available on capital gains through transactions involving shares. This can be done after complying with current regulations and is applied on all type of revenue.
In the case of Limited Liability Partnerships (LLP), they are considered as transparent financial vehicles in the UK. This means that all of the revenue acquired by the LLP is regarded as personal for its members and is therefore taxed that way.
As this financial entity is fiscally attached to the owners for UK authorities, non-UK residents might only be forced to pay taxes on income sourced from the UK, which means zero taxes for income coming from countries outside the UK. This allows for great opportunities especially for digital companies working in different countries at the same time.
When it comes to its banking system, it is worth noticing how small corporations have struggled to obtain a corporate bank account. This is true especially for companies foreign-owned. However, these have found solutions in e-wallet entities, on top of being allowed to open accounts in other European countries.
ISLE OF MAN
The Isle of Man is a British Crown Dependency, located in the Irish Sea, and has a self-governing self-government whose legal system is based on English law. The jurisdiction offers an attractive legal and tax system for different types of entities such as investment holding companies, trading with the European Union, companies holding patents and industrial property as the country is part of the Paris Convention on Patents and Trademarks.
This country has a marvelous legal system that is more than ready to offer businessmen with all tools necessary to create corporations, manage capital and structuring financial vehicles.
Moreover, this country is known for having one of the largest e-gaming industries in the whole world, along with offering great opportunities for family trusts and estate-related investments. Blockchain-based businesses and foundations are also some of the most utilized vehicles utilizes by entrepreneurs in the country.
The main advantage of the Isle of Man as a financial center or tax haven is that companies that do not have local shareholders are not subject to trade and investment income tax but pay a nominal flat fee annually.
Several types of entities can currently be incorporated in the jurisdiction, of which the most commonly used is the Exempt Company, created under the Isle of Man 2006 Act. To incorporate an exempt company in the Isle of Man, a minimum of two directors, one of whom is resident, is required and corporate directors are not allowed.
The standard authorized capital is GBP 2,000 with no minimum paid-up capital. These types of companies are tax exempt and pay an annual license fee. No annual accounts are required to be filed but such accounts must exist at the address of the Registrar Agent on the island.
Depending on various criteria including number of employees or annual turnover, most offshore companies do not need to have their accounts audited.
The Isle of Man has a customs and excise agreement with the United Kingdom. This agreement means that for VAT, customs and excise purposes the two territories are treated as one. From this agreement derives the advantage of registering a company in the Isle of Man to trade with the European Union. Companies domiciled on the island pay zero tax on trading activities while having a VAT tax number accepted in the EU.
LIECHTENSTEIN
Liechtenstein is not in the European Union but it does belong in The European Economic Area (EEA), which is a legislation that allows for countries of the continent to be a part of the large European market. These agreements seek to permit the free flow of capital, goods, workforce and services within the market, enabling a thriving operative system in which many companies thrive.
If you want to avoid a long and complicated start-up process characterized by bureaucratic chaos, Liechtenstein is the place for it. Here company openings are made quick and easy.
Opening a company in the Principality of Liechtenstein offers, in addition to low tax rates and a liberal form of company law, several other advantages like simplicity, security and flexibility. On top of that, Liechtenstein is open to anyone regardless of nationality.
The most utilized financial vehicle in Liechtenstein is the corporation (AG), in which one of the directors must be a resident. Private Asset Structures are also settled as Foundations for estate-related operations and are greatly effective at decreasing tax burdens and protecting assets.
This country’s tax regime for corporation sits at 12.5%, which is one of the greatest ones in Europe, other types of taxes like capital tax, inheritance tax and gift taxes have been abolished, and there aren’t taxes on dividends paid to non-residents.
Liechtenstein is considered one of the best tax ports in the world and is very popular among businessmen. The reason for such popularity is a convenient tax legislation that allows us to reduce or generally to avoid the need to pay taxes. The most significant advantages of registering an offshore company in Liechtenstein can be attributed to:
- High reputation and credibility in the business world;
- Ease of company registration;
- High level of information security;
- Reliability and efficiency of the Liechtenstein banking infrastructure.
When it comes to its banking system, this country offers one of the most attractive ones, as the industry is known for managing large clients with outmost efficacy.
FINAL REMARKS
At Centurion Capital, we believe there is always a country that seems to be specifically crafted for the thriving of your business. Of course, there are many things to consider, including the type of company, your banking preferences, marketing strategies, even your own nationality weighs is. But in the end, if well-researched, there are tons of opportunities for you to take advantage of.
For example, the Isle of Man seems to be ideal for asset management as its financial solutions are the best in Europe. The low-tax of Switzerland, along with its phenomenal international reputation, is also attractive for most type of companies.
Moreover, trading companies will certainly triumph in Malta thanks to the low tax regime in place and the overwhelming popularity of Fintechcorporations, alternative investment mechanisms and professional funds.
On the other hand, Liechtenstein is the perfect place for foundations and general enterprises. In both of these countries, blockchain technologies are also finding a place to grow at unparalleled rates.
Looking for financing partners? Then the United Kingdom is the place. Any kind of startup, especially tech-related ones, are more than welcomed in Estonia and will probably succeed if accompanied with proper management.
You can’t forget how the expertise factor plays a major role in all of this. You need top professionals aware of each of these countries’ financial environments to actually create and sustain wealth. Wait no more and contact our team at Centurion Capital to get a clearer grasp about how to properly initiate and operate your multinational business in Europe.
Warning: The content of this article does not constitute legal or tax advice. It is provided for general informational purposes only and not for the purpose of offering any warranty or guarantee. As laws change frequently, personalized professional advice is absolutely necessary.
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