Ukrainian large and small entrepreneurs often think about registering their business and expanding it in European countries. Many EU countries offer not only a simplified and business-friendly legislative framework but also optimal taxation conditions. Here is a list of the 5 most suitable countries that a Ukrainian businessman should pay attention to.
Estonia is known for the benevolent attitude of officials towards business and developed digital infrastructure. Almost all business processes can be controlled online – register a company, submit reports, ask questions to public services, etc. Besides, you have the opportunity to obtain a residence permit.
- There is no tax on retained earnings. Income tax is paid only when the company has decided to distribute dividends to its owners.
- The corporate tax rate for distributed profit is 20% (in some cases, a reduced rate of 14% may apply).
- The VAT rate for some goods and services is 0% and 9%. The standard VAT rate is 20%.
- Double taxation treaties with 59 countries of the world, including Ukraine.
Lithuania attracts entrepreneurs with inexpensive labor and relatively low tax rates. The process of registering a company is relatively inexpensive and fast. Besides, you don’t need to know Lithuanian for comfortable communication, because a large percentage of the country’s population speaks Russian! Most business operations can be carried out online.
- Income tax is 15% (with some exceptions). For example, a reduced rate of 0–5% is provided for companies with no more than 10 employees with an income of no more than EUR 300 thousand per year.
- The standard tax rate on dividends is 15%, but the legislation provides for a preferential tax regime subject to the requirements for the share and term of ownership of shares in companies.
- Lack of currency control.
- The royalty and interest tax is 10%, but there is a possibility of exemption under double tax treaties or the EU Directive.
- The standard VAT rate is 21%, but preferential rates of 9%, 5%, or 0% are applied to some goods and services.
- Double tax treaties with 55 countries.
Latvia is also a popular destination for registering a business. The point is not only in geographical proximity but also in the simplicity of the company’s design and the minimum requirements for the presence of authorized capital. Investments in fixed assets of an enterprise in Latvia in the amount of EUR 50,000 (subject to annual tax payments of the company from EUR 40,000) will also allow obtaining a residence permit of the country.
- There is no tax on retained earnings. Income tax is paid when a company distributes dividends to owners.
- The basic corporate tax rate for distributed profit is 20% (but may be increased to 25%).
- Micro enterprises pay a fixed tax of 15% and are exempted from withholding tax on salaries, as well as paying income tax, subject to a number of conditions (in particular, turnover should not exceed EUR 40,000 per year).
- VAT in Latvia is 21%, but for some types of goods and services, it is 12%, 5%, and 0%. When making transactions within the European Union, as well as when exporting goods outside the European Union, VAT is 0%.
- Double taxation treaties with 62 countries of the world, including Ukraine.
Many companies are registered in Malta because of the country’s good reputation, political stability, excellent quality of banking services, and, of course, interesting conditions for tax planning. One of the most profitable schemes for shareholders in Malta is the creation of a two-tier structure consisting of a holding and a subsidiary. Malta is also known for its popular programs for obtaining residence permits and citizenship through investment. During the worldwide quarantine, the Maltese government is considering measures to receive and process applications from investors remotely.
- The company income tax in Malta is 35%.
- Maltese company income derived from dividends and capital gains from a foreign company will be tax-deductible in Malta if the Maltese company has a “qualified participation” in the foreign company.
- Dividend payments from a Maltese company are not taxed at source, provided that the dividend recipients are not residents of Malta and/or are not acting on their behalf.
- The Maltese company does not bear currency risks, since income taxes, as well as returns, are paid in the currency in which it was received.
- Double taxation avoidance agreements with 80 countries of the world, including Ukraine.
After joining the EU, Cyprus significantly changed its legislative structure, tax system, and reporting rules, which turned Cyprus from an offshore into a low-tax jurisdiction with a good reputation. Cyprus membership in the EU allows the company to get a VAT payer number, which opens up prospects for strengthening business ties and developing international trade activities with EU countries. Cyprus, like Malta, allows you to obtain a residence permit and citizenship through investment, which makes the country even more attractive to investors.
- One of the lowest corporate tax rates in the EU is 12.5%.
- Dividends received by a Cyprus company from non-residents are not taxable in Cyprus.
- Dividend and interest payments made by tax residents of Cyprus to non-residents are exempt from source income tax.
- A company registered in Cyprus is exempted from paying income tax on income from non-residents if the head of the company is a non-resident of Cyprus and the company does not operate in Cyprus.
- Profits earned by the permanent establishment of a Cyprus company abroad may be exempted from taxation in Cyprus (subject to a number of conditions).
- The VAT rate varies from 0% to 19%. A company may be exempted from VAT if it provides its services and goods to non-residents of Cyprus.
- In July 2015, the status of “non-domiciled resident” was introduced in Cyprus in relation to individuals. In practice, it means that people who want to move to Cyprus and become tax residents of Cyprus will be exempted from income tax and contributions to the Defense Fund for 17 years after moving to Cyprus if they receive only passive income (e.g. dividends, royalties, interest, etc.).
- Double taxation treaties with 64 countries of the world, including Ukraine.
What to pay attention to when choosing a jurisdiction:
- The size of the authorized capital upon registration of the company.
- Corporate tax rate and special conditions for the distribution of profits.
- The double tax treaty with your country.
- Conditions for residents and non-residents.
- Protection of company assets.
- Currency risks.
- Taxation for individuals.
- Current regulations on controlled foreign companies (CFC).
- The cost of creating and maintaining a company.
- The presence of the necessary infrastructure (banks, providers, etc.).
The tax system of each country has its own characteristics, and when choosing the appropriate jurisdiction it is worth considering each specific situation: the type of the company’s activity, its legal form, the purpose of the owner, desire or unwillingness to become a resident of the country, and much more.