Choosing the country for a business registration
Opening a company abroad gives a lot of benefits:
- optimize taxes;
- expand business;
- simplify management of the business and decrease pressure on the business by choosing business-friendly countries;
- have a possibility to work with local teams and decrease salary expenses.
So, in this article, the European countries will be described, which can help realize these benefits to the greatest extent.
In addition, special business programs will be described if they are available in the countries.
However, please pay attention that it is easy enough to open a company abroad, but high monthly expenses can be to manage it.
Georgia: advantages of opening a company
Georgia is a trendy country for business opening because of the low taxes. It has entrepreneurs from all around the world. Georgia has 7th place in the Doing Business ranking.
In addition, it is a perfect place to live with a sunny climate and sea, delicious food, and low prices.
Advantages:
- possibility for a company registration without personal presence;
- dividend tax of 5%, only in case of dividends payment;
- the corporate income tax rate is 15%, but 5% for IT companies;
- easy to receive a visa;
- relatively cheap to run a business: 320 EUR ( 350 USD);
- registration takes 2-3 business days if all documents are prepared correctly.
Notes:
- Georgia also offers a program for individual entrepreneurs with a 1% payment of their business’s gross revenue up to 500 000 GEL (~ 125 000 €).
- If your turnover (revenue) is less than 30 000 GEL (~ 7 500 €) per year, the tax rate is 0% for entrepreneurs.
Let’s consider expenses connected to maintaining a company in Georgia. A company in Georgia requires a local legal address.
| Expenses | Prices |
|---|---|
| Local legal address | from 20 EUR /Month |
| Accounting, tax reporting, annual reports | from 135 EUR/Month (for not VAT payer, up to 5 employees, no more than 100 invoices/month) |
Total expenses to have a company in Georgia start from 1860 EUR.
Estonia: advantages of opening a company
Estonia proposes electrical residency ( “e-residency“). E-residency is a government-issued digital entity and status that lets you start and manage an EU-based company online.
Advantages:
- possibility for a company registration without personal presence;
- company in the EU;
- corporate income tax rate is 20%, but corporate income tax is paid only when dividends are distributed (only in case of dividends payment);
- no additional tax on dividends;
- relatively cheap to run a business: €290 (€100 e-residency + €190 State Fee )
- you don’t need to be a physical resident of Estonia.
Notes:
- E-residency doesn’t give you legal rights to stay in Estonia or the EU.
- It will be necessary to pay a dividend tax in the country of your residence ( locally).
- it is difficult to open a local bank account in Estonia, so one of the online payment systems should be chosen, like Wise, Paysera, Payoneer, Stripe, and others.
- You have a chance to open a bank account in one of the banks of Estonia if your business is very ‘connected’ with Estonia: a lot of local staff in the company, and a high level of investments.
Let’s consider in addition approximate expenses connected to the foreign company. A company in Estonia is required an Estonian legal address and local contact person.
| Expenses | Prices without VAT of 20% |
|---|---|
| Estonian legal address & contact person | 124 EUR/Year |
| Accounting, tax reporting, annual reports | from 59 EUR/Month (up to 10 invoices/month) |
| Bank services | Payoneer: Pre-paid card transaction/withdrawal fee 0–3.5% depending on currency and merchant country Stripe: Payment Acquiring & Gateway depending on cards 1.4-2.9% + 0.25 SEPA payments: 0.35 EUR/Unit Paysera: Payment Acquiring & Gateway: from 0.75% EUR/Unit Debit/credit/pre-paid card: 6-11 EUR SEPA payments from 0.25 EUR/Unit Business banking account fee: 3 EUR/Month |
As you can see, the yearly expenses to service a company in Estonia start from 900 EUR/year, even if there are no transactions during the year.
Bulgaria: advantages of opening a company
Advantages:
- possibility for a company registration without personal presence;
- corporate income tax is 10%, one of the lowest in Europe;
- dividend tax is 5%, only in case of dividends payment;
- personal income tax is 10%, except dividends ( here is a 5% dividend tax applicable).
Notes:
- According to Bulgarian legislation, the local address is needed in case of incorporation of a company in Bulgaria.
- Expenses connected to open a company in Bulgaria:
- Bulgarian company incorporation from 399 EUR;
- Company registration address 399 EUR;
- Company bank account opening from 699 EUR.
Let’s calculate expenses in case of having a company in Bulgaria.
| Expenses | Prices |
|---|---|
| Local legal address | from 50 EUR /Month |
| Accounting, tax reporting, annual reports | from 65 EUR/Month (without VAT registration, up to 1 employee) from 130 EUR/Month (in case of VAT registration, up to 1 employee) |
Summing up the expenses above, the minimum cost will be received of 1380 EUR/year for accounting support and the legal address of the Bulgarian company.
Cyprus: advantages of opening a company
Advantages:
- possibility for a company registration without personal presence;
- corporate income tax 12,5%;
- 0% tax on dividends paid out to the shareholders or only other companies that hold shares;
- a Cyprus company can be 100% foreign-owned.
Notes:
- Expenses connected to open a company in Cyprus:
- A company incorporation from 1000 EUR;
- Corporate bank account introduction in Cyprus with legal support is 500 EUR;
- Annual Levy for all Cyprus companies of 350 EUR;
- At least one director must be a resident of Cyprus. The price for this service in a local law firm is from 500 EUR to 1000 EUR per year;
- The annual audit fee is 600 EUR/year;
- The general accounting and book-keeping fee is from 500 EUR/year.
Examples of corporate income tax and dividend tax calculation by countries
Let’s consider what dividends will be received by shareholders in each country in case of a profit before tax earned for a year of 50 000€.
The corporate Income tax base for corporate tax calculation can be different:
- Net Income ( Applicable in Bulgaria and Georgia) or
- Gross Receipts Tax Base ( Applicable in Estonia and Cyprus).
So, you can see a different calculation below.
| Country | Profit before tax | Corporate Tax | Net Profit | Dividend Tax | Dividends received |
|---|---|---|---|---|---|
| Georgia | 50000 | =50000 * 15%=7500 | =50000 – 7500=42500 | =42500*5% = 2125 | =42500 – 2125 =40375 |
| Estonia | 50000 | = (50000/( 100%-20%)) * 20% =12500 | = 50000-12500= 37500 | 0% | 37500 |
| Bulgaria | 50000 | =50000 * 10%=5000 | =50000 – 5000=45000 | =45000 * 5%= 2250 | = 45000 – 2250 = 42750 |
| Cyprus | 50000 | = (50000/( 100%-12,5%)) * 12,5% = 7143 | = 50000 – 7143 = 42857 | 0% | 42857 |
As you can notice using the example above, the highest income after all taxes will be received in Bulgaria; following go Cyprus and Georgia with similar amounts, and the highest taxes are in Estonia in this example.
Conclusions: how to choose a country for opening a business in Europe
A choice of a country for starting a business depends on your priorities:
- If you prefer a country with a strong economy and a lot of startups, Estonia is your choice;
- If you prefer to minimize the taxes and have a company in Europe, it is possible to do so in Georgia and Bulgaria;
- Opening a business in Cyprus has a lot of nuances, that should be taken into account, so it is good for a big business.