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The best tax havens for companies in the EU

When moving to other EU countries, German companies can benefit from the EU parent-subsidiary regulation and double taxation agreements. In EU tax havens such as Curaçao, Madeira, Malta, Bulgaria or Cyprus, they only have to pay very low taxes. There is no additional taxation in Germany.

German companies are looking for alternative headquarters within the European Union. Because in Germany they have a tax burden of around 30 percent. In addition to 15 percent corporate income tax, they pay trade tax based on the assessment rate in their federal state.

When moving a company within the EU, the German tax authorities do not impose any exit taxation that would otherwise be charged for ten years.

There is also no additional taxation in Germany according to Paragraph 8 AStG, i.e. no fictitious profit taxation for German shareholders for a company abroad. Exceptions are Bulgaria and Ireland.

When moving to other EU countries, the company benefits from the EU parent-subsidiary regulation, according to which profit distributions from affiliated companies in various EU countries are exempt from withholding tax.

Since there is usually a double taxation agreement (DTA), the existence of a permanent establishment in Germany and abroad is defined by Article 5 DTA and not by domestic regulations such as paragraphs 12 and 13 of the tax code.

While a commercial business operation is sufficient under the double taxation agreement, the German tax code would also require active business activity.

According to the tax code, an economic reason for the company's headquarters abroad would also have to be proven. A representative office or a warehouse abroad would also trigger a tax permanent establishment with a tax assessment in Germany.

Therefore, when choosing a tax haven for your company headquarters, you should always consider whether there is a double taxation agreement with Germany. Then you circumvent the automatic suspicion of tax abuse and an arbitrary tax estimate.

When founding a holding company, the EU Merger Directive can be applied to mergers or share swaps and shareholder borrowing, for example to transfer the subsidiaries' assets to the holding company in a tax-neutral manner.

The holding privilege, also known as the nesting privilege, which does not provide for any taxation of dividends received by the holding company, is common practice in Cyprus, Spain, the Netherlands, Denmark and Malta.

Ideally, a holding company collects the dividends of the base companies, in which the holding company has to hold at least 10 percent and which must exist in the EU for at least 1 year, tax-free and does not pay tax on its investment income.

Incidentally, Switzerland also has a holding principle, which is why it is often included in cross-border structures. But here, too, you have to pay attention to whether Switzerland has concluded a double taxation agreement with the other location.

There is a double taxation agreement with Germany, but Switzerland, for example, does not have a double taxation agreement with Cyprus. If dividends were distributed to Cyprus, Switzerland would withhold 35 percent withholding tax. No withholding tax is payable on dividend distributions in DBA countries.

The EU freedom of establishment also gives the company EU legal protection. The ranking of tax havens for companies in the EU is headed by the three EU special zones Curaçao, Madeira and the Canarian ZEC.

Curaçao, a low-tax haven

In Curaçao (state of the Kingdom of the Netherlands) companies in the so-called E-Zone only pay 2 percent tax. The funding will only run until 2026. It should be of interest to internet companies, affiliate marketing, international trade, e-commerce, import-export, consultancy, agencies, franchise concepts, investments and systems of all kinds.

Profit distributions and interest from silent partnerships (profit-sharing loans) are tax-free according to the EU parent-subsidiary directive and DTA between Germany and the Kingdom of the Netherlands to German companies and private individuals. A prerequisite, however, is a stake of at least ten percent in the e-company in Curaçao.

The company E-CIRES N.V., for example, also provides assistance in setting up a company in just two working days. in Willemstad in Curaçao. The furniture giant IKEA has been using the Curaçao model for years and has set up its parent company in Curaçao.

Portuguese Special Zone Madeira

The Portuguese special zone Madeira only charges 5 percent tax for companies. This is limited to 2020. And the settlement of the company is connected with conditions. You have to create jobs, for example employing residents by contract with 400 euros per month, and maintaining commercial operations, i.e. renting an office. The conditions cause ongoing monthly costs.

The Canarian special zone ZEC only knows a corporation tax of 4 percent and a value added tax of 5 percent. There is a DBA with Germany. But since the ZEC does not belong to the EU sales tax law territory, such as Madeira, import sales taxes are due when goods are imported into the EU.

In addition, there are requirements for the establishment of a company: You have to create at least 3 jobs, maintain a qualified business with a managing director, for example in Tenerife, and invest at least 50,000 euros in the first two years after founding. The minimum share capital of an S.L. is 3005 euros.

Malta: zero tax haven for license income

Malta is a godsend for companies that primarily generate income from licenses and patents. All income of this kind is tax-free in Malta. Malta also offers investment incentives for job location and job creation.

Otherwise there is a higher tax rate in Malta than in Germany, namely 35 percent. But here, too, there are tricks to reduce. The tax consultants and lawyers at ETC EXCELLENT TAX & CORPORATION MANAGEMENT LTD, headquartered in London and with a branch in Hamburg, found:

The tax return procedure (Refund of tax to share-holders) enables final taxation of 5 percent to 10 percent at the Malta permanent establishment level (5/7 or 6/7 of the taxes paid are achieved in the tax return procedure refunded to the shareholder).

However, the dividends must then also be distributed to the shareholder, which results in taxation for the recipient of the dividend. An alternative is the interposition of a Malta Holding (i.e. an active company in Malta and Malta Holding): A Malta Holding becomes the owner of the active Malta Limited, then reimbursed to the Malta Holding and thus again final taxation at the permanent establishment level Malta from 5 to 10 Percent. The same result can be achieved if a corporation in the EU (e.g. Cyprus) is interposed as the owner of the active Malta Limited.

Low taxes in Bulgaria

Cyprus and Bulgaria have the lowest taxes without time limits or requirements, each with 10 percent income tax, regardless of profit.

However, while Bulgaria withholds a flat tax of 5 percent withholding tax on dividend distributions, Cyprus does not levy withholding tax on dividend distributions to non-Cypriots. A dividend tax of 15 percent is levied on Cypriots, which is supposed to serve the defense of the country.

In contrast to Cyprus, Bulgaria is subject to taxation by Germany, which is unlawful to the EU. This means: The dividends of the foreign permanent establishment are charged to the German shareholders, i.e. taxation with income tax and not withholding tax or partial income procedure. Corporate income tax for a legal person. In case of doubt, a qualified business operation must be proven.

Cyprus beneficial for holdings

As in the Netherlands, Denmark, Spain, Malta and Switzerland, EU companies (holdings) are not taxed in Cyprus (applies to pure investment income). Cyprus has no infection rules in the context of a holding company: Active income is taxed at 10 percent, but the entire holding company is not infected, pure investment income remains tax-free.

Cyprus is not so bad for patent holders either: income from patents and licenses is 80 percent tax-free, the remaining 20 percent is taxed at 10 percent. A Cyprus company account also makes the company above any suspicion of money laundering at German banking institutions.

If even the 10 percent income tax in Cyprus is too much for you, you can add a parent holding company in the African state of Seychelles to the Cyprus company with an account there (which, by the way, is anonymous if a trustee is used) (but because of the risk of expropriation without an African account, but only with a company account in Cyprus).

In the Seychelles there are no taxes at all for the International Business Company (IBC), and no bookkeeping is even required.

A combination between a parent company IBC in the Seychelles and a subsidiary in Cyprus is permitted and even recommended for both companies because of the possibility of a real office service in Cyprus. The Privacy Management Group Limited from Lanarca in Cyprus offers such an office service for 790 euros a year.

There is a double taxation agreement between the Seychelles and Cyprus, but this has no influence on the Seychelles IBC. Cyprus recognizes the Seychelles IBC for tax purposes (member of the "White List"). With the combination of parent IBC in the Seychelles and a subsidiary limited or holding in Cyprus, dividends from Cyprus are not taxed in Cyprus or the Republic of Seychelles.

Online and credit card banking via Cyprus also offers the owners of a Seychelles company maximum flexibility and discretion. A complete Seychelles-Cyprus combo package with credit cards costs 1,590 euros at Privacy Management Group Limited plus 75 euros shipping and courier costs.

Ireland is good, but not for Germans

With a corporate tax rate of 12.5 percent, Ireland can also be considered an EU tax haven, although natural persons are subject to high income taxation of 20 to 60 percent. A possible disadvantage could be the following condition: Fiduciary relationships are prohibited at the director level, so no fiduciary director can be appointed.

Equally disadvantageous is the fact that Germany levies additional taxation for companies in Ireland and Bulgaria, which is unlawful to the EU, which makes both locations unattractive for German company establishments or company founders to save taxes.