What is e-Residency and why is it interesting for entrepreneurs (Company in Estonia)?
The E Residency allows anyone to create their own company in Estonia in a matter of minutes (E resident). It is a program for digital entrepreneurs who need to have quick access to the European (EU) market without having to make a large financial outlay.
The e residency (the e residency program) allows the entrepreneur to start invoicing with his own company in a fast and economical way, being able to do it all online.
e-Identity (E resident)
The E-Identity or e resident is the documentation that the Estonian Government provides to those entrepreneurs who complete the application process and thus become e residents in Estonia. Being an e resident in Estonia does not imply being a tax resident in Estonia.
How to apply for Estonian residency (How to?)
This process is quite simple and fast. In fact you will only need to fill in a form with your personal and company details in order to apply for Estonian eresidency.
(How to): You will need documents such as a photocopy of your passport, a photograph and a VISA or Mastercard. Once you finish the form to apply for the e residency program you will have to pay a fee of between 100 and 300€ and wait between 3 and 8 weeks for the Government to analyze your activity and data.
Once you pass this process, the residency kit will be sent to the place you have previously designated in the form.
You will have to apply to the Estonian police. The Estonian police is the only department that can issue the e-residency.
What can I do with the e-residency
Estonia is a country that is rewarding digital nomads, entrepreneurs and other business people by helping them with the process of opening a company.
Currently the e-residency in Estonia, allows those who have this id card to benefit from much less bureaucracy and less economic burden when creating this company.
With this e-residency, in addition to being part of «the e residency program», you will be able to access banks, make transfers in the name of your company, access the international market legally with your own company, etc.
Self-Employment Fees and Taxes
Your company in Estonia will not pay a self-employed fee as we know in Spain or Andorra, in fact, you will not pay this fee because you will not be resident in Estonia, only your company will be.
For that reason, you will have to face the costs of creating a company in Estonia, about 500€ approximately between all the expenses (because you will also need a fiscal address in Estonia for your company) and later you will have to take into account that you will have to pay about 50€ monthly for the accounting of your company in Estonia.
Now, the company that you have incorporated in Estonia, will have to pay the corporate tax at the moment you distribute the profits of your company. This tax you will have to pay is 20%.
What about the Spanish Tax Authorities?
Be very careful if you intend to create your company in Estonia and continue to reside effectively in Spain.
Why? Basically you will have to continue paying your taxes in Spain.
Continuing to Pay Taxes in Spain with my E-Residency
If you live more than 183 days in Spanish territory, the Spanish tax office will consider you as a Spanish tax resident, which means that you will have to pay your IRPF in Spain as you have been doing, even though you have an e-residency in Estonia.
But also, be careful, because the Spanish tax agency may consider that your company in Estonia is a shell company and understand that you are carrying out tax evasion, this is because basically you live formally in Spain, you carry out all your economic activity from Spain and there is no one in Estonia that can effectively develop your activity without the need for the executive management of a Spanish resident.
Therefore, the Spanish tax office can reproach you on this point and understand that your e-residency has no basis in Estonia so you should pay your taxes in Spain (including corporate tax).
E-residency is not the same as being a Tax Resident in Estonia.
This point is very important, as many people tend to confuse it and it can have quite disastrous consequences.
The Estonian Eresidency program only gives you access to be able to have a company remotely. That is to say to be able to have a company in an easy and fast way. But that does not mean that you as a natural person get tax residency in Estonia.
We assume that with this company, you will be able to start invoicing and growing internationally with your company, but if you live in Spain, you will have to continue paying your IRPF in Spain. So the dividends that you distribute from this company in Estonia, you will have to pay the corresponding part in Spain.
The good thing is that Estonia has signed double taxation agreements with many countries, so the part you pay in Estonia, you will most probably be able to deduct it from what you should pay in your country of tax residence of origin.
Andorra, your alternative
Compared to neighboring countries, Andorra is a country that offers very interesting tax rates.
Many people prefer not to make a large financial outlay and create their company directly in Estonia, with little bureaucracy and risking that their country of tax residence may consider that company an irregular company.
However, Andorra is a great option, because although initially we are talking about a financial outlay of approximately 25,000 euros (of which 18,000 euros remain at your disposal), it offers such an interesting tax system that makes such financial savings preferred over other jurisdictions.
Why Andorra?
Investing in Andorra and setting up a company in Andorra takes approximately three months. During these three months the person who will be a partner of this company will be asked for information and documentation to carry out the incorporation of a company in Andorra.
But the process to create a company in Andorra, can be practically online. It will only be necessary the presence of those partners of the company, at the moment of creating the company in Andorra before the Notary of the country and that same day to go to an Andorran bank to pre-open a bank account in Andorra.
The rest of the process can be done by us without the need for you to return to the Principality. However, it will be very important that you either change your tax residence to Andorra or that the company has substance in the country.
What is meant by substance?
It is that this company in Andorra has enough autonomy to not need the partner to be able to operate normally.
In practice, this translates into renting premises and hiring a person resident in Andorra for at least half a day.
However, it will also be very important that the effective decision making is made from Andorra, not by the partner from Spain or from another country. Then it will be understood that the company does not have sufficient substance in Andorra and the Spanish tax authorities could consider the same as if it were an e-residency in Estonia.
Incorporating a company in Andorra
As mentioned above, it will take about 3 months to set up a company in Andorra.
The perfect scenario will be that the partner can also transfer his tax residence to Andorra, as in this case, he will be protected from the Spanish tax authorities. But in case the partner or administrator of the company cannot reside in Andorra, there is the second option mentioned above.
If the established requirements of substance in Andorra cannot be fulfilled, Andorra Services does not recommend the transfer of the economic activity to Andorra, since there are high probabilities that the Spanish tax authorities consider this activity as tax evasion.
The latter is very important since, for example, a person who is dedicated to online marketing from Spain, who lives in Spain and who establishes his company in Andorra to carry out his activity from Andorra and who does not have any Andorran client but all of them are international or Spanish, is an absolutely dangerous scenario that could easily be interpreted as tax evasion.
That is why we recommend before making any change of tax residence, to previously carry out a small tax report where you can detail the important points of each particular case.
Can my family come with me?
Of course they can. The Andorran immigration department has a family reunification program.
At this point it will be necessary that the main partner of the company at least has contributed one month to the Andorran social security (CASS) and that he/she has and proves it, with a sufficient salary to support (reunite) his/her family members.
Social Security Contribution (CASS)
As an entrepreneur and self-employed, you will have to make a monthly contribution to the Andorran social security of approximately 460€.
Your regrouped family members will not have to pay this contribution. However, they must have a medical insurance that can cover the possible medical expenses of your family members.
Therefore, from Andorra Services we want to help you to make the best decision so that you do not have any fiscal problem. Contact us via email: [email protected] or via whatsapp: +376 366 005.
