Latvia copied Estonia's 0% tax system, but what are the differences?

[momentum8778]

Latvia copied Estonia's tax system, but what are the differences?

The reason I ask is I am considering creating a LLC in one of these countries to trade stocks. Given the tax rates are 0% on reinvested profits, and 25% on withdrawing dividends the compounding effects could be phenomenal.

I am an EU citizen and would reside in either country 183 days. Automated trading is my sole source of income.

Key differences I found so far:

In Estonia you must pay yourself a salary commensurate with the job you are performing at your LLC. Along with this, the very high payroll and social taxes. What must a trader be paid to satisfy the tax authority? How is this calculated? The higher this number the less appealing the 0% and 25% rate becomes.

In Latvia I couldn't find any sources that say you must pay yourself. Does anyone know?

In Estonia there is no discounted tax rate if you hold investments long term. In Latvia you pay no taxes on profits if the investment was held more than three years. Does this include publicly traded securities? I found one source that claims yes, another says it only applies to certain closed investment schemes, excluding real estate.

If anyone knows of other differences please share.

Additional questions:

How do you file taxes in Latvia for an LLC compared to Estonia? Given the "e-everything" culture of Estonia, I imagine its easier there. Hopefully Latvia has copied this too?

Must trades be reported every month to the tax authority? Can it be done online in an automated way? For someone who decides to hire an accountant, what would be the cost for 200 trades per year?

In both countries, LLCs with assets of more than 500K must have an auditor appointed. How much does this add to accounting costs? Must an audit be made every month? This sounds expensive.

Is there any way to open an Estonian LLC but live in Latvia and not be double taxed? Riga is a bigger, more populous city which is appealing to me.

Are you able to receive a home mortgage based on the assets of your LLC? How hard is it to get a loan for a fellow EU citizen?

Negatives of a 0% LLC: (please correct me if I'm wrong)

In both countries anyone can search your first and last name and will know your net worth, yearly profit, taxes paid, etc, as the business register is wide open. And even worse, in Latvia you must put your home address. Legal addresses are not permitted. Is there any way to get around this public exposure?

https://abiinfo.rik.ee/en/uudised/e-business-register-data-now-available-everyone-free-charge

Many questions, I know. I greatly appreciate local knowledge and look forward to your replies. I especially would like to hear from member d08.

 

[Maverick2608]

Why don't you move to Sweden? If you trade through an investeringssparkonto ISK (for instance through Degiro) the tax is around 0.5% of capital for 2022. It will be higher in 2023 (maybe around 1%) because it depends on the interest rate, but still effectively much, much lower than what you describe above.

If you cannot do your trading through an ISK, you will pay the regular capital gains tax of 30% in Sweden. In Sweden irrespective of volume, frequency etc. you as a person will not be taxed as a business, which is the case in most other countries.

In your example, once you take out the profit at 25%, will you not pay capital gains tax on top of the 25% taxed at the personal level (an additional 20% in Latvia) making a move and spending half the year in the Baltics a bad choice in comparison?

 

[momentum8778]

An investeringssparkonto ISK savings account will not allow me to trade with leverage. That is a dealbreaker for me.

https://seb.se/privat/spara-och-placera/oppna-ett-sparkonto/investeringssparkonto

What do you mean about Latvia taxing as both dividends and PIT? When you have an LLC in Latvia/Estonia, you withdraw the profit as a dividend and pay a one time tax of 25%. If I withdraw 40,000 in profit, I would owe 10,000 in tax.

A 30% tax rate is very high. Every country in Central/Eastern Europe is way lower than that. I am also considering moving to Romania, Bulgaria and Moldova. 10%, 6%, and 15% tax rates on trading respectively. Although I'm still trying to get confirmation on Moldova. Their 6% capital gains rate might convert into PIT if trading is your sole source of income.

 

[virtusa]

Did you ever check the Italian flat fee taxation?
Trade in your personal name. Nobody can google you or find out your income or net worth.
Flat fee is 100.000 Euro/year. Second option as 26% flat fee.

"Res-non-Dom" regime

Starting from 2017, high-net-worth individuals that want to relocate their tax residency in Italy can opt for a substitutive taxation equal to EUR100,000 on a yearly basis with reference to all foreign-sourced (non-Italian) income (only the proceeds from sale of qualified shareholdings made during the first five years after the relocation are excluded).

The regime applies if the taxpayer has not been an Italian tax resident during at least nine out of ten years before the first year in which the applicant relocates tax residency to Italy. If this condition is met, the regime grants a fifteen-year exemption from individual income tax (IRPEF) on foreign source (non-Italian) income subject to the payment of a yearly EUR100,000 substitutive tax, which however does not contemplate a tax relief on taxes paid abroad.

Moreover, the new resident shall not be subject to Italian wealth taxes (i.e. IVIE and IVAFE) on foreign assets for the entire regime duration and to the ordinary reporting regime for foreign assets set forth under Italian law (RW Form). Inheritance and gift taxes will not be applicable to foreign assets held by the new Italian resident, while Italian assets will be taxed normally.

The application of the regime is also granted to the applicant's relatives who relocate to Italy. They are subject to a substitutive tax equal to EUR25,000 on all foreign-sourced (non-Italian) income received.

The option for the regime can be made (i) directly within the income tax return or (iii) by filing an advance ruling request before the Italian Revenue Agency (suggested option).

Or here: https://taxsummaries.pwc.com/italy/individual/taxes-on-personal-income
Tax regime for neo-domiciled individuals
Individuals who transfer their tax residency (see the Residence section for more information) from abroad to Italymay elect for the application of a flat substitutive tax, at a fixed amount of 100,000 euros (EUR) (hereinafter the ‘neo-domiciled tax regime’).

The mentioned tax regime will also apply on:

• the income tax on foreign investments (foreign interests, dividends, and capital gains) with the exception of capital gains on qualified participation earned in the first five years
• the wealth tax on real estate and financial investments owned out of Italy, and
• financial monitoring obligations through the Italian tax return (meaning that the individual is not required to declare one's foreign investments into the Italian tax return).

In addition to the taxpayer, each family member could be subject to a flat forfeiture substitutive tax on non-Italian sourced income at a lower fixed amount of EUR 25,000.

In order to be eligible for this tax regime it is necessary to carry out the option through the annual Italian tax return. In any case, it is advisable to apply for an advance ruling from the Italian tax authorities.

To elect such treatment, the individual must meet several requirements, including previous non-Italian tax residency for at least nine years over ten fiscal years preceding the transfer.

 

[momentum8778]

I've read about this scheme but its not for me. My gains aren't big enough for the flat fee to be tax efficient compared to the alternatives out there.

 

[JonLivingston]

Did you ever check the Italian flat fee taxation?
Trade in your personal name. Nobody can google you or find out your income or net worth.
Flat fee is 100.000 Euro/year. Second option as 26% flat fee.

"Res-non-Dom" regime

Starting from 2017, high-net-worth individuals that want to relocate their tax residency in Italy can opt for a substitutive taxation equal to EUR100,000 on a yearly basis with reference to all foreign-sourced (non-Italian) income (only the proceeds from sale of qualified shareholdings made during the first five years after the relocation are excluded).

The regime applies if the taxpayer has not been an Italian tax resident during at least nine out of ten years before the first year in which the applicant relocates tax residency to Italy. If this condition is met, the regime grants a fifteen-year exemption from individual income tax (IRPEF) on foreign source (non-Italian) income subject to the payment of a yearly EUR100,000 substitutive tax, which however does not contemplate a tax relief on taxes paid abroad.

Moreover, the new resident shall not be subject to Italian wealth taxes (i.e. IVIE and IVAFE) on foreign assets for the entire regime duration and to the ordinary reporting regime for foreign assets set forth under Italian law (RW Form). Inheritance and gift taxes will not be applicable to foreign assets held by the new Italian resident, while Italian assets will be taxed normally.

The application of the regime is also granted to the applicant's relatives who relocate to Italy. They are subject to a substitutive tax equal to EUR25,000 on all foreign-sourced (non-Italian) income received.

The option for the regime can be made (i) directly within the income tax return or (iii) by filing an advance ruling request before the Italian Revenue Agency (suggested option).

Or here: https://taxsummaries.pwc.com/italy/individual/taxes-on-personal-income
Tax regime for neo-domiciled individuals
Individuals who transfer their tax residency (see the Residence section for more information) from abroad to Italymay elect for the application of a flat substitutive tax, at a fixed amount of 100,000 euros (EUR) (hereinafter the ‘neo-domiciled tax regime’).

The mentioned tax regime will also apply on:

• the income tax on foreign investments (foreign interests, dividends, and capital gains) with the exception of capital gains on qualified participation earned in the first five years
• the wealth tax on real estate and financial investments owned out of Italy, and
• financial monitoring obligations through the Italian tax return (meaning that the individual is not required to declare one's foreign investments into the Italian tax return).

In addition to the taxpayer, each family member could be subject to a flat forfeiture substitutive tax on non-Italian sourced income at a lower fixed amount of EUR 25,000.

In order to be eligible for this tax regime it is necessary to carry out the option through the annual Italian tax return. In any case, it is advisable to apply for an advance ruling from the Italian tax authorities.

To elect such treatment, the individual must meet several requirements, including previous non-Italian tax residency for at least nine years over ten fiscal years preceding the transfer.

You want to start business in Italy? LoL good luck for when you need to deal with the tax authorities for anything. I say again: for ANYTHING.

 

[virtusa]

You want to start business in Italy? LoL good luck for when you need to deal with the tax authorities for anything. I say again: for ANYTHING.

You apparently cannot read. I said you trade in personal name, so NOT in a business.
I didn't deal myself with thet ax authorities. I used a specialized company for the negociations (fiscal ruling).

 

[JonLivingston]

You apparently cannot read. I said you trade in personal name, so NOT in a business.
I didn't deal myself with thet ax authorities. I used a specialized company for the negociations (fiscal ruling).

I should have been more specific there: I meant to do business in general. Not actually starting a business.

 

[Maverick2608]

An investeringssparkonto ISK savings account will not allow me to trade with leverage. That is a dealbreaker for me.

https://seb.se/privat/spara-och-placera/oppna-ett-sparkonto/investeringssparkonto

What do you mean about Latvia taxing as both dividends and PIT? When you have an LLC in Latvia/Estonia, you withdraw the profit as a dividend and pay a one time tax of 25%. If I withdraw 40,000 in profit, I would owe 10,000 in tax.

A 30% tax rate is very high. Every country in Central/Eastern Europe is way lower than that. I am also considering moving to Romania, Bulgaria and Moldova. 10%, 6%, and 15% tax rates on trading respectively. Although I'm still trying to get confirmation on Moldova. Their 6% capital gains rate might convert into PIT if trading is your sole source of income.

Are you sure the 25% is not just the postponed corporate tax so capital gains tax has to be paid on the remaining balance?

Ah just read this so you are right: Dividends paid to private individuals will not be subject to personal income tax.

 

[virtusa]

I should have been more specific there: I meant to do business in general. Not actually starting a business.

I am not doing business in Italy. I manage my private investments which are all generating profits outside of Italy. So all have NON Italian origin. If I would trade the Italian stockmarket I would be taxable like any Italian. US markets are not taxable in Italy if you have the Tax regime for neo-domiciled individuals.