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I'm a software developer freelancer with Croatian citizenship, and I need to start a company in order to pay income tax.

It's my understanding that my home country will incur 20-40% tax based on my income, whereas Ireland will only incur up to 12.5% (please correct me if I'm wrong) (source)

But, can I, as a Croatian, start a company in Ireland, pay my taxes to Republic of Ireland, while not living there? Keep in mind I have no problems flying there to take care of the company registration and and open a bank account. Would it be 100% legal? I actually don't spend a lot of tie in my home country either - I travel around a lot (in 2016 I've only lived in my home country for about 2 months).

Here are two important excerpts from citizensinformation.ie, a website dedicated to providing information about Ireland:

Foreign nationals Nationals of the European Economic Area (EEA) or Switzerland do not need permission to set up a business in Ireland. Generally, non-EEA nationals must get permission from the Minister for Justice and Equality in order to set up a business in Ireland. They may be eligible to apply for the Immigrant Investor Programme or the Start-up Entrepreneur Programme. If they wish to start a retail, catering, personal services or similar business they should apply for the business permission scheme.

and

Sole trader It is relatively simple to set up as a sole trader but if your business fails, your personal assets could be used to pay your creditors. Your main legal obligation is that you must register as a self-employed person with Revenue (see ‘Tax and PRSI’ below). If you wish to use a business name you must register your business name with the Companies Registration Office (CRO).

Croatia is in the EEA/EU, but is a provisional member. For example, a few months ago I wanted to get employed in Netherlands, but it wasn't possible without a work permit.

Also, I've no idea about accounting, taxes, opening a company, and all, so forgive me and correct me if I've messed something up (I'm in the process of seeking an accountant to help me out).

TL;DR I am looking for the best way to pay my income taxes in the EU.

EDIT I forgot to mention that there's a requirement to have a physical address in Ireland. Is it legal to use one of the virtual offices as address? There's a bunch of sites online that provide this service (if you're unaware of this, please Google "virtual office address ireland", since I don't want to spam).

  • What is your purpose in setting up the company as opposed to working as a sole proprietor? How do you plan on paying yourself? Do you plan on leaving any money in the company? – Yosef Weiner Jan 4 '17 at 16:41
  • @SkinnyJ I am complete newb. If you think being a sole proprietor is a better move for me, let's go for it. I am essentially looking for a simple way to start paying the taxes on my income. And no, I don't plan to leave any money in the company (but I am okay with leaving money in the company bank account). Thank you for your comment. – Nino Škopac Jan 4 '17 at 16:44
  • As soon as you pay yourself, you are subject to income tax (not corporate tax) on that money. Income tax is usually determined by your country of residence (unless you are lucky enough to be a US citizen), so incorporating in Ireland won't help you. – Yosef Weiner Jan 4 '17 at 16:47
  • I don't know details of Croatia, but you generally can pay tax on your income as an individual, without incorporating. You will probably need an accountant to help get yourself set up – Yosef Weiner Jan 4 '17 at 16:49
  • We'll definitely need someone more familiar with taxes in Crotia/EU to help here. In the US you could just report your business income on your personal taxes and be done with it. Also specific to the US, trying to fake an association with another country to pay their lower tax rate and avoid US taxes is tax fraud and a big issue, but I realize that the US has some world-leading-complicated and all-encompassing tax laws so this may not apply at all to your proposed situation. It would help though if you specify why you think you need to start a company to pay taxes. – BrianH Jan 4 '17 at 17:13
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This answer applies only to corporation tax, not income tax. Different things, income tax is much higher. 12.5% is the low rate for corporation tax. The standard rate is 25%. Or if you're Apple 0%.

Like many countries Ireland will only consider you eligible for the low rate of corporation tax if you (your Irish company) can demonstrably prove yourself resident in Ireland. This is more than just address, and you must be able to evidence that your staff work there, your directors are both European Economic Area citizens and have their board meetings in Ireland, and most importantly that they run the company from Ireland, etc. If you're a one man corporation, unless you want to live in Ireland, it's not going to work.

Referring to the Irish government's website:

The term 'residence' was not, until recently, defined in law. The general rule was that companies, whose 'central management and control' was exercised in the State, were treated as resident here. This rule or test emerged as a result of judicial decisions set down in case law. Factors to be taken into account in establishing where the company's central management and control lie include, for example, where the important questions of company policy are determined, where the majority of directors reside, where the negotiation of major contracts is undertaken and where the company's head office is located.

Long story short:

An Irish incorporated company is not treated as Irish resident for tax purposes if it is a 'relevant company' ... A Relevant Company is a company that ... is ultimately controlled by persons resident in the EU or in a country with which Ireland has concluded a double taxation treaty

  • Even though my question opened a whole new box of questions for me, I think this does answer my original question, so I will mark it as accepted answer. – Nino Škopac Jan 4 '17 at 20:52

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