A team of TMI's or an OY? What are the tax benefits?

dubliner · Post by **dubliner** » Wed Aug 12, 2009 12:29 am

NEED SOME SERIOUS ADVICE....A team of TMI's or an OY?...what are the tax benefits? for the company and the individuals?

The plan is to own a Limited Company in Dubai called for example 'Mideast Ltd' or / and setup a Limited Company in Finland called ‘Europe Ltd’ for example in Finland. We would like to reduce many overheads including employee’s taxes and pensions contributions if only to help with cash flow at the early stages of the business. If that is possible.

We will be a team of 6 individuals working together. One idea we thought of was to make everyone a TMI and get one of our Limited Companies to buy services form of all of us. Which would equate to salary without burdening us with high pension and tax contributions for the new business. Obviously this will need to be offset by accountancy fees, but a good arrangement could be made with a small accounts office as there would hardly be no expenses put through everyone’s TMI.

Is this a good idea or am I just way off...or is there a better way to structure the business that would better for the way we are trying to work?

Guidance and advice very much needed and welcome.

Regards, dubliner

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Pursuivant · Post by **Pursuivant** » Wed Aug 12, 2009 12:45 am

Tax benefits? Finland? I think you got it all wrong from the start... TMI working for one company is taxed personally - and you need to pay your pension insurance anyways, so actually you're just getting your own ass doubletaxed without deductions, VAT etc... of course depending what is it exactly you do... six people working together sharing an office etc. sounds like a co-operative actually... and then theres also the option of establishing in say UK or even Estonia as there some benefits on the cross-border EU stuff...

raamv · Post by **raamv** » Wed Aug 12, 2009 1:09 am

Why in Finland?
Why not Swiss? Luxemborg, or Monaco?

dubliner · Post by **dubliner** » Wed Aug 12, 2009 7:53 am

Pursuivant wrote:Tax benefits? Finland? I think you got it all wrong from the start... TMI working for one company is taxed personally - and you need to pay your pension insurance anyways, so actually you're just getting your own ass doubletaxed without deductions, VAT etc... of course depending what is it exactly you do... six people working together sharing an office etc. sounds like a co-operative actually... and then theres also the option of establishing in say UK or even Estonia as there some benefits on the cross-border EU stuff...

Maybe an English, Dubai or even an Irish Ltd business would provide us with some benefits.

Yeah but if we were doing work and the money was going to a Dubai account (Limited Company over there) then surely we could bill for services from that Limited Company? ..into a TMI? I am going to be managing the company and the overheads of just employing someone frightens me. I have been told what ever salary you give you to someone you will need another 50% of it just to cover national insurance, pension ..etc.

So I thought that we all could all work under the same working name but get paid individually through TMI's?

Pursuivant you talk of co-operative ....and sharing an office, that is actually what we were planning to do. But what is the best way to structure that financially?

Thank you in advance for our comments.

Kind regards, dubliner

dubliner · Post by **dubliner** » Wed Aug 12, 2009 8:00 am

raamv wrote:Why in Finland?
Why not Swiss? Luxemborg, or Monaco?

Hello Pursuivant and Raamv,

Well we have the Dubai thing as an option. And I never really thought about the UK or Ireland. But surely if we are working from Finland then having a business in another country surely doesn't provider us with so much tax benefits?

Bill for work done in Finland or Dubai ------ sent to a Dubai Limited Company account ------ The the Dubai Limited then pay's for services from TMI's here in Finland

Or is there a better way?

Thanks again...kind regards, dubliner

Pursuivant · Post by **Pursuivant** » Wed Aug 12, 2009 9:18 am

dubliner wrote:[ I have been told what ever salary you give you to someone you will need another 50% of it just to cover national insurance, pension ..etc.

And whats the TMI paying? You dense or something thinking if there was a way to avoid taxes everyone wasn't working as a TMI? As a TMI you need to pay yourself *everything* and you get no social security as well as having to file in your taxes monthly... theres been a few good books suggested about having a business in Finland which are mentioned so rather read theose through, go on a course and don't even think of being able to be avoiding taxes as a TMI. Getting cute with the tax office - as a TMI you are personally liable and theres no personal bankruptcy so you pay until you die - so before trying to get ideas I'd triple-check the facts instead of heresay. Yes I know people doing work as a TMI - but you need to be working for more than one employer to be able to say you aren't an employee. And also those who are partners in an OY... now as you know partners in an OY can raise dividends instead of a huge salary... theres much more benefits in that. A co-operative is more towards people who work independently but need say a common marketing channel or common big investment tool etc.

Rosamunda · Post by **Rosamunda** » Wed Aug 12, 2009 9:43 am

The choice between an Oy or using a freelancing structure through TMIs also depends on your capital structure and your personal liability cover.

Do you own all the capital? Or will your employees have part ownership? What level of liability do you expect the employees to have?

Pursuivant is right... there is no tax advantage for an individual to have a TMI or be salaried in an Oy. TMI income is taxed in the same way as a salary. In your case, if each employee has his own TMI and earns more than 8500e in the accounting period (12 months) then there will be multiple VAT returns to do on the 15th of each month and each freelancer will be responsible for his own YEL and TyEL payments too. Typically most language schools use this kind of structure where the school is an Oy maybe employing a Director of Studies, some sales people and a bookkeeper but most of the teachers are freelancers with their own TMIs. There is no real advantage for the teachers (except possibly for the deduction of work-related travel expenses) but for the schools this means they do not have the hassle of managing a large payroll and they have no commitment to supply regular work (ie most language trainers have summer jobs, nothing to do with teaching).

Of course each one of you could set up his own Oy. This requires more capital though and more paperwork. And again, if each Oy has only one shareholder and one employee and one customer there is no way the tax authorities will let you get away with a flat rate 26% tax rate

Doctors have been trying to do this recently but the authorities are really coming down on them like a ton of bricks.

You should maybe look at other structures like an "avoin yhtiö" (general partnership) or kommandiittiyhtö (Ky). The TE-Keskus can advise you which is the best arrangement for your particular business model.

I agree with Hank though, if minimising personal taxation is your sole concern, then don't use Finland as your base. There are no real loopholes as such.

And get the book: Establishing and Doing Business in Finland Tuulikki Holopainen. It has all the info you need.

Mook · Post by **Mook** » Wed Aug 12, 2009 10:25 am

penelope wrote:"avoin yhtiö" (general partnership)

er, don't do that (unless it's with the wife). The company isn't then "limited" and all owners are personally liable for everything.

The only way you're going to save on taxes is if you get paid a small-ish legitimate salary through TMI and then take the rest out of the back door of the Dubai company (e.g. buying groceries with the company credit card or just keeping the dividends hidden offshore). This , of course, would be illegal.

oh, and sod Dubai, I'm sure that Ireland is that place to be for lax financial regulation...

AldenG · Post by **AldenG** » Wed Aug 12, 2009 5:29 pm

penelope wrote: And get the book: Establishing and Doing Business in Finland Tuulikki Holopainen. It has all the info you need.

As soon as I saw this, I went Googling for a place to order it.

I couldn't resist sharing this linguistic gem that I found at the bottom of a page on yrityskirjat.fi describing the book:

Tuote on lisätty luetteloomme Thursdayna, 19. Julyta, 2007.

Rosamunda · Post by **Rosamunda** » Wed Aug 12, 2009 8:54 pm

Nice one.

Make sure you order the latest edition. Mine is 2007 and it includes the updates from the Company Act of 1st July 2007. ISBN 978-951-37-49910 http://www.edita.fi Some libraries still have the old ones on the shelf. The main changes in the 2007 act are the level of capital needed to starta limited company (down from 8500 to 2500 e) and regulations relating to statutory audits, and qualified auditors.

Mook wrote:
penelope wrote:"avoin yhtiö" (general partnership)
er, don't do that (unless it's with the wife). The company isn't then "limited" and all owners are personally liable for everything.

A toiminimi isn't limited either so you are personally liable for everything (see my first post above). It depends on the nature of the business and the relationship with the client/end user. If you risk being sued by your clients or your employees or any other third party for any reason then you want to use a limited company for your main business. Most people I know who have a toiminimi are doing low risk stuff (like teaching English or making and selling knitted hats on the market place).

If you live and work in Finland then I think you should just bite the bullet and pay the taxes. There are ways of reducing your personal taxation these days (home improvements, domestic services...) and there is a lower threshold before capital income is taxable which most private entrepreneurs can cope with.

Once you have made your first million you might want to reconsider the way you do business (OTOH Nokia, Kone, Neste, Fortum etc are still here....) and there is nothing to stop you setting up an offshore operation at a later date (when you can afford the legal fees and the accountants rather than relying on an internet forum for advice

)

Pursuivant · Post by **Pursuivant** » Wed Aug 12, 2009 9:44 pm

penelope wrote: You should maybe look at other structures like an "avoin yhtiö" (general partnership)

Or playing russian roulette with a pistol.

Pursuivant · Post by **Pursuivant** » Wed Aug 12, 2009 9:48 pm

Yeah, penelope and mook, sorry if I go a bit blunt on the "are you STUPID" , but the points of the "unlimited" nature of an avoin or TMI as in personal liability make me want to go and beat up foreigners with a baseball bat for their own good sometimes...

Mook · Post by **Mook** » Wed Aug 12, 2009 9:52 pm

penelope wrote: A toiminimi isn't limited either so you are personally liable for everything (see my first post above).

indeed. But with an AY you're also personally liable if one of your partners messes something up too! There aren't the same controls in place with an AY as with OY so your partners have a lot of scope for doing stuff...

Pursuivant wrote:Yeah, penelope and mook, sorry if I go a bit blunt on the "are you STUPID" , but the points of the "unlimited" nature of an avoin or TMI as in personal liability make me want to go and beat up foreigners with a baseball bat for their own good sometimes...

Sorry, not quite with you.

TMI is fine since it's just you doing business, but AY is just asking for trouble

Pursuivant · Post by **Pursuivant** » Wed Aug 12, 2009 10:38 pm

TMI means you get your ass in a sling. AY means your friend gets your ass in a sling. OY means... no sling.

Rosamunda · Post by **Rosamunda** » Wed Aug 12, 2009 10:42 pm

You can be an employer with a toiminimi. Incredible but true according to my magic book on doing business in Finland. And your employees don't have to be family members. So, yes, if you are a toiminimi and one of your employees sets fire to the office, or accidentally poisons the entire population of Helsinki, Espoo and Vantaa etc etc you are in trouble.

When I went on the business course thingy in Lahti (waste of time) I asked about the liability on limited partnerships. In the Uk we have this thing called LLP (limited liability partnership) which is used a lot by accounting firms, lawyers etc where general partners are liable for the debts of the partnership and limited partners are not. My understanding of the Finnish version of a Limited Partnership is exactly the same. And according to my book, "A general partner of a Limited Partnership (Ky) is liable for the debts of the Partnership according to the same principals as the partners of a General Partnership (Ay). " (ie joint and several: each general partner is liable for all the debts with his entire property, even if he is a general partner in a Limited Partnership.)

IOW, it is only the liability of SILENT (or limited) partners (we actually call them SLEEPING partners in the UK!) that is limited to the amount of capital invested. Silent partners have no say in the running of the business and need not be resident in, or have its registered office in the EEA.

A Limited Partnership must have at least two partners and at least one of them must be a general partner (and be resident in the EEA).

----> Can of worms... don't go there! The only Ky I have noticed around here seem to be transport companies or plumbers. So, I guess they are family businesses.

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