Cyprus non-dom plus HK Offshore tax strategy opinion

[capotera]

Hi,
I have a high tax European passport and I will move to Cyprus to take advantage of the non-dom tax regime.
I develop my own iOS/Android apps so my income (about 70k a year) is coming from both Apple and Admob/Google.
Important fact here is that Admob/Google forces both the company and bank account to be in the same country.

After a lot of research I got to the below strategy:
- Non-dom regime in Cyprus (will move to Cyprus and will meet all the requirements)
- Register in Cyprus as self employed (lower yearly costs when comparing with having a company)
- HK Offshore company + HK bank account where I will receive the payments from Apple/Google (I am assuming I will be able to open the bank account - Really wanted to go with the BVI IBC + BVI Bank but banking safety is a concern, any suggestions here are appreciated)
- Will use available EMIs to transfer salary/dividends to my personal account in Cyprus (not sure whether this is the best approach though)

Can you please let me know whether you see any issues? Feel free to criticize.

Thanks

 

[John Andrews]

Which country would the HK company be resident in? Are you planning to set up an office in HK?

 

[capotera]

Which country would the HK company be resident in? Are you planning to set up an office in HK?

@mange38 I am not sure if I understand your question. It is going to be a HK Offshore company, so I assume residence is HK?
My business is 100% online and I don't plan to setup an office in HK. Personally I will be tax resident in Cyprus.

 

[Sols]

This has been discussed over and over (lots of recent threads that can give you guidance), and usually boils down to this:

• Any company (offshore or local) which you manage becomes tax resident in Cyprus, which means it has to pay Cypriot tax. The only lawful way around this is if you set up an office in Hong Kong, appoint local directors, and ideally have some FTEs.
• However, enforcement of this is lax if not entirely non-existent for non-domiciled residents. There are lots of people in Cyprus with offshore companies that don't pay tax. Just keep a low profile and don't be a burden on society.
• For sustainability and stability, just form a local Cypriot company. You'd normally only be subject to 12.50% corporate tax and can then pay yourself dividends (which aren't taxed for a non-dom resident).
• If 12.50% tax and long-term sustainability aren't your cup of tea, another common setup is to have two companies: one offshore which pays no tax and one local which does pay tax. Then you balance your revenue streams between the two to pay a little bit of tax while getting some untaxed money under the table.

Your luck with with banks in Hong Kong may be limited if you don't have any actual ties to Hong Kong or at least the region.

 

[capotera]

This has been discussed over and over (lots of recent threads that can give you guidance), and usually boils down to this:

• Any company (offshore or local) which you manage becomes tax resident in Cyprus, which means it has to pay Cypriot tax. The only lawful way around this is if you set up an office in Hong Kong, appoint local directors, and ideally have some FTEs.
• However, enforcement of this is lax if not entirely non-existent for non-domiciled residents. There are lots of people in Cyprus with offshore companies that don't pay tax. Just keep a low profile and don't be a burden on society.
• For sustainability and stability, just form a local Cypriot company. You'd normally only be subject to 12.50% corporate tax and can then pay yourself dividends (which aren't taxed for a non-dom resident).
• If 12.50% tax and long-term sustainability aren't your cup of tea, another common setup is to have two companies: one offshore which pays no tax and one local which does pay tax. Then you balance your revenue streams between the two to pay a little bit of tax while getting some untaxed money under the table.

Your luck with with banks in Hong Kong may be limited if you don't have any actual ties to Hong Kong or at least the region.

Thanks for taking the time to answer me @Sols. So I guess I am missing something, to my understanding any foreign income is not taxed in Cyprus regardless of ownership, so I don't understand why I would need to appoint directors in HK. Can you please clarify?
In addition, I am kind of flexible in terms of where to anchor the offshore company, Panama would also be possible. All my income would go to Panama first then I would pay myself dividends in a Cypriot personal account. This would lead to a 0% tax lawfully, correct?

 

[Sols]

Thanks for taking the time to answer me @Sols. So I guess I am missing something, to my understanding any foreign income is not taxed in Cyprus regardless of ownership, so I don't understand why I would need to appoint directors in HK. Can you please clarify?
In addition, I am kind of flexible in terms of where to anchor the offshore company, Panama would also be possible. All my income would go to Panama first then I would pay myself dividends in a Cypriot personal account. This would lead to a 0% tax lawfully, correct?

What you're missing is the notion of tax residence for companies. It's different from where you incorporate it.

If a company is controlled or managed from Cyprus, the laws of Cyprus (and most countries in the world) say that the company is tax resident in Cyprus. This means it has to act like a local company for tax purposes.

So if you form a company in Hong Kong (or Panama or anywhere else) which you control and operate (directly or indirectly via nominees) while you live in Cyprus, that Hong Kong company becomes tax resident in Cyprus.

If, however, the company is resident in Hong Kong and not resident in Cyprus (dual residence is possible, and messy), you have achieved a proper foreign company and income from that company would, usually, not be taxed. For 70,000 EUR/year, that's not worth it.

In your case, you're better off forming a local company, or go ahead with your planned structure but abandon the idea of it being legal and sustainable long-term if the tax authority ever gets aggressive.

 

[capotera]

What you're missing is the notion of tax residence for companies. It's different from where you incorporate it.

If a company is controlled or managed from Cyprus, the laws of Cyprus (and most countries in the world) say that the company is tax resident in Cyprus. This means it has to act like a local company for tax purposes.

So if you form a company in Hong Kong (or Panama or anywhere else) which you control and operate (directly or indirectly via nominees) while you live in Cyprus, that Hong Kong company becomes tax resident in Cyprus.

If, however, the company is resident in Hong Kong and not resident in Cyprus (dual residence is possible, and messy), you have achieved a proper foreign company and income from that company would, usually, not be taxed. For 70,000 EUR/year, that's not worth it.

In your case, you're better off forming a local company, or go ahead with your planned structure but abandon the idea of it being legal and sustainable long-term if the tax authority ever gets aggressive.

Now it makes sense, I was indeed missing that piece, thanks for clarifying. I won't mess with it and just go with your going local suggestion.

 

[GrumpyMess]

I have a high tax European passport and I will move to Cyprus to take advantage of the non-dom tax regime.
I develop my own iOS/Android apps so my income (about 70k a year) is coming from both Apple and Admob/Google.

Just relocate to Czech republic and get a trade license, the effective tax rate will be 13%. Far easier and cheaper setup for your situation

 

[dlttrading]

Hello guys, hello capoterera,

I live at the moment in Cyprus and I am happy you decided also for the best deal in EU (Cyprus).
Your structure is good, but please forget about the HK company because it ist to expensive and to complicate just for 70k per year.

I would start with a Cyprus Limited Company. because this setup is legit and you can use it for at least 17 years. If you should have to much income in your cyprus limited and you don´t want to pay 12,5 % you can easily raise your costs in the Cyprus Limited ( buy a car, buy new computers, travel / hotel costs to visit business partners, consulting contract with offshore company of a friend etc..... ) If you have 70k per year it is very easy to invest / spend money so you don´t need to pay all the 12,5%. You can lower your taxrate by this easy to 5-10%.

70k income, that means you can pay you salary out of around 20k per year more or less taxfree. there is only 50k left. 2-3 k yearly costs for accounting etc.

From my point of view forget about HK banks and company because to much hassle managing this and to much costs. Just go for N26, revolut etc for private use.
Open N26 before you move to Cyprus because you can not onboard with cypriot residency. But you can first onboard with french residency and later change to cyprus address.

Use EMI´s for your cypriot onshore company .

I think EU online banks and EMI´s are much more safe and hassle free than any offshore bank or local cyprus bank. forget about this just use easy online banks

I live in Larnaka near Airport since 2-3 years. If you like I can connect you to some expats who all do some online businesses. I can even forward you to guys who have nice big house with pool and they can subrent you a nice room 5km from airport.

I can also forward you to local motivated accountand (company formations, lawyer, help for immigration

 

[capotera]

Just relocate to Czech republic and get a trade license, the effective tax rate will be 13%. Far easier and cheaper setup for your situation

@GrumpyMess I want to be more flexible and I am pursuing a nomad lifestyle for the next few years, so staying more than 183 days in a country won't be possible.

 

[capotera]

Hello guys, hello capoterera,

I live at the moment in Cyprus and I am happy you decided also for the best deal in EU (Cyprus).
Your structure is good, but please forget about the HK company because it ist to expensive and to complicate just for 70k per year.

I would start with a Cyprus Limited Company. because this setup is legit and you can use it for at least 17 years. If you should have to much income in your cyprus limited and you don´t want to pay 12,5 % you can easily raise your costs in the Cyprus Limited ( buy a car, buy new computers, travel / hotel costs to visit business partners, consulting contract with offshore company of a friend etc..... ) If you have 70k per year it is very easy to invest / spend money so you don´t need to pay all the 12,5%. You can lower your taxrate by this easy to 5-10%.

70k income, that means you can pay you salary out of around 20k per year more or less taxfree. there is only 50k left. 2-3 k yearly costs for accounting etc.

From my point of view forget about HK banks and company because to much hassle managing this and to much costs. Just go for N26, revolut etc for private use.
Open N26 before you move to Cyprus because you can not onboard with cypriot residency. But you can first onboard with french residency and later change to cyprus address.

Use EMI´s for your cypriot onshore company .

I think EU online banks and EMI´s are much more safe and hassle free than any offshore bank or local cyprus bank. forget about this just use easy online banks

I live in Larnaka near Airport since 2-3 years. If you like I can connect you to some expats who all do some online businesses. I can even forward you to guys who have nice big house with pool and they can subrent you a nice room 5km from airport.

I can also forward you to local motivated accountand (company formations, lawyer, help for immigration

Hello @dlttrading, thank you so much for the offers, I will definitely need help meeting people in a similar position. With regards to banking I will have open a business bank account as I receive payments from Apple and Google so I would need a SWIFT code and I am not sure whether EMI's would have that.
So I guess the consensus for my situation is a limited company for now.
I am having a hard time finding a decent agent to help me with that setup. Found many on google but they all look shady and the prices range is too wide, hard to know what is the fair price based on that, specially for a small company.

 

[karishi]

What you're missing is the notion of tax residence for companies. It's different from where you incorporate it.

If a company is controlled or managed from Cyprus, the laws of Cyprus (and most countries in the world) say that the company is tax resident in Cyprus. This means it has to act like a local company for tax purposes.

So I think that the issue here, from my understanding, is what "controlled and managed" means, and it probably varies from company to company. For example my company provides web development services to other companies, like making websites. If the (nominee) director signs the contract, and then the work is carried out by some freelancers, how can it be said that the company is not managed in the offshore nation, but it's managed in the beneficial owner nation? I mean, I'm sure it's possible to demonstrate, but it's not easy or automatic, and surely not worth the expenses probably unless the company does 1 million of revenue a year. But of course if you do 1 million a year you can study a more secure structure, which costs more money to investigate, it's all about risk/reward. For a company which develops apps I feel it's harder to put everything in the hand of a director, because there are no contracts, you would have to set up things like if the director is the boss. It depends from company to company.

The other thing that needs to be mentioned, always from my understanding, is that the weak link at the moment is the bank, because of CRS. So if you live in Cyprus and open a company in HK with nominees, the tax authority in Cyprus will not discover it until the bank of your company reports you to the tax authority as you are the controller of the account. It's possible to havethe nominee director open the bank account, but I don't know if CRS reports the beneficial owner of the company or the owner of the account. Or you can bank in Georgia, which at the moment doesn't report you.
So my final "advice" is that it's important that you find a solution that works for you, but you must have clear that things change fast and you will have to adapt your company structure fairly quickly, what might work for 70k a year in revenue might not work for 500k a year. And every solution has it's risk/reward profile, choose one which is ok for you.

 

[capotera]

So I think that the issue here, from my understanding, is what "controlled and managed" means, and it probably varies from company to company. For example my company provides web development services to other companies, like making websites. If the (nominee) director signs the contract, and then the work is carried out by some freelancers, how can it be said that the company is not managed in the offshore nation, but it's managed in the beneficial owner nation? I mean, I'm sure it's possible to demonstrate, but it's not easy or automatic, and surely not worth the expenses probably unless the company does 1 million of revenue a year. But of course if you do 1 million a year you can study a more secure structure, which costs more money to investigate, it's all about risk/reward. For a company which develops apps I feel it's harder to put everything in the hand of a director, because there are no contracts, you would have to set up things like if the director is the boss. It depends from company to company.

The other thing that needs to be mentioned, always from my understanding, is that the weak link at the moment is the bank, because of CRS. So if you live in Cyprus and open a company in HK with nominees, the tax authority in Cyprus will not discover it until the bank of your company reports you to the tax authority as you are the controller of the account. It's possible to havethe nominee director open the bank account, but I don't know if CRS reports the beneficial owner of the company or the owner of the account. Or you can bank in Georgia, which at the moment doesn't report you.
So my final "advice" is that it's important that you find a solution that works for you, but you must have clear that things change fast and you will have to adapt your company structure fairly quickly, what might work for 70k a year in revenue might not work for 500k a year. And every solution has it's risk/reward profile, choose one which is ok for you.

thanks @shikari for the help. Indeed I would rather pay the 12.5% tax for now and have piece of mind. The taxes avoided with all the hassle would probably break even due the setup ongoing costs.

 

[NicolasMaduro]

The 12,5% tax in Cyprus will be much cheaper than going the HK route. Also you will have a legit setup, easy for you to get a local bank account etc. If you make 70k profit per year, then the on going cost to run HK setup would be more expensive.

 

[dziter]

Hello,

I am following this subject. I am mobile developer too, french tax resident, living in Poland and turnover between 70k - 100k. I am thinking to improve my taxation and make my changes now.

If I understand well, if I meet the requirements of non-dom 60 days rule of Cyprus, I can become Cyprus tax resident and obtain a tax resident certificate with these conditions :

1. the individual stays in Cyprus for at least 60 days in the tax year, : possible
2. (ii) exercises a business and/or is employed in Cyprus and/or holds an office with a Cyprus tax resident company at any time during the tax year, : create LLC there (I can't be soletrader for my business)
3. (iii) maintains (by owning or leasing) a permanent home in Cyprus : rent a small flat full year

-> In this situation :
Coorporate : 12.5% taxes
Personal: Salary tax free until 19 500€ and the rest (50 - 80k€) tax free with dividends

The only thing to be careful is to keep a low profile (nothing at my name) in Poland because I will spend probably more time in Poland than in Cyprus in a year.

Is it correct?

Thank you for your answer.

 

[sarkozy]

Use a UK LLP. It's a pass through entity so you won't be taxed in the UK, if you don't do business there. Simple to set up and maintain. Combine this with a Transferwise or Revolut Business account.

 

[jackfrost]

You need to check proper residency laws for Poland. The 183 days or 60 days in cyprus is just the least legit requirement. Nobody gives a s**t really about residency days today anymore. In all serious western countries it is about the "point of interest" in life. Depending on domicile country that can be very little to make them regard you as still tax resident with them. Very stupid things like going to the same doctor over and over again in your home country (germany in this case) have been used to construct tax evasion charges successfully by the corresponding tax agencies. If you spend e.g. 200 days in Poland and 60 in Cyprus you -might- get the Cyprus tax certificate but it might not be worth a damn. Getting a certificate does not mean your origin country gives a damn about it. Poland is said to be a lot more relaxed than the western parts of the EU in that regard though.

 

[dziter]

Use a UK LLP. It's a pass through entity so you won't be taxed in the UK, if you don't do business there. Simple to set up and maintain. Combine this with a Transferwise or Revolut Business account.

Could you give me more information about it? I am not working with UK, I confirm you. Is it legal from a Polish point of view, if I am Polish tax resident?

You need to check proper residency laws for Poland. The 183 days or 60 days in cyprus is just the least legit requirement. Nobody gives a s**t really about residency days today anymore. In all serious western countries it is about the "point of interest" in life. Depending on domicile country that can be very little to make them regard you as still tax resident with them. Very stupid things like going to the same doctor over and over again in your home country (germany in this case) have been used to construct tax evasion charges successfully by the corresponding tax agencies. If you spend e.g. 200 days in Poland and 60 in Cyprus you -might- get the Cyprus tax certificate but it might not be worth a damn. Getting a certificate does not mean your origin country gives a damn about it. Poland is said to be a lot more relaxed than the western parts of the EU in that regard though.

Yes I got it. I think some people can try to not say anything and live in Poland like that (with N26 Revolut and nothing at their name) but it's taking a risk and it will be always impossible to be involve in the daily life (access to mortgages ..).

Really open to suggestion. Is Cyprus is the best place in my case?
Do you have other countries in your mind, to really setup?

Thanks in advance.

 

[mallshtow]

Hey @Sols, I've been reading a lot about your answers. I'm trying to have a similar schema as then one presented by @capotera:

- Non-dom regime in Cyprus (will move to Cyprus and stay 60 days)
- Register in Cyprus as self employed (lower yearly costs when comparing with having a company)

Instead of incorporating a company in HK, I would do it in Isle of Man. But I'm also a bit confused about the company residency concept. What does determine which is the company's residency? My idea is to set up this company in Isle of Man which is also resident in Isle of Man.

I work as a software engineer for company which pays will pay my salary to my Isle of Man company (and also dividends). For my life costs, I would invoice me own Isle of Man company (say I need 2k USD for living) and I'd have to pay personal income taxes as a person in Cyprus. Right?

Also, whenever I have to buy a car/house or other big things I could buy them with my Isle of Man company.

As the Isle of Man company is resident in Isle of Man, it would have to pay 0% corporate tax in Cyprus. And, AFAIK, it would have to pay 0% corporate tax as well in Isle of Man.

Thoughts?

Thanks!

 

[Sols]

- Non-dom regime in Cyprus (will move to Cyprus and stay 60 days)

Will you be tax resident anywhere else? If so, the 60-day program doesn't work.

- Register in Cyprus as self employed (lower yearly costs when comparing with having a company)

This creates a complicated situation where your income is salary not dividends, which has a different set of rules and may end up incurring additional tax. It's doable to pay zero income tax on salary, but it's far less common than the dividends approach.

Instead of incorporating a company in HK, I would do it in Isle of Man. But I'm also a bit confused about the company residency concept. What does determine which is the company's residency? My idea is to set up this company in Isle of Man which is also resident in Isle of Man.

Tax residence is intentionally vague so as to not make tax evasion any easier than necessary. But a general rule of thumb is control and management: where is the company controlled and where is it managed? This is how IOM structures often can work. The directors are resident in IOM and sign all the agreements and control the bank accounts.

But if questions and pressed hard by an angry/aggressive tax authority, you still are the ultimate controller since the IOM directors act on your behalf. That's rare (and to my knowledge unheard of in Cyprus), but not impossible.

I work as a software engineer for company which pays will pay my salary to my Isle of Man company (and also dividends). For my life costs, I would invoice me own Isle of Man company (say I need 2k USD for living) and I'd have to pay personal income taxes as a person in Cyprus. Right?

Yes, maybe, perhaps. If you can avoid salary and live just on dividends assuming the IOM company always has reserves and can pay out interim dividends, it'll be much easier.

Thoughts?

Explore the costs of a Cypriot company vs. Isle of Man with your full scope of needs and activities in mind (i.e. accounting/audit costs, banking fees for IOM directors to sign vs you to sign yourself for your CY company). IOM probably works out cheaper but do the homework in any case.