60 Day Cyprus Tax Resident Valid For Tax Treaty Benefits?

[JohnJ81]

I am a European passport holder. I have not been tax resident in my home country for 10 years as I lived in Bahrain.

I am thinking of using Cyprus as my tax residence. I will open a web development company that will earn approximately €20,000 so I can have my company position satisfied as one of the conditions of the 60 days Cyprus tax cert is that I hold a company position.

I will physically stay in Cyprus just over the 60 days, for example 65 days. I will rent a property all year round in my name, for maybe €15000- €20,000 per year.

I will receive an annual personal dividend of approximately €1.5 million from a company that I own 100% in my european home country that rents property (Not In Cyprus). So it is a foreign dividend and so is taxed at 0% in Cyprus (aside from the GESY tax of 2.65% I think, which seems to be a maximum of 5k). That company will pay 25% corporation tax in the European country and then the dividend will be paid out to me directly with no withholding tax applied in my home country as I will have the 60 days tax resident certificate of Cyprus.

I will stay in China for 4 months each year and Korean for 5 months each year as I have properties there. I will be careful not to stay in any country for more that 180 days during the year.

Will this work or will my treaty benefit be challenged by my home country?

To be clear, it is the withholding tax I am worried about which is 25%.

Is the 60 day structure above solid or do I need to stay 183 days for this to work?

 

[Marzio]

In your case Portugal is a far better option because to be considered tax resident it's enough to rent an apartment, there are no minimum stay requirements.

https://taxsummaries.pwc.com/portugal/individual/residence
Since you are a EU passport holder you can move to Portugal without the need to form a "fake" company just to comply with tax residency requirements.

Also since foreign dividends are exempt you will pay 0% tax on the dividends that the company will distribute to you.

 

[JohnJ81]

thanks for your advice, the pwc link you send me mentions the following

"The PIT Reform introduced a partial residence concept, so that there is a direct connection between the period of physical presence in Portuguese territory and the status of tax resident.
Thus, as a rule, the taxpayer will become resident in Portugal as of the first day of stay in the Portuguese territory and non-tax resident as of the last day of stay in Portugal, with a few exceptions."

do you know what this mean?

also is it true I dont need to stay there for a few months? On paper yes, but Is it really that flexible in practice? or would my home country challenge it?

 

[Marzio]

also is it true I dont need to stay there for a few months?

"Regardless of spending less than 183 days in Portugal, maintains a residence (i.e. a habitual residence) in Portugal during any day of the period referred above"

This is the law but if for some reason you want to be extra safe in case your home country will challenge your residency you need extra proof that you are living there and this means daily receipts for cafes, groceries, and so on.

To achieve that you need a debit card on which you will transfer a fixed monthly sum.

Then look for a student girl that looks in need of money and strike a deal with her by saying "Look, my mum is paying for my studies abroad but instead i prefer smoking pot in Korea with my friends so i need you to withdraw 100€ every X days from the ATM so she can see that i really live here. You could keep 50% of the money you withdraw as a payment for your help."

This way you will appear to be constantly living in PT.

If you are older then obviously use a different excuse.

 

[JustAnotherNomad]

Also have a look at this thread:
https://www.offshorecorptalk.com/threads/estonia-lithuania-and-latvia-for-a-holding-company.41045/
Estonia might be another option.

Will this work or will my treaty benefit be challenged by my home country?

That's impossible to answer without knowing what your home country is. You should probably ask a tax lawyer from your home country.
If you don't spend time in your home country and don't have a home available to you either, don't have wife/kids there, the answer should usually be no though.

 

[CyprusLawyer101]

It is not really possible to advice on whether your home country will challenge your tax residency, however from the info you have provided and if you have no further ties in your home country other than the properties for rent then you should have a fair chance to defend a potential challenge.

 

[JohnJ81]

In your case Portugal is a far better option because to be considered tax resident it's enough to rent an apartment, there are no minimum stay requirements.

https://taxsummaries.pwc.com/portugal/individual/residence
Since you are a EU passport holder you can move to Portugal without the need to form a "fake" company just to comply with tax residency requirements.

Also since foreign dividends are exempt you will pay 0% tax on the dividends that the company will distribute to you.

Thanks for your reply. I had looked at the Portugal NHR before but I dismissed it for a few reasons.

My long term girlfriend has a Filipino passport. She will live/travel with me. It seems to be far easier to get her a visa into Cyprus that it is to get a Schengen Visa, with Portugal as the entry point. It seems Portugal has also a 30% rejection rate so it seems to be tricky to get her a visa here.

• The tax system seems outdated and from watching YouTube videos, they post out your tax number and it gets lost in the post sometimes and it just seems like dealing with the tax authority there is a headache. Cyprus seems far easier somehow.
• 
  
• I thought I have to spend 6 months there or a significant amount of time each year anyway.
• 
  
• I don’t fully understand the march deadline thing. You have to arrive before march for the current year? Is that correct?

 

[Marzio]

If you think Cyprus is a better option for you then go for it but don't discard a potentially good alternative like Portugal only because some dude on Youtube said so.

Search professional advice for both options.

 

[JohnJ81]

I appreciate your input and I hear you and I am rethinking things based on what you are saying. Your points are valid. Is all foreign income exempt from tax in portugal. I own a property in Bahrain for example, would that rent be chargeable for tax in Portugal? (I understand they would never know but I am wondering if it is the case, cus in Cyprus, if i moved there, I believe it is taxable and only dividend are exempt)

 

[CyprusLawyer101]

I appreciate your input and I hear you and I am rethinking things based on what you are saying. Your points are valid. Is all foreign income exempt from tax in portugal. I own a property in Bahrain for example, would that rent be chargeable for tax in Portugal? (I understand they would never know but I am wondering if it is the case, cus in Cyprus, if i moved there, I believe it is taxable and only dividend are exempt)

Your rental income would be exempt in Cyprus.

 

[AndyAresa]

Your rental income would be exempt in Cyprus.

is this a general rule in Cyprus for rental income from overseas property that non-doms do not pay income tax on such income?

 

[Paul Tudor Jones]

I am a European passport holder. I have not been tax resident in my home country for 10 years as I lived in Bahrain.

Why are you worried about your home country if you haven't lived there for 10 years?

 

[JohnJ81]

Why are you worried about your home country if you haven't lived there for 10 years?

the dividend, which is most of my income, will be paid out from my home country and so the witholding tax has to be exempt for me to earn a decent income and justify me leaving my country in the first place. I dont want to make a mistake with that and get hit with penalties and fines in the future due to bad decisions on my end.

If my country of tax residence is challenged and shown that I am only living there for a very limited period during the year without the correct ties then the witholding tax will apply and then burden of proof will be on me to prove otherwise, which can be a major headache.

https://www.lisbob.net/en/blog/nhr-portugal-control-fake
....seems you do have to stay in Portugal 183 days after all....

any comment marzio?

 

[JohnJ81]

also it seems that overseas rental income in non tax jurisdictions is taxed under NHR. The devil is in the details with these things it seems

"Foreign income is only exempt from Portuguese tax if it has already been taxed or has been subject to tax outside Portugal."

https://www.sovereigngroup.com/news...ear-tax-holiday-does-what-it-says-on-the-tin/
This article also says you have to spend 183 days in Portugal and it is written by somebody who is doing the NHS. Obviously you can get away with it if nobody checks properly but that is not the point

 

[5K1PP3R]

what about CFC in Portugal? If I have a company that is paying low tax in another country and I pay myself dividends and is tax resident in PT, do I need to pay the difference in corporate tax in PT?

 

[Marzio]

....seems you do have to stay in Portugal 183 days after all....

any comment marzio?

Well it all depends how those 264 people structured their NHR.

I mean, if you rent an apartment and you don't put any clothes, furnishing, dishes, fridge and you don't spend any day in the year in that apartment obviously you are abusing the NHR.

If you do things the "smart" way, have an apartment that looks like you are really living there, you have some receipts that you spent money in PT then those are all the proofs you need.

Also since PT is a Schengen country, you as EU passport holder can freely move without any controls so how the tax administration could know that you "really" lived there?

The only way they have is to check your bank statement and see where you are spending money.

If you have an apartment ready and spend money in PT they are satisfied.

The thing i overlooked is that tax administration will find all the proof they need in your passport stamps!

So if you don't have a second passport, Cyprus is probably a better option.

If I have a company that is paying low tax in another country and I pay myself dividends and is tax resident in PT, do I need to pay the difference in corporate tax in PT?

If your company is operating in any of those countries then forget NHR.

 

[5K1PP3R]

Well it all depends how those 264 people structured their NHR.

I mean, if you rent an apartment and you don't put any clothes, furnishing, dishes, fridge and you don't spend any day in the year in that apartment obviously you are abusing the NHR.

If you do things the "smart" way, have an apartment that looks like you are really living there, you have some receipts that you spent money in PT then those are all the proofs you need.

Also since PT is a Schengen country, you as EU passport holder can freely move without any controls so how the tax administration could know that you "really" lived there?

The only way they have is to check your bank statement and see where you are spending money.

If you have an apartment ready and spend money in PT they are satisfied.

The thing i overlooked is that tax administration will find all the proof they need in your passport stamps!

So if you don't have a second passport, Cyprus is probably a better option.

i think nowadays second passport doesn’t solve it, they sure have access to the EU border database.
I am 60 days non dom Cyprus resident but I have Russian passport and there no way I can get Cyprus ID in less than 10 months to avoid sanctions. But if someone have EU passport different story.
Keep in mind Cyprus is a nightmare when it come to lawyers and laws. You get as many options as many lawyers you ask

 

[Marzio]

i think nowadays second passport doesn’t solve it, they sure have access to the EU border database.

Portugal is Schengen, Cyprus is not so any time you enter / exit Cyprus you are tracked.

Second passport gives you option.

I mean if you, speaking of NHR, rent an apartment and make it so it looks like you live there, show some random receipts, then how likely is that they will ask you to show your passport stamps?

If his desire was to stay in EU i would strongly advise NHR BUT since he will be living outside EU and his passport will be stamped there's a risk that tax administration could find out in case of a control.

So it's probably better for him to stay 60 days in Cyprus.

The problem with Cyprus is that in case his home country will claim he is resident there, Cyprus will withdraw tax residency if he doesn't spend at least 183 days.

The question is: how likely is that his home country will claim he is tax resident?

Nobody knows the answer to that question.

 

[5K1PP3R]

The problem with Cyprus is that in case his home country will claim he is resident there, Cyprus will withdraw tax residency if he doesn't spend at least 183 days.

it’s not what i understand. if he doesn’t spend 183 days in his home country amd spend 60 days in Cyprus, he becomes tax resident here and if he pays taxes here, his home country can’t claim that he is resident. I am not a lawyer but i’ve checked this few times before becoming 60 days resident myself. I am yet to submit my first income declaration for the 2021 though, i ran into tax issues with my company

by the way why no one is using Georgia? If you get money via IT services invoice you can pay 1% tax and the bank will consider you local. You get local address and registration in 2 days. up to 300k per year though

 

[Marzio]

his home country can’t claim that he is resident.

Oh yes, they can.

Not being present 183 days is only part of the equation.

For example in some countryes having at your disposal an apartment could be enough to be considered tax resident (Portugal anyone?) or at least "claiming" you are tax resident.

Or claiming family ties.

And, if you carefully read Cyprus non-dom 60 days tax residency it says basically that you are considered tax resident unless you are considered tax resident somewhere else.

If you are, they will terminate your tax residency and you are automatically considerd tax resident in your home country because non-dom 60 days tax residency doesn't allow you to access double tax treaty.

why no one is using Georgia

For the same reason i explained above.

To be considered tax resident in Georgia you need to spend 183+ days in case your country will claim you are tax resident.

That's why i initially suggested PT because, in theory, having an apartment at hand is enough to be considered tax resident but his passport stamps prove otherwise.