Advice Needed on Registering a UK LLP for Remote IT Business While Residing in Cyprus

[2125432]

Hi everyone,

I’m a Cyprus resident operating a fully legal remote IT business. I have a consistent need to issue monthly invoices to clients in Germany and Italy for my B2B services, with an annual turnover of around €60,000.

I’m considering registering an LLP in the UK due to the lower costs associated with setting up and maintaining a company there compared to Cyprus. My plan is to report the partnership’s income in Cyprus as personal income for both myself and my partner.

I have a few questions regarding this setup:
1. Management Location: If the place of management of the UK LLP is in Cyprus (since all the work is conducted here), what are the legal implications? I intend to pay personal income taxes in Cyprus, but I’m concerned about any potential issues.
2. VAT Registration: Will I be required to register for VAT in the countries where my clients are based (Germany and Italy), given that I’m invoicing them from a UK LLP?
3. Any insights or advice would be greatly appreciated!

Thanks in advance for your help!

 

[Sols]

@CyprusLawyer101 might know better but AFAIK, income from an LLP would be considered personal income and not dividends. So you're at risk of having to pay personal income tax rather than the generally more favorable dividends that you'd get from a corporation (as opposed to a partnership). Whatever you're saving by forming a UK LLP instead of a Cyprus Ltd is (probably, largely) lost in the form of higher taxes, if you are a non-domiciled resident of Cyprus.

For VAT purposes, since the services are provided from Cyprus, you're subject to Cyprus tax law. I think you can try to apply for a Cypriot VAT number and do your VAT filings there. The UK HMRC would probably not bother you, unless you have UK clients.

 

[2125432]

@Sols Thank you for the response!

I understand that the income from the LLP would be treated as personal income, not dividends. my initial message was unclear I think. I want to clarify that while the projected turnover is around €60k, the distributable profit after deducting expenses like subcontractor fees, subscriptions, etc., would be closer to €40k. This reduces our(50/50% partners) taxable personal income, especially considering Cyprus progressive tax rates (with the first €19,500 being tax-free + GHS).

My main concerns are related to how the Cypriot tax authorities might view this setup:
A) They might require an audit and potentially disallow certain expenses as deductions.
B) They could impose penalties for not registering for VAT.
C) There’s a risk they could enforce corporate tax, along with penalties and interest, on the LLP’s income.

I do realize that setting up a LTD in Cyprus might be the safer and more straightforward option. However, the associated costs are currently quite burdensome for us, so we’re trying to find a solution that saves on both taxes and administrative expenses.