Cayman Holding while living in the EU

[yngmind]

Tell me why it’s not going to work.

The founder of the company lives in the EU while being a shareholder of a Cayman Islands LLC, which acts as a holding company for his businesses around the world, including in the EU, US, and other countries.

There is a hired director at the Cayman office and a few employees. All dividends are distributed to the Cayman entity, and the founder purchases all the assets he needs in the EU through his Cayman company.

I believe that this scheme is used by the ultra-rich and billion-dollar companies.

One more question: Have you ever seen anyone face legal tax issues because of Permanent Establishment? Personally, I've never heard of such cases. I also heard that PE doesn't apply in Cyprus, Georgia, or, excuse me, Spain? I mean, in practice.

 

[intlman]

Tell me why it’s not going to work.

The founder of the company lives in the EU while being a shareholder of a Cayman Islands LLC, which acts as a holding company for his businesses around the world, including in the EU, US, and other countries.

There is a hired director at the Cayman office and a few employees. All dividends are distributed to the Cayman entity, and the founder purchases all the assets he needs in the EU through his Cayman company.

I believe that this scheme is used by the ultra-rich and billion-dollar companies.

At face value that looks like it should work, as long as there is actual substance in the Caymans. But I don't have any experience with the Caymans so I can't say with any real certainty.

One more question: Have you ever seen anyone face legal tax issues because of Permanent Establishment? Personally, I've never heard of such cases. I also heard that PE doesn't apply in Cyprus, Georgia, or, excuse me, Spain? I mean, in practice.

No, never heard anyone in my network (or adjacent to) getting pulled up on PE issues, but that's not to say that it doesn't happen.

I have several close friends in Japan who are quite happily running their offshore companies from Japan (and have been for many years) and have never faced issues (again, that's not to say that it won't be an issue for them in the future). One of which is running a Hong Kong company and is a recipient of the offshore tax exemption (!!!) and even puts down his place of management as Japan!

 

[Xshore]

Tell me why it’s not going to work.

The founder of the company lives in the EU while being a shareholder of a Cayman Islands LLC, which acts as a holding company for his businesses around the world, including in the EU, US, and other countries.

There is a hired director at the Cayman office and a few employees. All dividends are distributed to the Cayman entity, and the founder purchases all the assets he needs in the EU through his Cayman company.

I believe that this scheme is used by the ultra-rich and billion-dollar companies.

One more question: Have you ever seen anyone face legal tax issues because of Permanent Establishment? Personally, I've never heard of such cases. I also heard that PE doesn't apply in Cyprus, Georgia, or, excuse me, Spain? I mean, in practice.

In addition toe PE and corporate residence rules you have the CFC rules might make you have to pay tax on the Cayman LLC's income. Those rules differ from country to country so you have to check specifically for the countries you're considering.

 

[AlicaFunk]

Depends on in which EU country you live. As a shareholder of 100% holding shares you will be taxed in your home country. This would be to easy in 2024 /2025

 

[yngmind]

It works in Monaco for sure

 

[JustAnotherNomad]

Lol, is this a joke?

So what you are suggesting is that one live the EU, have one or more operative companies in the EU, but have them owned by a Cayman Islands holding company (with economic substance)?
And then you send dividends to the Cayman Islands company and use that money to e.g. buy a car or house for yourself in the EU?

Surely you must be joking?

- The Cayman Islands company could be considered tax resident in the EU country (very low risk)
- The Cayman Islands company could be deemed to have a PE in the EU country (low risk)
- The Cayman Islands company could be deemed to be a CFC (depends on the country, but very, very likely)
- The Cayman Islands has a very small tax treaty network, so most likely, full WHT would apply (e.g. 20%-35%)
- Being able to use the car/house for your personal benefit would be a taxable benefit (and the reporting would make it even more likely that the Cayman Islands company would be taxable)

So here's an example:

You live in Germany where you have a company that has 10M in profits. I believe the German corporate tax rate is something like 30%, so you can pay out 7M as dividends.
But there is a 25% WHT, so you pay another 1.75M in WHT.
So of that 10M, only 5,25M arrive in the Cayman Islands. So you have already paid 47.5% in taxes in Germany at this point.
Now you pay your staff in the Cayman Islands. You need a proper office and you have to pay realistic salaries for the company. You also mentioned "a few employees", so realistic operating costs would be probably at least 500k - the Cayman Islands isn't a cheap place.
So then you have 4.75M left to spend.
The holding company buys a car for 250k, registers in Germany (unlikely to be possible without officially registering a PE, but let's ignore that) and allows you as the owner to drive it.
The value of this is probably something like 30k per year? Maybe more? This is taxable as income, subject to your personal income tax rate, not a lower capital gains tax rate, and there would probably be social security on top. There would be at least 6k or so in tax for this if you have no other income.
Then the company has 4.5M left in cash - but it's not even clear if the 250k car can be deducted as a business expense.
Now the Cayman Islands holding company is clearly a CFC under German rules, so the full 4.5M/4.75M are taxable as capital gains in Germany. Which is something like 26% in Germany, according to Google.
So then there would be at least another 1.2M in taxes.

In total, you would pay about 65% of your company profits for this structure, of which 60% are taxes. Well done!

If you do business in the EU, it would make a lot more sense to use e.g. a Cyprus holding. You would avoid the WHT and German CFC rules do not apply to EU companies.
But then you would really have to consider if it would be worth it, or if you're not better off just using a German holding company, or none at all.
The best solution is to not live in a tax hell country like Germany.

 

[aniglo22]

No don't .
Consider an Liechtenstein Trust/Family foundation.
If you intend to run an active business you could also consider an Anstalt .

 

[JustAnotherNomad]

Consider an Liechtenstein Trust/Family foundation.

Apart from asset protection, is there any advantage over e.g. a Cyprus holding?

If you intend to run an active business you could also consider an Anstalt .

How does that work? What's the benefit?