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This is for short term trading. Not sure how long term investing is considered. For short term trading this can kill you as you can pay more tax than you have gains at the end of the year, you can in fact pay tax even when you achieve a nett loss. So it's absolutely not advisable to use a micro-company for prop trading.
the flip side of the medal
What would be the main reason to setup a micro company in Romania if not for any fx trading? does it make sense for foreigners?
Romanian laws are pretty vague and they leave space for interpretation, find a good accountant or lawyer and things can be solved.
It should be sufficient for most people around here, if they can get a legit setup and only pay max 2% tax no one should look further.
Probably the taxation of trading is not even an issue. Check this out:
- have a company in Romania
- employ there someone to create an economic substance, pay minium wage, get 1% tax rate
- live in Cyprus, within the EU the CFC rules are not applicable if the company has an economic substance
- don't do any work for it in Cyprus, avoid creating a permanent establishment and an effective place of management there, just in case
- receive dividends, because of the tax treaty, Romania won't put 5% tax on them
- take advantage of the non-dom regime in Cyprus, never transfer the money to Cyprus, pay 0% tax on dividends overall
- transfer the money directly to your personal brokerage account not-in-Cyprus
- day trade as a resident of Cyprus, pay 0% tax on that too
- you can remain a resident of Cyprus if you only stay there 60 days in a year, you're free to travel and live wherever you want
- the overall tax will be near 0% AND you will own the money personally, not the company AND you will live in Europe AND there's no lengthy and expensive visa approval process
- have a company in Romania
- employ there someone to create an economic substance, pay minium wage, get 1% tax rate
- live in Cyprus, within the EU the CFC rules are not applicable if the company has an economic substance
- don't do any work for it in Cyprus, avoid creating a permanent establishment and an effective place of management there, just in case
- receive dividends, because of the tax treaty, Romania won't put 5% tax on them
- take advantage of the non-dom regime in Cyprus, never transfer the money to Cyprus, pay 0% tax on dividends overall
- transfer the money directly to your personal brokerage account not-in-Cyprus
- day trade as a resident of Cyprus, pay 0% tax on that too
- you can remain a resident of Cyprus if you only stay there 60 days in a year, you're free to travel and live wherever you want
- the overall tax will be near 0% AND you will own the money personally, not the company AND you will live in Europe AND there's no lengthy and expensive visa approval process
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It's a good overall plan but:
1. the treaty on dividends is 10% not 0%
If you use the parent subsidiary directive then it will be 0% BUT i've read somewhere that's more work involved and some waiting time.
2. have you verified if a micro-company shareholder can be a legal entity? (like cyprus LTD)
1. the treaty on dividends is 10% not 0%
If you use the parent subsidiary directive then it will be 0% BUT i've read somewhere that's more work involved and some waiting time.
2. have you verified if a micro-company shareholder can be a legal entity? (like cyprus LTD)
It's a good overall plan but:
1. the treaty on dividends is 10% not 0%
If you use the parent subsidiary directive then it will be 0% BUT i've read somewhere that's more work involved and some waiting time.
2. have you verified if a micro-company shareholder can be a legal entity? (like cyprus LTD)
Tax on dividends of a micro-company is 5% in Romania. So it will be 5% at most.
According to the tax treaty it's not clear if it will be taxed in Romania or in Cyprus. It depends on their agreement. It can be either taxed in Romania (5%), or in Cyprus (0%). The 10% is just the upper limit in any case.
http://mof.gov.cy/assets/modules/wnp/articles/201610/45/editor/romania_en.pdf
Then I wouldn't be able to trade tax free with that capital. If it's paid to a Cypriot company, trading gains will be subject to the CIT in Cyprus, and dividends from the Cypriot company would be taxed too. It's better to just stick to a single company (Romanian) and pay the 5% on dividends, if even that, and have trading gains tax free. So overall it will be even less than the 1% + 5%, an ultra low taxation level. Not the UAE's 0% but then the COL is lower in Cyprus and it's Europe, in 2 hours I can be anywhere, and I can drink all the alcohol I want while enjoying looking at semi-naked women on a beach.
If that's your plan there could be potentially an even better structure that involves only one company.
That's a great idea. Cyprus seems to have identical CFC and non-dom laws as Malta, and on top of it no capital gains tax on trading and only 60 day rule for residency. And Estonia truly waives its right to tax any salary paid to a non-Estonian resident.
So with an Estonian company + residency in Cyprus the overall taxation is exactly 0%, as there's no CIT on retained profit in Estonia, salary is not taxed in Estonia, not taxed in Cyprus thanks to the non-dom, trading capital gains are not taxed either, the CFC rules don't apply to it even without employing someone in Estonia, and everything is in English and online thanks to the e-Residency. That's just brilliant.
But wouldn't that work with just about any company? Lets say an US LLC or a UK LTD? They wouldn't be subject to the CIT or dividend tax in their countries of registration either.
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I read some time ago that as an EU citizen you can just need to prove with bank statements that you have enough resources.
Well i didn't know you are an EU citizen, then looks like you are golden. Why don't you open another thread (this one is about cheap romanian incorporation) specific about Cyprus so Cyprus experts could chime in?
I think the advice is wrong. In this thread one person got a reply from the Cypriot ministry saying that POEM and PE rules do apply if you manage it from Cyprus. CFC rules alone are not a deciding factor. So an Estonian company would be considered a Cypriot company if it doesn't have an economic substance in Estonia, and all the business in fact happens in Cyprus.
Also the part of the advice where salary is taxed by 0% due to the non-dom regime is wrong. Non-dom only applies to passive income, like dividends or royalties, as far as I know.
So Romania again still the best looks like.
Also the part of the advice where salary is taxed by 0% due to the non-dom regime is wrong. Non-dom only applies to passive income, like dividends or royalties, as far as I know.
So Romania again still the best looks like.
Can I chip in.
Scenario
- Romanian Micro Company 1% tax turnover
- Cyprus Holding Company owns Romanian Micro Company and benefits from EU parent directive, 0% tax.
This construction saves the 5% Divi tax in Romania and allows for private trading cap gains to be tax-free in Cyprus.
There are considerable costs to it as well before it becomes beneficial.
Are the savings worth the hassle?
Scenario
- Romanian Micro Company 1% tax turnover
- Cyprus Holding Company owns Romanian Micro Company and benefits from EU parent directive, 0% tax.
This construction saves the 5% Divi tax in Romania and allows for private trading cap gains to be tax-free in Cyprus.
There are considerable costs to it as well before it becomes beneficial.
- Substance costs in Romania - You need enough substance for it not deemed a PE in Cyprus
- 2.65% Gesy cost in Cyprus on Dividends and on Capital Gains in Cyprus and all worldwide income.
- Costs of setting up holding company.
Are the savings worth the hassle?
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