Corporate jurisdiction advice

[Rexstone]

Dear all,
there are two partners, one living in Spain and one living in Switzerland, who want to incorporate a company which shall trade B2B in a VAT exempt wholesale market.
The only requirement for the company is to be incorporated into the European Single Market (= EU+EFTA) and to have a SEPA bank account with an SDD (SEPA Direct Debit, which EMIs normally don't provide).
The partners don't want to work in the company and pay themselves an employee salary, but they might want to be members of its board of directors and pay some travel expenses for the board meetings.
These two UBOs don't want to pay themselves dividends either for the first five years, they want to retain the earnings in the company and just grow the business.
After that initial growth phase they might think to relocate to the UAE for one or two years and cash dividends out, so it would be better that the company's (or the holding company) jurisdiction doesn't claim taxes on dividends paid to foreign shareholders.
They are willing to pay for local nominee, rent an office space, rent a local server for their IT infrastructure and all those services which can build local economic substance; it doesn't have to be cheap.
Of course they would like the company to paid as less taxes as possible on its earnings.
Having said this, a few questions:

1. where would you incorporate and why?
2. would you incorporate an Holding company above? if so, where and why?
3. what would you do to build local economic substance?

If anything is unclear please ask for further details.
Thanks

 

[daniels27]

For your move to cash out plan, you should check the relevant DTA with a focus on dividends. For Switzerland, it is 5% for UAE if owned by a holding company (and only then). And it goes further, if you change ownership structures etc. all disbursable dividends will be taxed at the old, higher rate;

Altreservenpraxis – Bucher Tax

Gewinnausschüttungen unterliegen der Verrechnungssteuer in der Schweiz und erfüllen innerstaatlich eine Kontrollfunktion und international eine Fiskalfunktion.

www.bucher-tax.ch

https://www.estv.admin.ch/dam/estv/de/dokumente/intsteuerrecht/themen/auslaendische-quellensteuern-pro-land/dba-steuerentlastungen.pdf.download.pdf/Steuerentlastungen-2021-d.pdf

Hence, you would have to ensure to have a holding in UAE with substance right from the start. You cannot have the holding managed from within Switzerland as then, it would not count and you would have to pay witholding tax on the disbursable dividends when you move.

Hence, better chose something without taxes on dividends or ensure it will really work and check what upcoming changes there will be until you can cash out.

 

[CyprusLawyer101]

Cyprus is a good candidate.
No withholding tax on dividend distributions. Easily accepted to banking institutions with Sepa and Sepa DD.
Professionals here are accustomed to building economic substance. You could appoint a local director relevant to the business of the company and assign relevant tasks together with the basic compliance requirements. Have the director sign all contracts etc. Etc.

 

[SCHLOSSFINANZ]

Liechtenstein GmbH. Can be formed entirely online. Share capital 10,000 CHF.
12,5 corporate tax, no withholding tax on dividends

 

[Rexstone]

For your move to cash out plan, you should check the relevant DTA with a focus on dividends. For Switzerland, it is 5% for UAE if owned by a holding company (and only then). And it goes further, if you change ownership structures etc. all disbursable dividends will be taxed at the old, higher rate;

Altreservenpraxis – Bucher Tax

Gewinnausschüttungen unterliegen der Verrechnungssteuer in der Schweiz und erfüllen innerstaatlich eine Kontrollfunktion und international eine Fiskalfunktion.

www.bucher-tax.ch

https://www.estv.admin.ch/dam/estv/de/dokumente/intsteuerrecht/themen/auslaendische-quellensteuern-pro-land/dba-steuerentlastungen.pdf.download.pdf/Steuerentlastungen-2021-d.pdf

Hence, you would have to ensure to have a holding in UAE with substance right from the start. You cannot have the holding managed from within Switzerland as then, it would not count and you would have to pay witholding tax on the disbursable dividends when you move.

Hence, better chose something without taxes on dividends or ensure it will really work and check what upcoming changes there will be until you can cash out.

I am not really understanding what you mean: imagine the company gets incorporated in Malta, makes 1mio profit in five years, during which it doesn't distribute dividends, after that the UBOs relocate to UAE and after one year living in the UAE they distribute...
I don't understand where the Swiss DTA is relevan in such a scenario...
Can you explain it step by step as if I was a 5° grader?

 

[daniels27]

If you have a Swiss company and accumulate profits, you cannot change the corporate structure to benefit from lower withholding taxes. You need to do this from start.

 

[Rexstone]

Liechtenstein GmbH. Can be formed entirely online. Share capital 10,000 CHF.
12,5 corporate tax, no withholding tax on dividends

Thanks for your message.
If you wanted to have an holding company would you make it in Liechtenstein too?
Do you think that having a local nominee as a director and shareholder + renting an office + renting a server + having board meeting there would be enough economic substance to stay under the radar for the first few years?

 

[SCHLOSSFINANZ]

no holding company needed. Employ a full time person and no nominee then it works -yes
please bear in mind that UAE will for sure introduce personal income tax in 2-3 years from now
have a look at Liechtenstein-Monaco DTA, its very exciting. If you live in Monaco the dividends are tax free!

 

[Rexstone]

If you have a Swiss company and accumulate profits, you cannot change the corporate structure to benefit from lower withholding taxes. You need to do this from start.

who said I will have a swiss company indeed?
the original purpose of this thread was indeed to get advice about what jurisdiction incorporate in, nobody said it must be a Swiss company

 

[daniels27]

who said I will have a swiss company indeed?
the original purpose of this thread was indeed to get advice about what jurisdiction incorporate in, nobody said it must be a Swiss company

Yes and I have got advice what to avoid.

 

[Rexstone]

no holding company needed. Employ a full time person and no nominee then it works -yes
please bear in mind that UAE will for sure introduce personal income tax in 2-3 years from now
have a look at Liechtenstein-Monaco DTA, its very exciting. If you live in Monaco the dividends are tax free!

Thanks for the advice, but I have the feeling Monaco is too expensive for my pockets. I believe there are cheaper places in the world with no or little personal income tax, like Qatar or the Caribbeans…
I’ll keep your words in mind tho

 

[Rexstone]

Yes and I have got advice what to avoid.

Ok I’ll avoid incorporating in Switzerland, got it
Thank you

 

[Marzio]

where would you incorporate and why?

If what you do falls into one of these allwed activities i'd consider the Canary ZEC regime.

Otherwise Malta could be an option.

 

[Rexstone]

If what you do falls into one of these allwed activities i'd consider the Canary ZEC regime.

Otherwise Malta could be an option.

Thanks I didnt know about Canary ZEC at all.
So if I am correct we're talking about 4% corporate income tax and 0% withhold tax right?
I will have to assess thoroughly the requirements tho:

• It must make a minimum investment of 100,000 euros (in Gran Canaria or Tenerife) or 50,000 euros (in the case of La Gomera, El Hierro, La Palma, Fuerteventura or Lanzarote) in fixed assets related to the activity within the first two years following its registration.
• It is necessary to create, at least, five jobs (in Gran Canaria or Tenerife) or three (in the other islands) during the first six months following its registration and this average must be maintained during the time that the benefits are enjoyed.

This is a big burden... we're talking about at least 50k one-off plus 75-90k per year for three employees, plus the time wasted in sourcing all of this... It's burdensome, isn't it?

As an alternative, what are pros and cons between Cyprus, Malta and Liechtenstein in your opinion?

 

[Marzio]

This is a big burden...

I'd say it depends. If you are going to build a real company with more than one employee then it could be worth it because you'll have to hire people anyway but with the ZEC you'll pay 4% CIT.

Also AFAIK nowhere it is written that all employee need to be hired full time.

So you already slashed the cost of staff in half.

Then you could investigate if the Spanish partner shareholder could be hired as manager futher lowering the hiring needs.

Lastly you don't need to hire staff on the ground AKA you can hire from anywhere and guess what there are super smart people fresh from college that would gladly compete to work in a place where all year around they could surf after work and this is a f*****g fringe benefit that can give you leverage on the salary that yoy pay.

Other jurisdictions like Malta could work for you but with a twist.

You should take a good read at Malta's resident non domiciled companies which it could work even better than the ZEC.

You should speak with @CyprusLawyer101 about this setup, i remember he did it some time ago for one of his clients.

 

[SCHLOSSFINANZ]

that won't work unless the spanish partner relocates to the Canary Islands. The local government is super strict in enforcing the rules at ZEC. (Heavy pressure from Brussels)

 

[Marzio]

that won't work unless the spanish partner relocates to the Canary Islands.

That only if the spanish partner wants to be the company's director as the company needs a resident director.

 

[TheCryptoAnt]

For the record; Ive been three times to Gran Canaria and the place is fire if you like nature + beach.

A bit small yeah but they have it figured out with the malls, activities, etc

 

[Rexstone]

That only if the spanish partner wants to be the company's director as the company needs a resident director.

so it would be either the partner to relocate there or an hire a local employee as a director

 

[SCHLOSSFINANZ]

yes but he needs to have a strong CV. This zone is too bureaucratic to get approved