Cyprus company with Malaysian residence for trading?

[glengoolie]

Just thinking out loud here,
if I would set up a company, to trade stocks and maybe flip properties(outside of Cyprus), in Cyprus and I would employ myself as a director and I would be the sole shareholder BUT I would live in Malaysia(via their MM2H program), the company would be considered as non resident company, which means it would tax only income sourced from Cyprus and it would NOT pose SDC fee on earned interest or dividends or profit from selling real estate outside of Cyprus. Instead, the taxation would be done in Malaysia since it would be operated from there by me. Malaysia has no capital gains tax and it does not tax foreign income(territorial tax system). So the company's profits from trading stocks and possibly selling real estate would be tax free. Even though they have 25% corporate income tax. I would have to pay myself a symbolic salary as a director so I would tax that locally in Malaysia with everything that goes along with it......but it would be also tax free since it is a foreign income. Since the Cyprian companies distribute profits as dividends to shareholders, I would be able to get the profits through dividends from Cyprus into Malaysia tax free because they have no tax on dividends.

Is my line of though correct?

 

[JohnLocke]

If that really works like this then for someone living in Malaysia it may be the perfect solution to pay less taxes not to say avoid them.

 

[PaulKruger]

If that really works like this then for someone living in Malaysia it may be the perfect solution to pay less taxes not to say avoid them.

agree, it will be a nice setup.

 

[seabreeze]

Just thinking out loud here,
if I would set up a company, to trade stocks and maybe flip properties(outside of Cyprus), in Cyprus and I would employ myself as a director and I would be the sole shareholder BUT I would live in Malaysia(via their MM2H program), the company would be considered as non resident company, which means it would tax only income sourced from Cyprus and it would NOT pose SDC fee on earned interest or dividends or profit from selling real estate outside of Cyprus. Instead, the taxation would be done in Malaysia since it would be operated from there by me. Malaysia has no capital gains tax and it does not tax foreign income(territorial tax system). So the company's profits from trading stocks and possibly selling real estate would be tax free. Even though they have 25% corporate income tax. I would have to pay myself a symbolic salary as a director so I would tax that locally in Malaysia with everything that goes along with it......but it would be also tax free since it is a foreign income. Since the Cyprian companies distribute profits as dividends to shareholders, I would be able to get the profits through dividends from Cyprus into Malaysia tax free because they have no tax on dividends.

Is my line of though correct?

Your Cyprus Co will be a Malaysian PE and you will need to submit a second set of accounts in Malaysia and pay tax there.

https://taxsummaries.pwc.com/malays...der a tax treaty,wholly or partly carried on.

Permanent establishment (PE)​

Under the tax treaties Malaysia has with its treaty partners, a non-resident of a treaty partner which derives business profits from Malaysia is generally subject to Malaysian income tax only if the non-resident has a PE in Malaysia. Under tax treaty arrangements, PE is determined in accordance with the provisions of the tax treaty.
Generally, under a tax treaty, a non-resident entity is regarded as having a PE in Malaysia if it has a fixed place of business in Malaysia, where the business of the entity is wholly or partly carried on. A non-resident company may also be deemed to have a PE in Malaysia under certain circumstances, such as the following:

• It is represented by a person acting on its behalf in Malaysia who has the authority to conclude contracts on its behalf and habitually does so, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification, or who has repeatedly exercised that authority, or who maintains a stock of goods in a place in Malaysia from which such person delivers goods, or regularly fills orders on its behalf.
• It carries on supervisory activities in Malaysia in connection with a construction, installation, or assembly project.

Where there is no tax treaty, the business profits of a non-resident which is attributable to a place of business in Malaysia, as defined under the domestic law, will be subject to Malaysian income tax. The definition of place of business under the domestic law is largely based on the PE definition under the tax treaties, but written more liberally and is therefore wider than the scope of the PE definition in tax treaties.

Your ways around this are:
- Have your company professionally, independently managed. Do not become a director. You can be a supervisor or consultant. But don't write emails yourself AND you have to go to CY regularly and be compensated locally for your time.
- Have your investments managed discretionarily by an asset management firm. Maybe you can feed tips to them as a consultant.

 

[seabreeze]

If that really works like this then for someone living in Malaysia it may be the perfect solution to pay less taxes not to say avoid them.

Doubtful.
It only works if the business really, really, really doesn't have a PE in Malaysia.

 

[glengoolie]

re-read what i wrote again. your entire post is pointless.

 

[seabreeze]

re-read what i wrote again. your entire post is pointless.

You're free to have your own opinion, but for the sake of other members in this forum, I'd like to point out that your setup is not particularly useful. You could use any "offshore" company (Cyprus or not) and all will have the same effect on your personal taxation - none at all.

- If your Cyprus co is non-domiciled in Cyprus, it will not have access to double tax treaties.
- If you live in Malaysia whilst controlling your Cyprus Company, the Cyprus Co will be tax-domiciled in Malaysia, whether you register it as such or not.
- If you trade stocks rather than investing them, it will be considered income as opposed to capital gains and will be fully taxable in your, defacto Malaysian, company as a source of Malaysian-sourced income (where the trading activity took place).
- Real estate capital gains are, most of the time, taxed locally in the location of the real estate (according to DTTs). Therefore whether you use a Malaysian or foreign company or just straight up own the real estate yourself, makes no difference.

 

[CyprusLaw]

You're free to have your own opinion, but for the sake of other members in this forum, I'd like to point out that your setup is not particularly useful. You could use any "offshore" company (Cyprus or not) and all will have the same effect on your personal taxation - none at all.

- If your Cyprus co is non-domiciled in Cyprus, it will not have access to double tax treaties.
- If you live in Malaysia whilst controlling your Cyprus Company, the Cyprus Co will be tax-domiciled in Malaysia, whether you register it as such or not.
- If you trade stocks rather than investing them, it will be considered income as opposed to capital gains and will be fully taxable in your, defacto Malaysian, company as a source of Malaysian-sourced income (where the trading activity took place).
- Real estate capital gains are, most of the time, taxed locally in the location of the real estate (according to DTTs). Therefore whether you use a Malaysian or foreign company or just straight up own the real estate yourself, makes no difference.

alexeikarp is actually right. The proposed structure offers nothing, and it would have essentially the same effect if you had set up a single company in Malaysia.

This type of offshore companies may have worked a few years back, but nowadays it simply does not offer anything.

 

[glengoolie]

to all your points - yeah, i never stated otherwise and am fully aware.
but this point:

- If you trade stocks rather than investing them, it will be considered income as opposed to capital gains and will be fully taxable in your, defacto Malaysian, company as a source of Malaysian-sourced income (where the trading activity took place).

so you are saying that if a company buys and sells stocks with its own corporate capital, this income will not be considered under the capital gains(tax)? what is the rule or law that decides what is trading and what is investment?

this statement is about cyprus company or possibly malaysian company or about taxation of cyprus company in malaysia?

how about purely cyprus setup then? the law in cyprus clearly states that trading securities is tax exempt. hence no distinction between investing or trading exists.

what if the cyprus company would trade stock through cyprus broker, therefore the income would be considered sourced locally and taxed in cyprus? that should take care of malaysian side in case of, as yo usay, CGT would not apply but instead corporate income tax would.

 

[seabreeze]

to all your points - yeah, i never stated otherwise and am fully aware.
but this point:


so you are saying that if a company buys and sells stocks with its own corporate capital, this income will not be considered under the capital gains(tax)? what is the rule or law that decides what is trading and what is investment?

this statement is about cyprus company or possibly malaysian company or about taxation of cyprus company in malaysia?

how about purely cyprus setup then? the law in cyprus clearly states that trading securities is tax exempt. hence no distinction between investing or trading exists.

what if the cyprus company would trade stock through cyprus broker, therefore the income would be considered sourced locally and taxed in cyprus? that should take care of malaysian side in case of, as yo usay, CGT would not apply but instead corporate income tax would.

In the setup you mentioned, you will not have a company subject to Cyprus tax law. Your company will be subject to Malaysian tax law.
Keeping & holding securities is tax exempt.
Active trading is considered income (see Tax Matters – Retail investors in shares, are your gains taxable? ).
The location of the securities or the brokerage is irrelevant - what is relevant is WHERE the actions leading to the gains took place. Since you'd be trading whilst in Malaysia, that answers that.

If you had a Cyprus-resident company, it is my understanding that securities tax trading is indeed exempt. You could then receive Cyprus' dividends in Malaysia and be tax free.

But then you'd have to circle back to my first (apparently not so pointless, after all) post:

Your ways around this are:
- Have your company professionally, independently managed. Do not become a director. You can be a supervisor or consultant. But don't write emails yourself AND you have to go to CY regularly and be compensated locally for your time.
- Have your investments managed discretionarily by an asset management firm. Maybe you can feed tips to them as a consultant.

Let me put this another way: you cannot do ANYTHING (trading, writing, talking) regarding the CY company whilst in Malaysia, if you want to then claim that the income is foreign-sourced.

 

[glengoolie]

ok, good info. the malaysian side essentially screws this up

i made a different topic asking stock traders about their setup and one of the solutions i linked there points here. but if malaysia is the issue here, it does not work. anyway, would you say that in essence, trading securities should be done only in tax heavens? because otherwise i am not seeing any options, worldwide, if governments keep promoting 0% CGT yet in reality they tax it as income because of arbitrary decision of trading vs investing and the territorial taxation is cherrypicking different things as well.

 

[seabreeze]

ok, good info. the malaysian side essentially screws this up

i made a different topic asking stock traders about their setup and one of the solutions i linked there points here. but if malaysia is the issue here, it does not work. anyway, would you say that in essence, trading securities should be done only in tax heavens? because otherwise i am not seeing any options, worldwide, if governments keep promoting 0% CGT yet in reality they tax it as income because of arbitrary decision of trading vs investing and the territorial taxation is cherrypicking different things as well.

Luxembourg has CGT exemptions, with very clear timeframes for what time you have to keep the security for it to be considered CGT. There is nothing arbitrary here. Long term investing helps everyone. Active stock trading only helps the trader.

I don't see why you say it doesn't work - I gave you a perfectly clear explanation of how it can (expensively or not is relative).

There infinite other combinations that should work with trading.

But yeah, be prepared to pay to set up properly or move to a Tax-free country.

 

[glengoolie]

There infinite other combinations that should work with trading.

could you chime in on this down below? you say "inifinite" yet i research this like crazy and cannot find anything solid(except uae) and people in similar situation who start ne threads every other day as well. so it seems you have it all figured out. care to share?

https://www.offshorecorptalk.com/threads/stock-market-investors-where-you-at.33394

 

[seabreeze]

could you chime in on this down below? you say "inifinite" yet i research this like crazy and cannot find anything solid(except uae) and people in similar situation who start ne threads every other day as well. so it seems you have it all figured out. care to share?

https://www.offshorecorptalk.com/threads/stock-market-investors-where-you-at.33394

Cyprus Non-Dom living + Professionally Managed SPF in LU (or similar investment tax neutral entity in EU)
Cyprus Non-Dom living+ Professionally Managed UAE trading entity
Territorial Taxation living + Professionally managed Cyprus as mentioned earlier (domiciled)
Territorial Taxation living + Professionally managed Offshore (if they are not blacklisted in domicile country) + Swiss asset manager
Estonia + Not distributing profits
Tax free jurisdiction living...

But yeah, unless you literally move to a tax free jurisdiction, there has to be someone professionaly managing the co and trading.

 

[glengoolie]

can you elaborate on the "professionally managed"? are we talking trusts or maybe just lawyers?

just fyi, personally i would be ok with 5% tax. but what i won't stand for is the socialist healthcare and social security taxes that we have here in EUrope. where i live i am tax free if i hold for a year, not bad. but i am missing opportunities here and there and it costs me money. i am not interested in daytrading, i am positional investor but sometimes the year period is limiting.

 

[seabreeze]

can you elaborate on the "professionally managed"? are we talking trusts or maybe just lawyers?

For the company itself - Generally fiduciaries and Trust Company Managers or licensed Company Management Businesses will do. A local lawyer would likely do too, but depending on the jurisdiction he may or may not have the flexibility to actually run the company. We're not talking about nominees, we're talking about persons that will be compensated for having full directorship and management responsibilities and that will likely be paid on a time-spend baisis. Also, a qualified local employee employed as director would do.

However it's highly unlikely any of them will (or legally could) to the trading for you, so you'll need a licensed asset management or investment advice firm to do so. Or if it's a private bank, they could take the portfolio under discretionary management. Of course, you can't be actually trading by yourself, but tips or requests are generally honored if such an arrangement has been made. This is not suitable for HFT.

 

[glengoolie]

it occurred to me that if the main point of the company is to transform income into CGT dividend, the company won'y earn money in any other way and so i wonder if such a company would be subjected to some sort of investment license and audits and whatnot. might not even be feasable to begin with.

 

[seabreeze]

it occurred to me that if the main point of the company is to transform income into CGT dividend, the company won'y earn money in any other way and so i wonder if such a company would be subjected to some sort of investment license and audits and whatnot. might not even be feasable to begin with.

Typically, no. Such a company would usually not be subject to licensing unless it provides asset management or investment advice to third parties or solicits external investments.

 

[Don]

Cyprus Non-Dom living + Professionally Managed SPF in LU (or similar investment tax neutral entity in EU)
Cyprus Non-Dom living+ Professionally Managed UAE trading entity
Territorial Taxation living + Professionally managed Cyprus as mentioned earlier (domiciled)
Territorial Taxation living + Professionally managed Offshore (if they are not blacklisted in domicile country) + Swiss asset manager
Estonia + Not distributing profits
Tax free jurisdiction living...

But yeah, unless you literally move to a tax free jurisdiction, there has to be someone professionaly managing the co and trading.

As a possible setup, you can have Cyprus company as a partner in an Estonian tax-transparent trust fund (LPF) that will be managed professionally from Estonia. Estonian LPF is similar to the Luxembourg and UK regulation, but the setup is much cheaper.
The trust will be taxed as the company was managed from Cyprus.
As additional benefit no names of investors need to be disclosed to the regulators nor are they entered into the Commercial register.

 

[Don]

In the setup you mentioned, you will not have a company subject to Cyprus tax law. Your company will be subject to Malaysian tax law.
Keeping & holding securities is tax exempt.
Active trading is considered income (see Tax Matters – Retail investors in shares, are your gains taxable? ).
The location of the securities or the brokerage is irrelevant - what is relevant is WHERE the actions leading to the gains took place. Since you'd be trading whilst in Malaysia, that answers that.

If you had a Cyprus-resident company, it is my understanding that securities tax trading is indeed exempt. You could then receive Cyprus' dividends in Malaysia and be tax free.

But then you'd have to circle back to my first (apparently not so pointless, after all) post:

Your ways around this are:
- Have your company professionally, independently managed. Do not become a director. You can be a supervisor or consultant. But don't write emails yourself AND you have to go to CY regularly and be compensated locally for your time.
- Have your investments managed discretionarily by an asset management firm. Maybe you can feed tips to them as a consultant.

Let me put this another way: you cannot do ANYTHING (trading, writing, talking) regarding the CY company whilst in Malaysia, if you want to then claim that the income is foreign-sourced.

In practice, many traders are running Cyprus entities with simple nominee structures. Pay like 4k annually, let lawyers do the paperwork, and enjoy life with 0% tax.