Cyprus non-dom effective tax-rates (three different cases)

[baitmine]

I'm trying to calculate the effective tax rate for three different types of ventures as a non-dom tax resident in Cyprus (I am an EU citizen who is currently residing in Asia but plans on relocating to Cyprus).

Company A - Amazon FBA (Ecommerce)
The company utilizes contract manufacturing in Germany as well as the USA and sells the subsequent finished product in the USA as well as Europe through the Amazon FBA program. Sales tax and VAT are paid in each respective country.

• Profit: €200,000
• Payout (Salary): €19,500
• Taxes - Gesy: €7,200 (4% of up to €180,000 for self-employed)
• Taxes - CIT: €22,562.5 (12.5% of €180,500 after deducting salary of €19500 that is tax-free)
• Payout (Dividends): €157,937.5
• Effective rate: 14.9% (€29,762.5 / €200,000)

Company B - Securities trading/investing
The company buys and sells securities through a broker that is not based on Cyprus (under the assumption that a local broker would carry a tax burden) with the understanding that any income generated from this type of activity is going to be tax-exempt.

• Profit: €200,000
• Payout (Salary): €19,500
• Payout (Dividends): €180,500
• Taxes - Gesy: €7,200 (4% of up to €180,000 for self-employed)
• Effective rate: 3.6% (€7,200 / €200,000)

Company C - Cryptocurrency trading/investing
The company buys and sells cryptocurrencies through various exchanges. The company executes hundreds of thousands of trades through automated algorithms. I understand that this type of income may or may not be exempt due to the missing regulations, but I went with the worst-case scenario assumption.

• Profit: €200,000
• Payout (Salary): €19,500
• Taxes - Gesy: €7,200 (4% of up to €180,000 for self-employed)
• Taxes - CIT: €22,562.5 (12.5% of €180,500 after deducting salary of €19500 that is tax-free)
• Payout (Dividends): €157,937.5
• Effective rate: 14.9% (€29,762.5 / €200,000)

Questions:
1. Are the above assumptions and calculations correct?
2. How would bookkeeping be done for a company (C) that generates millions of transactions on an annual basis on a number of different exchanges not to mention wallet to wallet transfers?

 

[FreeBit]

Since July 2015 the concept of Non-domiciled Individuals for tax purposes was introduced.

Consequently, Cyprus tax resident individuals, who are also non Cyprus domiciled, are now able to enjoy the following additional tax advantages :

• No tax on Dividend income
• No tax on Interest Income
• Rental income : partly exempt (only subject to Income Tax at normal rates)

Note : Since 1 March 2019, the above types of income are subject to GeSY contributions , (currently at the rate of 1.7%), restricted to a maximum of EUR180,000 income annually

 

[FreeBit]

I'm trying to calculate the effective tax rate for three different types of ventures as a non-dom tax resident in Cyprus (I am an EU citizen who is currently residing in Asia but plans on relocating to Cyprus).

Company A - Amazon FBA (Ecommerce)
The company utilizes contract manufacturing in Germany as well as the USA and sells the subsequent finished product in the USA as well as Europe through the Amazon FBA program. Sales tax and VAT are paid in each respective country.

• Profit: €200,000
• Payout (Salary): €19,500
• Taxes - Gesy: €7,200 (4% of up to €180,000 for self-employed)
• Taxes - CIT: €22,562.5 (12.5% of €180,500 after deducting salary of €19500 that is tax-free)
• Payout (Dividends): €157,937.5
• Effective rate: 14.9% (€29,762.5 / €200,000)

Company B - Securities trading/investing
The company buys and sells securities through a broker that is not based on Cyprus (under the assumption that a local broker would carry a tax burden) with the understanding that any income generated from this type of activity is going to be tax-exempt.

• Profit: €200,000
• Payout (Salary): €19,500
• Payout (Dividends): €180,500
• Taxes - Gesy: €7,200 (4% of up to €180,000 for self-employed)
• Effective rate: 3.6% (€7,200 / €200,000)

Company C - Cryptocurrency trading/investing
The company buys and sells cryptocurrencies through various exchanges. The company executes hundreds of thousands of trades through automated algorithms. I understand that this type of income may or may not be exempt due to the missing regulations, but I went with the worst-case scenario assumption.

• Profit: €200,000
• Payout (Salary): €19,500
• Taxes - Gesy: €7,200 (4% of up to €180,000 for self-employed)
• Taxes - CIT: €22,562.5 (12.5% of €180,500 after deducting salary of €19500 that is tax-free)
• Payout (Dividends): €157,937.5
• Effective rate: 14.9% (€29,762.5 / €200,000)

Questions:
1. Are the above assumptions and calculations correct?
2. How would bookkeeping be done for a company (C) that generates millions of transactions on an annual basis on a number of different exchanges not to mention wallet to wallet transfers?

1) as far as I know Gesy is 1,7%
2)not sure

 

[baitmine]

I believe that the rates have increased.

From 1 March 2019 the scheme will cover out-of-hospital care. Employees and pensioners, income-earners will have to contribute 1.7% of their income, employers 1.85%, the state 1.65%, and self-employed people 2.55%. From 1 March 2020 it will include hospital care, and contributions will rise to 2.65% for employees, 2.9% for employers, 4.7% from the state , and 4% for the self-employed.

https://en.wikipedia.org/wiki/Gesy
An even worse interpretation would be that they refer to self-employed as someone who isn't incorporated, hence, in this case, I might be expected to pay both the employee rate and the employer's rate, totaling 5.55%?

 

[CyprusBusiness]

Hello

Please see below correct calculations in the three scenarios you presented above, which I hope can help you decide on the best optimised structure for your companies:

Company A - Amazon FBA (Ecommerce)

Self employed taxes and contributions:

Payout (Salary assuming self-employed status) : Euro 19,500
Social Insurance Contribution: Euro 3,042 (15.6%)
Gesy: Euro 780 (4% on Euro 19,500)

Corporation tax:

CIT: 22,562.5 (12.5% on Euro 180,500)

Please note that temporary tax will need to be paid in 2 instalments (1st instalment 31 July and second instalment 31 December) to avoid additional penalty of 10% (Euro 2,256 on total CIT of Euro 22,562.5). This temporary tax is an estimation of the taxable profit of the Company for the year and the estimated liability must be as close as possible to the actual tax liability.If the estimated taxable income is less than 75% of the actual taxable income as declared on the submitted tax return of the year, then an additional 10% on the difference between the temporary tax and actual tax is imposed. Any difference between the actual tax payable and the temporary tax paid for the year 2020 is payable by 1 August 2021 via the self-tax assessment method.

Dividend payout:

Gross Dividend paid: Euro 157,937.5
Gesi: Euro 4,185 (2.65% on Euro 157,937.5)
Special defence tax (“SDC”): Nil (Non domiciled status grants you exemption from SDC)

Effective tax: 15.28% (30,569.5/200,000) - this includes Social Insurance Contribution, Gesy and CIT


Company B - Securities trading/investing

Self employed taxes and contributions:

Similar in A above

Corporation tax:

CIT: Nil (profits from trading in financial instruments defined by Cyprus tax legislation as “titles” are tax exempt)

Dividend payout:

Gross Dividend paid: Euro 180,500
Gesi: Euro 4,783 (2.65% on Euro 180,500)
Special defence tax (“SDC”): Nil (Non domiciled status grants you exemption from SDC)


Company C- Cryptocurrency trading

Self employed taxes and contributions:

Similar in A and B above

Corporation tax:

CIT: 22,562.5 (12.5% on Euro 180,500)

Dividend payout:

Gross Dividend paid: Euro 180,500
Gesi: Euro 4,783 (2.65% on Euro 180,500)
Special defence tax (“SDC”): Nil (Non domiciled status grants you exemption from SDC)

Please note that AMLD5 has just been transposed into Cyprus law. Crypto Asset Service Providers will be registered (no license requirement) in a register set up by the regulator - the procedure will be simple and straightforward. No further regulation is expected until the implementation of MiCA around 2024 at the earliest.

Relating to tax and vat I note the following: with respect to vat: The Court of Justice of the European Union (ECJ), in its Hedqvist decision, Case 264/14, explained that bitcoin represents a direct means of payment between the operators that accept it, therefore, the transaction concerning the exchange of bitcoin for fiat currency may fall within the scope of the exemption under Article 135(1)(e)   of the EU VAT Directive 2006/112/EC, covering, inter alia, currency, bank notes and coins used as legal tender. Hence, most EU countries including Cyprus have a joint consensus that the exchange to or from virtual currencies is not subject to VAT. The same applies for using virtual currencies to buy goods or services. Thus, no VAT should be charged on the use of virtual currencies itself.

With respect to the taxation of cryptocurrencies these will fall under the same tax principles as with any other business activities and a tax rate of 12.5% will apply. This in fact the case as no legal definition was attributed to cryptocurrencies in Cyprus Tax legislation. Thus no clarification exists whether cryptocurrencies are securities (“titles”), currency or a digital asset. The accounting practice (IFRS) considers cryptocurrencies as either inventory or intangible assets, and as the the tax practice usually follows the accounting practice, inventories/intangible assets are part of the normal business operations which are taxed at 12.5%. Due to the uncertainty it could be beneficial to seek an official tax ruling/opinion on the matter if you decide to set up in Cyprus.

Finally, with respect to bank accounts, as things stand banks do not open accounts to crypto asset service providers, this could potentially change very soon due to the implementation of AMLD5, however, even if it does not change there are a number of crypto-friendly EMIs in Cyprus for account opening.

Finally in relation to your query relating to bookkeeping I would suggest to explore whether trades/transaction log can be exported from relevant exchanges (preferably in an excel format). The bookkeeper can then alter the format of the excel and import it automatically on an accounting software supporting such setup.

 

[Almouk]

Very valuable and reliable information with practical examples, @CyprusBusiness

I would like to see the Effective Tax between the Unemployment status trading as natural person cryptos (it seems Social Insurance Contribution is not needed to pay ) versus previously mentioned C scenario (Cryptocurrency trading through a company) for a 100.000€ profit.

I know is not a specific regulation already for cryptos, but I would like to know if the interest income earned with staking cryptos, it would be tax free for the Non Dom status or how staking is considered by Tax Authorities.

 

[heliotrope]

@baitmine, I think it may be worth including some calculation of accountancy (not cheap in Cyprus unfortunately). Most schemes (including 60-day tax residence) will also require the year-round maintenance of an apartment.

 

[CyprusLaw]

@baitmine, I think it may be worth including some calculation of accountancy (not cheap in Cyprus unfortunately). Most schemes (including 60-day tax residence) will also require the year-round maintenance of an apartment.

Accounting fees are not as high as you may think, as it all depends on your volume of transactions, risk etc. There are a number of accountants/auditors who offer high quality services at reasonable prices.

With respect to the apartment, there are solutions for this.

 

[CyprusBusiness]

Thank you @Almouk for your kind words.

Please note that the effective tax rate in relation to a person trading in Cryptos on a personal capacity with annual profit of €100,000 would be 24.89% (€24,885).

In relation to staking activity, as you noted there is absence of legislation in this area and hence it will follow the normal tax practice as depicted in scenario C above.

Please feel free to PM me for any further info you may need.

 

[Almouk]

Thanks for your feedback and fast answer, @CyprusBusiness .

I expected that profits from staking and lending cryptos for a non dom individual - not operating under a company- would be only taxed with the 2,65% on GESI and be capped to 180.000€. Maybe, is what you said so I prefer to ask you again in order to confirm it.

I have read here that some amendment or specific crypto regulation is near to happen and it seems Cyprus government is working on it. Any news or thoughts about happening soon?

Thanks in advance.

 

[CyprusLaw]

Thanks for your feedback and fast answer, @CyprusBusiness .

I expected that profits from staking and lending cryptos for a non dom individual - not operating under a company- would be only taxed with the 2,65% on GESI and be capped to 180.000€. Maybe, is what you said so I prefer to ask you again in order to confirm it.

I have read here that some amendment or specific crypto regulation is near to happen and it seems Cyprus government is working on it. Any news or thoughts about happening soon?

Thanks in advance.

At the moment we have the AML regulatory framework which regulates crypto asset service providers, such as crypto exchanges.

There is a DLT draft law which we do not expect to be published before end of 2021 at the earliest.
Also we have information of a tax circular which will clarify matters on thebtax treatment of crypto assets, which from the information we have it confirms what CyprusBusiness has mentioned above, again we don’t have an indication as to when will this be published or its final form.

 

[mrb]

I’m curious as to what extend this paragraph is used in annual tax reports.
Say, my income from a salaried contract is performed in Denmark, for a Danish fiscal resident requires me to periodically leave Cyprus for a total of 100 days/yr.

How is that being treated upon And based on what evidence.

100% exemption on remuneration for salaried services rendered outside Cyprus for more than 90 days in a tax year to a non-Cyprus resident employer.

 

[CyprusBusiness]

I’m curious as to what extend this paragraph is used in annual tax reports.
Say, my income from a salaried contract is performed in Denmark, for a Danish fiscal resident requires me to periodically leave Cyprus for a total of 100 days/yr.

How is that being treated upon And based on what evidence.

100% exemption on remuneration for salaried services rendered outside Cyprus for more than 90 days in a tax year to a non-Cyprus resident employer.

Hello

This is one of the benefits of having a tax residency as indivisual in Cyprus while working for a foreign Company (a Company residing outside Cyprus). In essense all salaried income will be tax exempt in Cyprus.

To utilise this benefit you will have to get registered and obtain a tax number in Cyprus and make the relevant tax declarations in the tax return of each fiscal year.

Please PM me if you need any assistance

 

[mrb]

Hello

This is one of the benefits of having a tax residency as indivisual in Cyprus while working for a foreign Company (a Company residing outside Cyprus). In essense all salaried income will be tax exempt in Cyprus.

To utilise this benefit you will have to get registered and obtain a tax number in Cyprus and make the relevant tax declarations in the tax return of each fiscal year.

Please PM me if you need any assistance

so, we’ve got two rules regarding the fiscal residency timeframe

#1 minimum 60 days on CY soil and no more than 183 days in any other country

#2 at least 90 days spent working abroad to be considered exempt from local income tax

Q: what if my work schedule requires me to stay 183+ days in another country, but I get back to Cyprus on every off day I get and I spend 70 days/year enjoying my off’s on the island ???

 

[CyprusBusiness]

so, we’ve got two rules regarding the fiscal residency timeframe

#1 minimum 60 days on CY soil and no more than 183 days in any other country

#2 at least 90 days spent working abroad to be considered exempt from local income tax

Q: what if my work schedule requires me to stay 183+ days in another country, but I get back to Cyprus on every off day I get and I spend 70 days/year enjoying my off’s on the island ???

I think you misunderstood the concept of 90 days tax exemption. Actually what this means is that you do not have to be abroad for 90 days but instead to be working from distance for a non-Cyprus company while leaving in Cyprus as a tax resident of Cyprus.

Now if your company requires that you stay 183+ days in your country then this by default means that you would be considered tax resident of your country and you cannot obtain a cyprus tax residency via the 60 days rules. This is due to the fact that the 60 days rule state that you must not be atax resident of another country
for a period exceeding 183 days in aggregate.

If your goal is to just take benefit from the 90 days tax exemption this would not work unless you obtain a tax residency in Cyprus.

I hope this helps.

 

[mrb]

The 90 day information comes from financial assessment resumes about Cyprus and is unclear to say the least.
I would much appreciate, if someone could paste here the official state document as reference.

 

[mrb]

The 90 day info comes from financial assessment resumes about Cyprus and is unclear to say the least.
I would much appreciate, if someone could paste here the official state document as reference.

The 60 day rule is prevalent here IMO, CY authorities will not pursue a possible lost residency issue of their resident living somewhere across EU, just to revoke their right to reside and possibly loose a chance to tax their salary gains in a current or the following years.
Besides that, proving someone stayed 180+ days in a single eu state would be intrinsically difficult, if not impossible, with proper precautions taken on their side.
Leaving the EU (schengen) land is a different story.

 

[antani]

Please note that the effective tax rate in relation to a person trading in Cryptos on a personal capacity with annual profit of €100,000 would be 24.89% (€24,885).

From this calculation it seems that in Cyprus if a private person sells crypto for fiat only the income tax applies (no gesy and no social insurance).
Assuming that in a tax year the only income a private person receive comes from the sale of her own crypto (transfer euro from exchange to personal bank account) and that such income is less than 19500 euro, does it mean that the person does not have to pay any tax and is not obliged to file a tax return to the taxman?