Cyprus non-dom plus HK Offshore tax strategy opinion

[CyprusLaw]

Hey @Sols, I've been reading a lot about your answers. I'm trying to have a similar schema as then one presented by @capotera:

- Non-dom regime in Cyprus (will move to Cyprus and stay 60 days)
- Register in Cyprus as self employed (lower yearly costs when comparing with having a company)

Instead of incorporating a company in HK, I would do it in Isle of Man. But I'm also a bit confused about the company residency concept. What does determine which is the company's residency? My idea is to set up this company in Isle of Man which is also resident in Isle of Man.

I work as a software engineer for company which pays will pay my salary to my Isle of Man company (and also dividends). For my life costs, I would invoice me own Isle of Man company (say I need 2k USD for living) and I'd have to pay personal income taxes as a person in Cyprus. Right?

Also, whenever I have to buy a car/house or other big things I could buy them with my Isle of Man company.

As the Isle of Man company is resident in Isle of Man, it would have to pay 0% corporate tax in Cyprus. And, AFAIK, it would have to pay 0% corporate tax as well in Isle of Man.

Thoughts?

Thanks!

Hi,

Just a few thoughts on this - in the suggested structure you will be paid a salary, potentially you could avoid tax on this as there is a 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 (you will need the opinion of a Cyprus tax advisor on this as it depends on activities etc). However, you would still need to pay social insurance which adds up to a high percentage. Having this in mind my suggestion would be to set up a Cyprus company (corp tax 12.5% on profit), and as a non dom dividend payment would be tax/sdc exempted.

Generally get professional advice and make a cost benefit analysis, including all costs of running a company in Cyprus vs running one in the IoM.

 

[mallshtow]

Will you be tax resident anywhere else? If so, the 60-day program doesn't work.

Nope, the idea is to comply to be tax resident only in Cyprus.

This creates a complicated situation where your income is salary not dividends, which has a different set of rules and may end up incurring additional tax. It's doable to pay zero income tax on salary, but it's far less common than the dividends approach.

What determines what is salary and what a dividend? Could I ask my company to pay me in some way that it is considered a dividend?

Tax residence is intentionally vague so as to not make tax evasion any easier than necessary. But a general rule of thumb is control and management: where is the company controlled and where is it managed? This is how IOM structures often can work. The directors are resident in IOM and sign all the agreements and control the bank accounts.

So, in general terms, to make a company tax resident in a given a country, it should have directors based there. Would I need to, for instance, have some "employee" in there to make this "residence" more real?

Yes, maybe, perhaps. If you can avoid salary and live just on dividends assuming the IOM company always has reserves and can pay out interim dividends, it'll be much easier.

Yeah, I guess that could be an option...

Explore the costs of a Cypriot company vs. Isle of Man with your full scope of needs and activities in mind (i.e. accounting/audit costs, banking fees for IOM directors to sign vs you to sign yourself for your CY company). IOM probably works out cheaper but do the homework in any case.

Any place where I could check costs?

I have other doubt regarding Cyprus Non Dom, that is that they make you have a business there as well, so I guess that local company should "do" something... Right?

 

[CyprusLaw]

Nope, the idea is to comply to be tax resident only in Cyprus.


What determines what is salary and what a dividend? Could I ask my company to pay me in some way that it is considered a dividend?

The dividend is anything you get directly from the company as a shareholder. The salary is paid if you are a director and are therefore registered as an employee of the company - this is not necessary, you can just use the dividend, as this way you avoid payment of S.I as an employee.

So, in general terms, to make a company tax resident in a given a country, it should have directors based there. Would I need to, for instance, have some "employee" in there to make this "residence" more real?

You can use nominee directors and have an office in Cyprus, this is the best you can do to show substance and control in Cyprus. The cost for this is a minimal annual fee.

Any place where I could check costs?

The cost general for the nominees and for accounting/audit will depend on your activities, risk assessment etc but should be no more that around EURO 5,000 total. Would be happy to discuss more.

 

[mallshtow]

You can use nominee directors and have an office in Cyprus, this is the best you can do to show substance and control in Cyprus. The cost for this is a minimal annual fee.

Wouldn't they argue that it is not a "real" company as it only have a director (or 2) and an office but nothing is being really done?

Just a few thoughts on this - in the suggested structure you will be paid a salary, potentially you could avoid tax on this as there is a 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 (you will need the opinion of a Cyprus tax advisor on this as it depends on activities etc). However, you would still need to pay social insurance which adds up to a high percentage. Having this in mind my suggestion would be to set up a Cyprus company (corp tax 12.5% on profit), and as a non dom dividend payment would be tax/sdc exempted.

I've just seen this answer from you. Thanks for replying! So, you suggest not incorporating in Isle of Man but just use the Cyprus company? This is in the case that the company I work for can potentially pay me everything as dividends, correct? But, in the case I can't make that happen and I just have a salary, I would pay 12.5% corporate tax, correct? And that's when an offshore company (resident offshore) would make more sense, right?

However, you would still need to pay social insurance which adds up to a high percentage.

What/s this percentage? Base on what?

Generally get professional advice and make a cost benefit analysis, including all costs of running a company in Cyprus vs running one in the IoM.

Any consultant I can get in touch for this?

Also, are there any other countries which, if having an offshore company (resident offshore) would have tax exemption?

 

[CyprusLaw]

Wouldn't they argue that it is not a "real" company as it only have a director (or 2) and an office but nothing is being really done?

There is always a risk, however, I note that so far we have not heard of any cases where the residence has been challenged by the Cyprus authorities. In any event your advisor will guide you as to the best possible structure to safeguard your company.

I've just seen this answer from you. Thanks for replying! So, you suggest not incorporating in Isle of Man but just use the Cyprus company? This is in the case that the company I work for can potentially pay me everything as dividends, correct? But, in the case I can't make that happen and I just have a salary, I would pay 12.5% corporate tax, correct? And that's when an offshore company (resident offshore) would make more sense, right?


What/s this percentage? Base on what?

This will depend on what the salary will be, whether you have any exemptions depending on status and activities etc.

Any consultant I can get in touch for this?

Also, are there any other countries which, if having an offshore company (resident offshore) would have tax exemption?

If you are ok I can PM you about this.

 

[mallshtow]

If you are ok I can PM you about this.

Sure!

 

[Sols]

What determines what is salary and what a dividend? Could I ask my company to pay me in some way that it is considered a dividend?

Just to expand on what @CyprusLaw wrote, dividends are paid from a company's capital reserves. The company needs to be cash positive. As long as you are, pay yourself all the dividends you want (but keep enough to cover upcoming costs/liabilities). A good accountant will help you work out how much can you can pay yourself in dividends.

Salaries are drawn from the company under some sort of agreement (such as an employment agreement). The first few thousand are tax free, so paying yourself a small salary can be a way to lower your tax burden but it's negligible and not worth the hassle. Stick with dividends.

So, in general terms, to make a company tax resident in a given a country, it should have directors based there. Would I need to, for instance, have some "employee" in there to make this "residence" more real?

Not necessary. It helps if you're doing some cross-border arrangements but if your plan is to be tax resident in Cyprus, you being the director of the company is all it takes.

Any place where I could check costs?

Shop around and have discussions with service providers that are law firms and/or registered Administration Service Providers (ASPs): Cyprus Securities and Exchange Commission | APPROVED ASP

I don't know which firm @CyprusLaw represents but as long as they're an actually a lawyer (or a law firm) or an ASP, get pricing from them. But get pricing from a few more just to compare.

Those licensed by CySEC are required to provide you with an itemised list of fees. Make sure you get that and can fully assess/estimate your costs for year 1 and year 2. If you know how many transactions your business will have, ask about a general estimate for audit as well. You can appoint your own auditor, but in the beginning at least it's easier to work with one recommended by your corporate service provider.

 

[lavel]

Wonder if OP got setup like suggest in the thread?

It used to be easy but after all the crap with AML5 and now AML6 I believe some need a very good tax lawyer to avoid troubles if they plan to do business outside of their own country!

 

[Piano]

Hello guys, hello capoterera,

I live at the moment in Cyprus and I am happy you decided also for the best deal in EU (Cyprus).
Your structure is good, but please forget about the HK company because it ist to expensive and to complicate just for 70k per year.

I would start with a Cyprus Limited Company. because this setup is legit and you can use it for at least 17 years. If you should have to much income in your cyprus limited and you don´t want to pay 12,5 % you can easily raise your costs in the Cyprus Limited ( buy a car, buy new computers, travel / hotel costs to visit business partners, consulting contract with offshore company of a friend etc..... ) If you have 70k per year it is very easy to invest / spend money so you don´t need to pay all the 12,5%. You can lower your taxrate by this easy to 5-10%.

70k income, that means you can pay you salary out of around 20k per year more or less taxfree. there is only 50k left. 2-3 k yearly costs for accounting etc.

From my point of view forget about HK banks and company because to much hassle managing this and to much costs. Just go for N26, revolut etc for private use.
Open N26 before you move to Cyprus because you can not onboard with cypriot residency. But you can first onboard with french residency and later change to cyprus address.

Use EMI´s for your cypriot onshore company .

I think EU online banks and EMI´s are much more safe and hassle free than any offshore bank or local cyprus bank. forget about this just use easy online banks

I live in Larnaka near Airport since 2-3 years. If you like I can connect you to some expats who all do some online businesses. I can even forward you to guys who have nice big house with pool and they can subrent you a nice room 5km from airport.

I can also forward you to local motivated accountand (company formations, lawyer, help for immigration

Hello Dllttrading,

how many months a year you have to spend in Cyprus to keep the non Dom status ?

 

[CyprusLaw]

Hello Dllttrading,

how many months a year you have to spend in Cyprus to keep the non Dom status ?

Hi Piano,

Just to clarify - the requirement to stay for a certain amount of days in Cyprus relates to the 'tax residency' status, not with the non dom status. You can be a tax resident in Cyprus (60 day rule) and have the non dom status and therefore have the benefits afforded to non-doms, such us dividend payments being SDC exempted.

In order to officially get the non-dom status you need to complete a form declaring your status. I note that even if you actually relocate and live in Cyprus, you are still granted the non-dom status for 17 years.

I hope this helps.

 

[orangekangaroo]

Ok here is my 2 cents:

The OP states he is making 70K which in my opinion is not enough for a Cyprus structure. Company setup, admin fees (sky-high in Cyprus), CIT and the requirement of a full-time residence = 25-30% overall costs.

HK structure could work, but this is on Cyprus turning a blind eye on you doing the management. Still, you need to be self-employed, pay minimum wage and socials on top and have an expensive structure in HK. How long this is viable I don't know. Work out the cost of each structure.

Cyprus works fine if you earn more per year (200K) and can build substance abroad.

I am geared more to Romanian Micro company for my line of business 1 to 3% tax on turnover and 5% divi tax. Romanian tax residency can also be established by making it your country of domicile (it is your centre of the universe), so you could get away with a 4-month stay as long as no other country claims residency, you will then have to fall back on DTTs. I have no issue staying 6 months plus as I need to build substance.

This is the 2nd time I am hearing that company and bank account have to be in the same country. I have heard of a case where within the EU PAYMENTS WERE REFUSED because the EU IBAN number was from a different country than the EU company, this goes against EU rules.

 

[kkein]

to remain in OP topic: how much would it cost in average to set up an HK company with a local office and managing director (through a trusted provider, ofc), so that remote "practical" management will trigger no objections from the taxman? (in the example, Cypriot taxman)

 

[JohnLocke]

to remain in OP topic: how much would it cost in average to set up an HK company with a local office and managing director (through a trusted provider, ofc), so that remote "practical" management will trigger no objections from the taxman? (in the example, Cypriot taxman)

valid questions, if someone is able to answer this or point us in the right direction it would be very friendly.

 

[kkein]

I think maybe @GiGoGo was the HK expert? not sure what's the setup in that case, and if only for crypto or what

 

[5K1PP3R]

I am Cyprus 60 days tax resident and non dom.
So basically if I make a HK offshore company that means, I will be in the CRS as UBO and risk getting busted by Cyprus tax services, 12.5% on profits + penalties. If I make an onshore HK company (local director), the company will need to pay 16.5% profit tax in HK, no point doing that, because Cyprus has 12.5%.
Is this correct?

 

[kkein]

why would cyprus ask you taxes for your foreign company? besides, i think you will be UBO in both cases

 

[CyprusLaw]

why would cyprus ask you taxes for your foreign company? besides, i think you will be UBO in both cases

Management and control test. If his HK company has no substance in HK it will be deemed by tax authorities as being managed in Cyprus and therefore be taxed in Cyprus.

So no real point doing this, you can set up a Cyprus company since you are a non dom here it is the perfect scenario

 

[kkein]

Management and control test. If his HK company has no substance in HK it will be deemed by tax authorities as being managed in Cyprus and therefore be taxed in Cyprus.

So no real point doing this, you can set up a Cyprus company since you are a non dom here it is the perfect scenario

Is a local director all it's needed to make an HK company substanced? But in that case i don't think HK company has to pay taxes on global income, does it?

 

[CyprusLaw]

Is a local director all it's needed to make an HK company substanced? But in that case i don't think HK company has to pay taxes on global income, does it?

Unfortunately I can only speak for Cyprus, I assume that as with most countries local director would be a strong case towards creating substance in HK. However in the OP’s scenario I think the most beneficial would be to avoid HK all together as he is a non dom in Cyprus so he already has a very attractive set up