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Digital Nomad Perpetual Traveler + Apartment in Cyprus = tax ?
- Thread starter Hydrox
- Start date
Honestly, there is not really a clear rule. If you work from Germany, you are supposed to pay tax there. In most cases, they won't find you even at 12 months. But sometimes, they for whatever reason start checking and then you have issues.
That is insane. You will most likely still be tax resident in Germany due to having habitual abode in Germany.
That means that you are in Germany "not only temporarily" - whatever this means, it's not clear. The only clear rule is that you definitely have habitual abode if you're there 183+ days per year.
And they can also count short absences as spent in Germany. So if you're there for 3 weeks, then you're gone for 2 weeks, then you're there again for 2 weeks, they can potentially count it as if you have spent all 7 weeks in Germany.
No, I don't know the exact rules. I believe it is more like 6 years or so.
Why Cyprus? You would likely still have to get health insurance etc.
It also won't make any difference for the German tax authority (unless they really don't look into you, but then why bother).
Well, that's understandable, considering that you won't be giving up your tax residency. You can go to jail for this. I wouldn't want attention either then...
That sounds way too high. You should talk to a couple more service providers.
That's bad, your "US" LLC is a German company for tax purposes and subject to exit tax.
You have to declare to the German tax authorities that you have incorporated this company and you will also have to do the exit tax paperwork (even if the exit tax is 0 since you haven't used the company yet).
If you don't do this, it will not be compliant. Not sure how bad the fine will be if there really is no exit tax (since you wouldn't be saving any tax by hiding the company).
The proper way is to leave first and to then set up a company.
He has already been using it for a couple of years and is paying taxes on the income in Germany. He hence should run it down to avoid any discussion
That's even worse. Probably the whole setup has been non-compliant for a long time then.
He should definitely close it all down and then start fresh, yes.
But if he's going to spend up to 5 months per year in Germany, he will simply continue to be tax resident in Germany anyway.
The whole thing seems like the perfect recipe for really getting in trouble.
Yes, and there is NO any DTA that is going to protect him.
To clarify i have 2 companies, 1 sole proprietor company and 1 US LLC. The US LLC is only active for 4 months and generated revenue. I forgot to declare it within a month but i will do it now in the next weeks. I will declare it as a sole proprietor company too, as my tax guy advised to avoid the normal "exit tax".
Then i pay the normal income tax on it. The finance authorities will accept this most likely my accountant said.
My accountant said writing a good evaluation that the company is worth almost nothing would be enough. Since its a sole proprietor company not a corporation.
What if i bring it down to 3 months and make sure to always have big spaces in between the visits?
I´ve talked to many, that is why i dont like to setup a company in cyprus anymore.
The incorporation + non dom + registered office will cost you 3400€ at best.
Then you have around 2500€k yearly accounting and auditing fees even if the company doesnt have a lot of invoices
Then a small annual levy fee or smth of 250€ (i think they call it different now)
And then you have to pay yourself the minimum wage if it does bigger numbers whcih is at least 1k / month salary.
on that 1k / month you pay around 26% health insurance = 3100€
----------------------
in total just the operating costs of the cyprus company are then 9250€. And then dont forget the 12.5 + 2.65% tax on your company profits after that...
I have no idea if this can work.
"Most likely", lol.
Most EU countries don't have an equivalent to a US LLC. Sole proprietorships don't award limited liability, only corporations do. That's why US LLCs are viewed as corporations by many European countries.
What if they disagree with you and think it's a corporation?
Honestly, you should consider closing it before you leave, just to avoid all of this.
You should also weigh the pros and cons of simply forgetting to report it...
I don't have experience with this. You would have to speak to a tax lawyer, ideally one who specializes in nomads.
To me this seems really risky. There's a good chance they won't care, especially if you're no billionaire or celebrity.
But for example Cyprus is a big red flag - might be enough for them to decide to take a closer look.
Say they find out somehow that you have been in Germany 3 months in total, even with big spaces in between.
They will want to know: Where does this person live? Which country is this person's base?
If a person spends only 20 days per year in Cyprus, but 3 months in their country of citizenship, where their family lives, and probably also most of their friends as well - wouldn't you think it's rather logical to say this is a person who lives in Germany and has rented a vacation home in Cyprus? Maybe even someone who tries to cheat on taxes because Cyprus is a low-tax country?
They have almost infinite resources. They will simply say: "You are tax resident in Germany, unless you can prove the opposite."
And you would have nothing to protect you - no tax residency certificate, not even time spent in Cyprus, absolutely nothing.
You would have to fight their claim "Your home is really still in Germany and you only go on a lot of longer vacations" with the argument... well, what argument really? "Na-ah, I really feel I'm a world citizen, I just visit Germany a lot"?
Compare your case with someone who travels a lot for work, like a consultant. Many German consultants also travel a lot for work, some of them may only be home in Germany 3 months per year - the rest of the year they are traveling internationally to see clients.
How is your case fundamentally different? "I don't have an apartment of my own in Germany!"
So? Maybe some of those consultants also just live in their parents' basement to save rent. Maybe some of them even just stay in hotels in Germany since they can get them reimbursed by their employer, so they don't have to pay rent at all, or simply because they like the comfort.
Clearly they have to pay tax in Germany though.
So how is your case fundamentally different from theirs?
You're really playing with fire. I also think it's a particularly stupid idea to tell them you live in Cyprus. If anything, you should go with a country that isn't known as a tax haven.
If you don't want to be tax resident anyway, using a "red flag" country is a really bad idea. There are many high tax countries that only consider you tax resident if you spend time there.
But I really think this is a stupid idea.
You're gambling everything on the fact that they won't check you. It's a really bad strategy.
You should either drastically reduce your ties to Germany or at the very least build up strong ties somewhere else, so that you can fight off any issues easily.
Why don't you actually move to Cyprus, Malta, Bulgaria, Romania, Thailand, or even Czechia or Switzerland or Estonia? There are so many low-tax options available where you would be paying way less tax than in Germany and you would have much better protection against tax claims from Germany, should it come to that. Cyprus isn't even a Schengen country, as far as I know. It would be extremely easy for them to prove that you were not in Cyprus... So even easier for them to claim you were really in Germany.
the llc made like 8k profit and 30k in revenue. Until i leave it might make a bit more. Under what circumstances would forgetting to report it make sense in your opinion?
If i did this "setup" i would make sure to be longer in cyprus than in germany and of course like i said rent there.
Yes I am now thinking about it again, what set me off are the thousands in company operating costs + taxes you get in cyprus. Especially in the first year. But i start thinking that more peace might be worth that price. I am just aware that the company operating cost (10k) + the taxes / GHS on lets say 100k income (15.15k) still amount to a total loss of 25% on your income...
Of course in the second year it gets better because you dont have the 3k company incorporation costs again.
With my company here i have no annual fees other than accounting and around 45% tax. So i would in total cut the taxes in half. Sounds great but not as great as being a "Perpetual Traveller" and completely getting rid of it.
I could consider doing 1-2 years in cyprus to be completely out of germany and then going on to do the perpetual travel model right?
No idea, sorry. You should speak to a tax lawyer.
Another option could be to declare this as your own income (sole proprietorship), so you pay tax on it, but to just not mention that it was earned through the US LLC.
Then it would be more believable that you were just unaware it has to be declared, and sole prop taxes are higher than corporate taxes + dividend tax in most countries, so you wouldn't be saving taxes, so charges for tax fraud would be off the table.
But I don't know, maybe what your advisor suggested is a good solution - report it as a sole prop and say it's worthless. I don't know. I really don't know what the risks are here, just trying to give you different ideas that you should talk through with your advisor, or maybe even a tax lawyer.
The question will be how much they will be going after you.
What peace of mind? You have to spend 183+ days in Cyprus to be protected, whether you have a company or not.
Company + 60 days will give you a tax residency certificate, but only if they don't know that you have a conflict with any other country.
Under Cypriot law, you can only be tax resident if no other country claims you as tax resident.
So if Germany doesn't come after you, it doesn't matter.
But if they do come after you ("We still consider you tax resident"), then spending less than 183 days in Cyprus won't be offering any protection from the Cypriot side, as they will just say: "Oh, you want to tax him, alright, go ahead!"
Of course, what could also happen is that you spend 4-5 months in Cyprus, you get the 60-day tax residency certificate (because Cyprus doesn't know you have a conflict with the German tax office), you show all that to the German tax office and they back off. Or you even just show them some receipts as proof that you've actually been in Cyprus.
That's also a possible outcome, but that would be more in the "luck" department. But it could also happen - probably lots of people fly under the radar this way. But it's not a legal solution - Germany will ALWAYS win if they can rule you are tax resident under German law. Cyprus won't do anything to protect you if you spend less than 183 days there.
But you can only have true peace of mind if you spend 183+ days in Cyprus, and then you won't need the company.
But in that case, Cyprus could also tax your US LLC. Will they do that? No idea. But there's a good chance they could at least in theory see it as a Cypriot corporation, so you'd have to pay for an audit etc.
I really fail to see the advantage with Cyprus in your case... I would strongly consider finding a Schengen country with low taxes and no minimum number of days to be tax resident. Get tax residency there, pay taxes there, done. That would be true peace of mind.
Czechia for example. As a sole prop in Czechia, you can do simplified accounting, so you can deduct 50% or so in expenses up to a certain income.
I don't remember the details, but say the limit is 100k. You make 90k, then you can just deduct 50% (not sure about the exact number), no need to keep receipts, so you only pay tax on 45k - even though you made 90k. Say the tax is 33%, so you pay 15k tax (1/3 of 45k) - but you really made 90k. 15k on 90k is less than 17%.
There are caps, but if you're just a freelancer, this can be a really good deal. Czechia is a Schengen country, nobody will really know when you drive across the border, and as long as you spend less than 180 days in Germany, you should be protected, even if they found out you've spent more time in Germany than in Czechia.
This would be a lot safer than moving to a country like Cyprus that will immediately be seen as huge red flag.
But you aren't a perpetual traveller. You will be spending several MONTHS in Germany! Stop dreaming!
You really don't seem to understand. No, you can't move to Cyprus for 2 years and then move back to Germany without telling anyone.
You really have to be GONE. You're trying to think of ways to secretly stay in Germany with some extended vacations and that's not going to work.
Of course, you may not get caught, but if your plan essentially is to just hope you will not get caught, then why even bother with solutions that won't offer protection anyway when push comes to shove...
You have to remember that there are many Germans that have a vacation home in Southern Europe. They all pay tax in Germany, and they don't pay tax where their vacation home is located. You really risk putting yourself in that category in the eyes of the German tax office.
TL;DR:
It all comes down how much the German tax office will investigate:
- It's possible they don't care at all and you wouldn't even have to be resident in any country - they just really don't care.
- It's possible they just want to see receipts proving you've been outside of Germany and then they back off.
- It's possible they want to see a rental contract, residency, tax residency certificate or other indicators of strong ties (though this is unlikely because this is not relevant under German law) - you show some papers from Cyprus - and they back off.
- It's possible they suspect that you're secretly still living in Germany, they know the Cypriot rules (that they can invalidate your 60-day tax residency), they just say you're still tax resident. You would have to get a lawyer to fight them and prove your tax residency is in Cyprus under the tax treaty. But you only spent 100 days in Cyprus, so you have no protection under the tax treaty. Your lawyer has to fight them according to German law only - with unclear outcome. They would have to prove that you are not "habitually" in Germany, even though you keep returning, you are a German citizen, maybe you even have clients in Germany? The state would argue you have much closer ties to Germany and you only go to Cyprus on vacation, to stay in your vacation home.
I don't know how much they will care about you, but Cyprus explicitly says "We will not protect you if another country comes for you and you spend less than 183 days in our country" - so maybe they're not the best choice for a case like yours?
At least Malta is a Schengen country - but it's an island, so easier to check when you went in an out.
But I believe they also officially require 183+ days in Malta for tax residency? You can be considered tax resident with fewer days (Malta won't complain about additional tax revenue), but when push comes to shove, like with Cyprus, you wouldn't be protected under the treaty?
But I believe they also officially require 183+ days in Malta for tax residency? You can be considered tax resident with fewer days (Malta won't complain about additional tax revenue), but when push comes to shove, like with Cyprus, you wouldn't be protected under the treaty?
For ordinary residency it’s 183 days.
For « the residence program », the 15k€ one, there is no stay requirement, just don’t spend more than 183 days in another country.
If you want a tax residency certificate, looks like you could do it after 3 years, and it seems you need to prove that you have ties with Malta, I’d guess, more than 183 days per year, memberships, investments, bank accounts, doctor, etc : https://hsm.org.mt/wp-content/uploads/2021/04/Tax-Residency-Form.pdf
There is also a boat to Sicily to get in/out.
But yeah, if he needs to benefit from treaty protection maybe it’s not the best solution in his case, I don’t know.
For « the residence program », the 15k€ one, there is no stay requirement, just don’t spend more than 183 days in another country.
If you want a tax residency certificate, looks like you could do it after 3 years, and it seems you need to prove that you have ties with Malta, I’d guess, more than 183 days per year, memberships, investments, bank accounts, doctor, etc : https://hsm.org.mt/wp-content/uploads/2021/04/Tax-Residency-Form.pdf
There is also a boat to Sicily to get in/out.
But yeah, if he needs to benefit from treaty protection maybe it’s not the best solution in his case, I don’t know.
No matter what you do. In the end, you only need to check the rules of the country that your are afraid of taxing you and act DTA. You will quickly see that all those nullshit tax residencies are a proper waste of time and money. They are only useful in a very, very limited number of cases.
If you don't like durian, don't eat it. If you don't like whores, don't go to the brothel. If you don't like taxes back home, leave.
If you don't like durian, don't eat it. If you don't like whores, don't go to the brothel. If you don't like taxes back home, leave.
Leave and don't go back. He wanted to travel most of the year. If this still holds, he won't need ask if this is he isn't in Germany apart from Christmas.
Otherwise, he can move to Switzerland and then go back once in a while to see his parents for a week. But less than he spends in Switzerland and he should not have an office or other permanent desk available to him there.
I won´t be only home for christmas, that´s why i would get an appartment and tax residency somewhere else to have as much safety as possible. This coupled with not having any real office / apartment in germany will give some layer of security.
Cyprus is a legit EU member with normal income tax rates, i dont get why it would be such a red flag compared to Czechia.
Exactly, this case is realistic. I will have the non-dom and tax certificate way earlier then problems could even arise with germany
If i go with cyprus, as far as i understood now the cheapest way to get the non-dom, without an overpriced cyprus limited, would be to register sole proprietorship in cyprus. Some service providers offer this for 1-2k and then you have way less accounting costs too.
This way you however cant profit from low corporate tax like in a limited. So is it still a valid way to put an offshore company inbetween to pay out the dividends from that to cyprus? And just use the sole-prop in cyprus as a way to get the nondom? Maybe make 20k profit as a sole prop to pay some social security tax and then its fully legit?
This all does not help in your case. If you perform work from Germany, you will be taxed there. What you would have to do is having the company run by somebody else. You would then only be getting dividends, for which the DTAs do work. But these are only as good as your ties to the "new" home are stronger. You would have to spend more time in the new home than in Germany. If your whole family (parents, siblings, girlfriend) are in Germany, it is getting harder.
So Seychelles company on IBO that pays me dividends would be protected by DTA?
Cyprus tax lawyers alsways tell me Seychelles banking will give you problems. Are they right or just saying that to sell their cyprus limited?
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