Incorporating in a US DTA Country [Cyprus], but not actually residing there

Hi guys,

I incorporated my Youtube company in Cyprus a couple months ago with the intention of residing there and claiming the benefits under the DTA with the US. Due to recent events in Europe, and the fact that Cyprus always follows along, I don't think it would be tenable for me to stay in the country for even 2 months to claim tax residency at the moment.

My new plan is to get residency in Dubai and live there for 6 months a year. I have visited Dubai and am a lot more confident they will not follow whatever the fk is going on in the western world (just my opinion). Regardless, with this new move, I would be technically ineligible to claim benefits of the tax treaty due to failing the company base and erosion test.

However, I would still be able to rent out a 'permanent address' in Cyprus that I could put on the W-8BEN-E form. Since those forms don't actually even go to the IRS and only go to the US payment distributor in case of an audit, how likely is it that I, someone making under 1 million USD a year at the moment, would be caught out?

I realise that this is a really gray area, but would love to hear some advice/opinions.

 

[CyprusLawyer101]

Why claiminf the US Cyprus DTT?
Will you be recieving income of any type from the US? If yes, what income would that be? Youtube payments? And if yes, is this considered a US source income?

 

[flyinglow]

A lot of the income are from US viewers and since 6 months ago, Youtube has required creators to fill in a W-8BEN-E Form otherwise have 30% of the revenue generated from US viewers withheld. This would equate to 30% of most of our revenue.

 

[CyprusLawyer101]

A lot of the income are from US viewers and since 6 months ago, Youtube has required creators to fill in a W-8BEN-E Form otherwise have 30% of the revenue generated from US viewers withheld. This would equate to 30% of most of our revenue.

Ok I understand. Provided that you are not a US citizen and/or resident, normally the Cyprus company can claim a relief from that withholding tax, based on the Cyprus DTT with the US. A specific certificate of tax residency should be issued from the Cyprus tax authorities to support your claim. In the meantime undertaking necessary actions to support substance requirements in Cyprus would be prudent in case of an unlikely challenge of the company's tax residence. The fact that you will be based in Dubai, minimizes general tax risks further. If you keep acting prudently with your decisions, I dont see you generally carrying any worthwhile risks.

 

[flyinglow]

Thanks for your response.

I was under the impression the Cyprus company can't claim benefits due to me (the sole shareholder) residing in a different country. Is this true?

 

[Mr Gus]

I don't know the likely hood of you getting "caught" however why not spend 2 damn months on the damn island at least this way Cyprus will see you as a tax resident. I am not sure what the treaty says but at least Cyprus will see you as tax resident..

It isn't clear to me if you will also pay taxes on the profits in Cyprus? If not.. That could create another problem, because if you choose to let the profits be taxed in the UAE while claiming tax residency in Cyprus, the Cyprus tax authorities might come after you as well.

And if it is true those W8 BEN forms don't get shared with the IRS directly, yeah the chances are probably really small...

 

[flyinglow]

I don't know the likely hood of you getting "caught" however why not spend 2 damn months on the damn island at least this way Cyprus will see you as a tax resident. I am not sure what the treaty says but at least Cyprus will see you as tax resident..

It isn't clear to me if you will also pay taxes on the profits in Cyprus? If not.. That could create another problem, because if you choose to let the profits be taxed in the UAE while claiming tax residency in Cyprus, the Cyprus tax authorities might come after you as well.

And if it is true those W8 BEN forms don't get shared with the IRS directly, yeah the chances are probably really small...

The profits would be taxed in Cyprus, so that wouldn't be an issue. The only big problem is if I'm not a tax resident of Cyprus, my company would fail the base and erosion test and therefore be unable to claim tax treaty benefits.

I don't want to reside in a country where it looks like I won't be able to do much unless I am vaxxed + the 300k Euro spending requirement to get access to the permanent residency that gives me the 2 month rule (otherwise I would have to spend 6 months there).

 

[Mr Gus]

The profits would be taxed in Cyprus, so that wouldn't be an issue. The only big problem is if I'm not a tax resident of Cyprus, my company would fail the base and erosion test and therefore be unable to claim tax treaty benefits.

I don't want to reside in a country where it looks like I won't be able to do much unless I am vaxxed + the 300k Euro spending requirement to get access to the permanent residency that gives me the 2 month rule (otherwise I would have to spend 6 months there).

If you don't plan to claim residency then why not skip the whole country together?

Also you can't stay 183 days in Dubai if you want to make use of the 60 day rule, and I wasn't aware of the 300K euro spending requirement, never heard about that.

If you are planning to live in the UAE why not make use of a UK LLP instead of a paying 12.5% in corporate tax in Cyprus, you run the same risk with a UK LLP as with a Cyprus company.

And yes Cyprus will probably follow with all the non vax restrictions, but probably the rest of the world will as well overtime. The UAE might not do it but if the rest of the world will, you will be basically locked up in the UAE. I don't know how it is in Australia but I assume not much different then in the EU so that could mean you would not be able to see your family and friends ever again unless they come to the UAE or you become vaxxed as well.

 

[CyprusLawyer101]

Thanks for your response.

I was under the impression the Cyprus company can't claim benefits due to me (the sole shareholder) residing in a different country. Is this true?

You will have to do a sepcific assessment of the CY-US treaty. Please do not rely on generic infotmation about LOB provisions and base Erosion tests. Each Treaty is different and should be lloked at individually. I can foresee a way to structure around this, but I would have to go into study mode to confirm this. If there is real interest please PM me to discuss.

 

[flyinglow]

You will have to do a sepcific assessment of the CY-US treaty. Please do not rely on generic infotmation about LOB provisions and base Erosion tests. Each Treaty is different and should be lloked at individually. I can foresee a way to structure around this, but I would have to go into study mode to confirm this. If there is real interest please PM me to discuss.

I can't seem to DM you, but unfortunately for the Cyprus structure, it looks like the LOB provisions are pretty clear and would exclude from benefits if I were a tax resident of Dubai.

 

[CyprusLawyer101]

I can't seem to DM you, but unfortunately for the Cyprus structure, it looks like the LOB provisions are pretty clear and would exclude from benefits if I were a tax resident of Dubai.

This is indeed true from the info you are providing. Maybe consider obtaining residency here as a fellow above is suggesting .

I think Hungary's double tax treaty with the US, does not contain an LOB provision. Check it out