Question Indian Citizen | UAE Freezone Company | France Resident

[kushpvo]

I have (or i think I have) a sort of weird situation.
I am an Indian Citizen. I am opening a UAE Freezone company (single owner, single director, 100% ownership) and going to use it for my online business - so everything will be routed through the UAE Freezone company.
But, in sept 2021, I'll be moving to France, first as a student for my masters education and then after 1 year of masters, I'll most likely be working there. So considering the fact that I'll be spending close to 8-10 months in France, I would be considered French resident in terms of taxation.

My UAE company's profits won't be taxed in India because:
1. I'm non-resident as far as indian tax authorities are concerned.
2. Business operations do not take place in India
3. None of my business associates (buyers/sellers) are based in India.
So I'll be able to move funds from my UAE company to my personal bank accounts in India without attracting Corporate or individual taxes.

BUT, I will be a resident of France.
So how does that work? Would French authorities levy tax on my UAE Freezone Company's profits?
Maybe they can't tax the company, but once the company pays out the profits to me in the form of dividends/drawings, will French authority levy taxes on that?
(I read that France follows a territorial tax system so it shouldn't tax me in France, but I might be wrong)

It's difficult for me to wrap my head around this. Any help would be appreciated.



EDIT: https://tridenttrust.com/media/3395/tdub-shams-kf.pdf
As far as I know, SHAMS (one of the UAE Freezone where I'm going to incorporate a company) does not disclose ownership/manager/director details publicly. I don't know if it matters in this case or not.

 

[Sols]

Your UAE company becomes tax resident in France and France will find out about your company through CRS. The bank in UAE will send a report about your account to the central authority which will send it to the equivalent authority in France. At that point, France knows there is a French resident with a bank account and company in UAE.

If you don't tell the bank in UAE that you have moved to France, the report will likely go to India first. But a day may/will come when the bank realizes you no longer live in India and you have to tell them that you live in France.

Secrecy from governments/tax authorities is gone. Nowadays, structures need to be strong enough to stand on their own without relying on absence of disclosure of information.

The French territorial tax system isn't as generous as others. Unless you have a team of people in UAE doing the work, it's likely that all of the company's revenue and profits will be attributed to you and be in scope for full corporate income tax in France. Plus, of course, all applicable personal taxes.

 

[kushpvo]

Your UAE company becomes tax resident in France and France will find out about your company through CRS. The bank in UAE will send a report about your account to the central authority which will send it to the equivalent authority in France. At that point, France knows there is a French resident with a bank account and company in UAE.

If you don't tell the bank in UAE that you have moved to France, the report will likely go to India first. But a day may/will come when the bank realizes you no longer live in India and you have to tell them that you live in France.

Secrecy from governments/tax authorities is gone. Nowadays, structures need to be strong enough to stand on their own without relying on absence of disclosure of information.

The French territorial tax system isn't as generous as others. Unless you have a team of people in UAE doing the work, it's likely that all of the company's revenue and profits will be attributed to you and be in scope for full corporate income tax in France. Plus, of course, all applicable personal taxes.

Really appreciate you explaining the entire thing to me.

1. I'll tell my Indian banks about my UAE Residence Visa and UAE Company only. And my UAE Banks will only know about my Indian Bank account. In that case, it seems that it will take more time but as you said, some or the other day, French authorities will know that I have a company and bank in UAE. What's your take on this?

2. I thought that the company in UAE wouldn't be considered as a French Resident just because the owner/shareholder is a resident.

Considering what you said, it would be better to keep my company in India only and not touch UAE at all. If I do that, would my Indian company's income be taxed in France? (Obviously, it will be taxed in India but as far as I know, taxes are lower in India compared to France)



EDIT: 3. Would any of this change If i opt to incorporate a company in any other EU country with lower tax rates and still live in France?

 

[Sols]

1. I'll tell my Indian banks about my UAE Residence Visa and UAE Company only. And my UAE Banks will only know about my Indian Bank account. In that case, it seems that it will take more time but as you said, some or the other day, French authorities will know that I have a company and bank in UAE. What's your take on this?

Lying to your bank in UAE about where you live is probably low-risk for now, but who knows about one or a few years from now?

Compliance has been relaxed in UAE so far but they can't let things slide forever or they'll face being designated a tax haven and risk getting on blacklists.

Banks elsewhere are already using client behavior profiles to determine where they live. They look at IP address, device location, senders, recipients, and other data points to ensure you live where you claim to live. I saw an example recently where a bank even notified the local tax authority that they suspected someone of not actually being resident, so that the tax authority could ensure that CRS reports go to the right country.

2. I thought that the company in UAE wouldn't be considered as a French Resident just because the owner/shareholder is a resident.

It becomes tax resident by being managed/controlled from France. Unless you have employees/workers in UAE or somewhere else, this defaults back to you as the UBO/Ultimate Beneficial Owner.

Considering what you said, it would be better to keep my company in India only and not touch UAE at all. If I do that, would my Indian company's income be taxed in France? (Obviously, it will be taxed in India but as far as I know, taxes are lower in India compared to France)

Yes, it becomes tax resident in France just like the UAE company. You'll have to explore if there is a double taxation treaty you can use to avoid paying any extra tax in France.

EDIT: 3. Would any of this change If i opt to incorporate a company in any other EU country with lower tax rates and still live in France?

No. It's all about where the company's operations and control take place.

 

[kushpvo]

Lying to your bank in UAE about where you live is probably low-risk for now, but who knows about one or a few years from now?

Yeah, this can work for few years but someday or the other, they are bound to know.

Yes, it becomes tax resident in France just like the UAE company. You'll have to explore if there is a double taxation treaty you can use to avoid paying any extra tax in France.

There is a DTA between India-France. I will have to dig deeper and understand it.

Considering my situation, do you think there is a way to circumvent this and pay the least tax possible? Obviously, there will be some very complex structure that might help me but I'm sure that those will not be financially viable to my situation (I don't run a multi-million dollar business lol)

 

[CaptK]

It depends on how long you intend to stay in France. You should be fine for 2 years but after that without a structure you could get caught.

 

[Sols]

Considering my situation, do you think there is a way to circumvent this and pay the least tax possible? Obviously, there will be some very complex structure that might help me but I'm sure that those will not be financially viable to my situation (I don't run a multi-million dollar business lol)

Not legally and not without spending a lot of money on a convoluted structure. Maybe form a French company and work with an accountant to maximize deductions.

There is the halfway option commonly found in Isle of Man, Cyprus, and few other jurisdictions, where you appoint local directors to establish tax residence there. Can be done for under 10,000 EUR/GBP per year in most cases. But those structures aren't air tight, even if most of them seem to work fine (most are quite small, max a few hundred thousand EUR/year profit). You achieve zero corporate tax and just pay tax on your personal income/dividends. If the French tax authorities decide to go after you, though, the whole structure can still fall apart.

 

[kushpvo]

It depends on how long you intend to stay in France. You should be fine for 2 years but after that without a structure you could get caught.

Its a 1 year masters program, and after that, I might land a job in France or in UK, Luxembourg, Ireland, etc.
So do you think I can do with the UAE setup for about 2 years and then I can re-asses my current situation and look for a better structure?

There is the halfway option commonly found in Isle of Man, Cyprus, and few other jurisdictions, where you appoint local directors to establish tax residence there. Can be done for under 10,000 EUR/GBP per year in most cases. But those structures aren't air tight, even if most of them seem to work fine (most are quite small, max a few hundred thousand EUR/year profit). You achieve zero corporate tax and just pay tax on your personal income/dividends. If the French tax authorities decide to go after you, though, the whole structure can still fall apart.

Hmm, that seems risky as well. I could rather establish a company in India and appoint family members as local directors and do with that, but again, Indian tax rates are high as well.

 

[kushpvo]

A practical question, I'm sure there isn't a right or wrong answer to this: but there would be some practical threshold of annual profits that I need to cross to be able to come under the French authority's radar, right?
I might think that my profits are huge but I'm sure a tiny tiny fish out there. So what would be a practical approximate annual profit threshold which I should be worried about?

 

[Sols]

A practical question, I'm sure there isn't a right or wrong answer to this: but there would be some practical threshold of annual profits that I need to cross to be able to come under the French authority's radar, right?
I might think that my profits are huge but I'm sure a tiny tiny fish out there. So what would be a practical approximate annual profit threshold which I should be worried about?

From what I've seen, there is no rhyme or reason to the amounts in general (I can't comment on just France; speaking generally in Europe). They go for whatever is easiest to follow up on/prosecute, most egregious, or largest.

These checks are increasingly automated anyway. Software vendors are pitching tax authorities to buy their software to automate receipt of information and reconciliation of data from different sources.

That said, I occasionally come across Isle of Man-style structures under a few hundred thousand EUR/year not being questioned, as long as all personal income/capital gains taxes are paid. But past success in no guarantee for future success.

 

[gowiththeflow48]

From what I've seen, there is no rhyme or reason to the amounts in general (I can't comment on just France; speaking generally in Europe). They go for whatever is easiest to follow up on/prosecute, most egregious, or largest.

These checks are increasingly automated anyway. Software vendors are pitching tax authorities to buy their software to automate receipt of information and reconciliation of data from different sources.

That said, I occasionally come across Isle of Man-style structures under a few hundred thousand EUR/year not being questioned, as long as all personal income/capital gains taxes are paid. But past success in no guarantee for future success.

And how would you receive an income/dividends?
Just by paying them from your offshore company?