Hi
@mickey
I will only discuss tax matters below and avoid discussing licencing issues and operating an unregulated HF as this needs deep consultation.
Please see below:
A US LLC is considered a tax transparent vehicle and permanent establishment abroad. This means that the
income tax law consoders the US LLC as an extension of the
Cyprus company if assuming the Cyprus company will be a single member to the LLC. If your friend does nkt want to form a CY company and reside in Cyprus this may not be possible (we need to review his status first whether he is an EU-nonEU national and check permit eligibilities)
Although, there is a specific caluse under income tax law in Cyprus that profits from permannet establishment abroad are exempt. This would not be the case here due to hubrid mismatches rules
The structure needs to be reviewed from both US and Cyprus side.
In order for the LLC to be considered a disregarded entity must not be ETBUS (engaged in a trade or business in the United States)
Please see a simple strategy:
1) Setup the Cyprus Ltd and arrange for it to become the single member of the US LLC
2) Manage the operations from the Cyprus Ltd’s office, creating a place of effective management of the LLC in Cyprus.
3) Create an economic substance in Cyprus for the Cyprus Ltd, by having real office space and employees.
4) The US LLC is using U.S. brokers to produce revenue,
but does not have employees, office, or presence in the U.S. In that case, your company is deemed to be “engaged in a
trade or business in the United States (ETBUS)” and have generated “Effectively Connected Income (ECI)”.
5) However, as there is a double tax treaty between Cyprus and the US, the PE rules take precedence, and the US LLC is considered a disregarded entity, hence tax exempt in the US. Please refer to Article 9 (1-3).
6) Distribution from US LLC will be deemed as income from permanent establishment abroad and such income is exempt in Cyprus (subject to some anti-avoidance rules) as such losses will be tax exempt as well. There is an irrevocable election to be subject to tax but careful cosnideration must be taken beforehand. You need to consider this carefulluly with the US laws as if it is treated as disregarded entity the PE rules may change. However, the PE rules in Cyprus state that whereas a diregarded PE due to Hybrid mismatch, then the Cyprus Co would need to declare it as taxable income in its return
7) A foreign company with a PE in Cyprus (the LLC) would be liable to pay the standard CIT of 12.5% as a separate entity even though it's a subsidiary of a Cyprus LTD parent due to hybrid mismatches rule. This requires proper books and records to be
kept (under International
financial Reporting Standards) of the US LLC.
8) Nothing would be taxable on the LLC side, all profit would be taxable on the LTD side, benefiting from the 12.5%corporation tax or even lower if the nature of income concerns tax exempt activity (stock trading etc)
9)
No withholding taxes exist on dividend distribution on Cyprus level. The client will pay NHS at 2.65% with a cap on income at 180k euro.
I would be happy to PM for more info