Offshore or low-tax solution for software developer

[Sols]

The whole value of non dom status is to benefit of tax free dividends and capital gains. If it is impossible to receive the dividends of the offshore company tax free and without further questions the non dom status is a joke. In relation to previous obtained personal assets the tax office will receive the info via AEOI, will they began to ask any additional questions regarding these assets?

Dividends and capital gains taxes are only part of the equation. You still need to solve for corporate income tax somehow.

Your company might qualify as tax resident in Cyprus (especially if it's some useless IBC-style entity), and as such you'd be legally required to pay the 12.50% corporate income tax rate or work something out under a DTA. Enforcement is very, very relaxed on this. They don't spend a lot of time chasing non-domiciled residents running offshore companies. But in return, you shouldn't be a burden on society, which is why it's recommended you have a private health insurance. Quid pro quo.

However, most people I encounter tend to start companies in Cyprus instead because it's easier when it comes time to pay tax and grow a large business. You can remove yourself from public record through nominees/trustees.

If your personal assets are in your name (in a personal bank account), I can't think of any situation where Cyprus would ask you any questions. But if you do bring in funds which are untaxed or otherwise illegally obtained, this can be a problem if for some reason you are audited. Which, AFAIK, is practically unheard of.

Keep a low profile, follow the law, and be a good little expat and they will leave you alone.

 

[GrumpyMess]

Dividends and capital gains taxes are only part of the equation. You still need to solve for corporate income tax somehow.

I am not talking about running an offshore company being Cyprus non dom, I understand that this is a grey zone. I am talking about extracting past company profits as tax free dividends. A tax advisor told me that it's not a problem, but you know...

if for some reason you are audited

Under such a high EU and USA pressure they can begin to audit everyone, especially when they see some high expenses.

 

[thomio]

Generally speaking, they don't and won't know unless you are audited. However, I don't understand your concern. You don't plan to be tax resident anywhere else, right? That's all that matters.

No, I don't want to be tax resident elsewhere. But I am and I will always be tax resident in my home country too. Unfortunately I can not change this because my home country considers me to be local tax resident here only because I have permanent residency here and I am not able to simply delete my permanent residency here without having permanent residency elsewhere. The laws in my home country say that I am local tax resident here because I have my permanent residency here. On the other hand, the double taxation agreements between my country and Cyprus say that if Cyprus considers me to be tax resident in Cyprus in the same time, then it depends where I have closer and more tide interests of life. So I am considering to cancel everything here in my country like local bank accounts, mobile phone and SIM cards and sell my car and apartment, so the local authorities in my home country can not have any reason to blaim me that I still have tide relationships and interest in my home country.

I will delete the part of my life in my home country for good. I still can not delete my permanent residency here. But what I can do is to announce to local authorities that I am leaving my country forever and I will be living in another country X in EU. And I will obtain 5 months rental agreement from a friend from country X and another 5 months rental agreement from a friend from country Y (I will have to do this each year). In the same time, I will spend 2 months in Cyprus (airbnb or booking).

So what does it mean. I can proof to Cypriot authorities that I was hanging out in Cyprus for 2 months. Based on my 5 months rental in X and 5 months rental in Y I can also proof to the Cypriot authorities that I am not tax resident elsewhere. So Cypriot authorities are satisfied.

On the other hand I can proof to my home country authorities that I am tax resident in Cyprus and I can also proof them that I was not hanging out in my home country at all, I have officially no place where to "stay over the night" in my home country and I was staying the whole year out of my home country all the time and I do not have any business, properties, cars, bank accounts or another subscribed or contractual services from any companies in my home country. This argument and proofs I can use in case if my home country will ever try to blaim on me that I had closer relationships to my home country and not to Cyprus. I can proof that I am tax resident also in Cyprus (based on their laws) and also in my home country (based on our laws based from the permanent residency) but even though my relationships with Cyprus are poor and shallow only (just having a company there and hanging out for 2 months per year) it's still bigger and stronger relationships comparing to those which I have with my home country (nothing, no home, no properties or rentals, no car, no bank accounts, not hanging out here at all).

What do you think about the above described model?

 

[thomio]

Please, correct me if I am wrong.

Let's say that I don't want to withdraw profits from my company each year. That's really not necessary for me. Let's say I want my company to pay me dividends only once per two or three years. Do I still have to keep running this 60-days-in-Cyprus schema all the time? Even in the years when my Cypriot company will not give me any dividends? I am just trying to understand if it is necessary for every year, or if it is enough to do such thing only in those years when I am planning to receive dividends (and of course in such year I prefer Cypriot tax residency because of 0% tax on dividends).

Thank you

 

[thomio]

Again: Spend at least 60 days in Cyprus and don't be tax resident anywhere else. If you can't even follow this simple and friendly scheme, you're honestly just wasting time.

I think you are right. No that's not a problem, I just don't like the feeling of being obligated of something. But you are right, it will be easier to follow these 60-days rules properly and actually really stay there. Anyway, it's nice country and the summer is funny there, so why not. I was just wondering how the system and controls really works in details. Curious about system errors

 

[GrumpyMess]

So what does it mean. I can proof to Cypriot authorities that I was hanging out in Cyprus for 2 months.

No, you can live only 2 months but you have to maintain a permanent place there, typically it's a 12 month rent agreement.

Let's say I want my company to pay me dividends only once per two or three years. Do I still have to keep running this 60-days-in-Cyprus schema all the time?

You have to keep running this 60-days-in-Cyprus schema all the time to maintain your non dom residency, but you are allowed not to distribute the dividends

 

[thomio]

When you apply for the MEU1, they only care that you can prove that you have a place to stay (normally a rental agreement) and either a source of income (employment or self-employment) or financial self-sufficiency (bank statements). On the form, you fill in the date when you entered Cyprus.

I am bit confused. Which one of these two flags I should get first? The personal tax residency, or incorporation of the local Ltd company? Because if I will arrive to Cyprus next week, I can show them rental agreement from any period I wish to (I have one friend there I could make a deal with and ask for this favour). So here is the question:

Imagine that I will arrive next week. Should I go to the immigration office right the next morning, or should I wait for two months? Yes I know, their systems on airport know when I really arrived. So should I start telling them and fill me MEU1 form with statement that I am already there for two months and proof it by the rental agreement (signed two months ago) ? They can (in case of audit) see that I was lying based on their scanners on airport. I will not get any stamp into my passport if I will cross the borders just with the national ID card and not with the passport (sometimes I do this within EU flighs, so I am sure it is possible). So ok, I can avoid the stamp simply by traveling on national id card and not passport, but they still have the digital scanners there. I am 100% they will have digital records when exactly I have entered the island. So is it clever idea to register myself right the next day and provide them rental agreement which "was" signed 2 months ago by my local Cypriot friend who is renting me a room? What do you suggest? Should I really wait for 2 months?

And also: You said I need to provide explanation of my income. But how, that's the whole point. I am doing this for purpose to incorporate local company. So what kind of income should I show them? Should I show them my another EU company and declare that to be my main income?

 

[thomio]

You have to keep running this 60-days-in-Cyprus schema all the time to maintain your non dom residency

What do I have to keep to maintain my non-dom residency in Cyprus in year 2021 if I don't want to receive any personal profits (worldwide) in year 2021 and keep it all in my companies? Is there some reason why do I have to keep to maintain my non-dom residency there? What is the reason please? I am bit confused here, thank you for explanation

 

[thomio]

Next, when you go get your tax ID, they just ask you when you started working in Cyprus (if it's for yourself) or when your business started trading (if it's for a company).

So I need to incorporate the Ltd at first, and then to do my non-dom status, right? This is the correct ordering?

 

[GrumpyMess]

Which one of these two flags I should get first?

Rental agreement - MEU1 - incorporate the Ltd - non dom status

What do I have to keep to maintain my non-dom residency in Cyprus in year 2021 if I don't want to receive any personal profits (worldwide) in year 2021 and keep it all in my companies? Is there some reason why do I have to keep to maintain my non-dom residency there?

Just have the rental agreement and company all the time, live 60 days and that's all. You have to maintain a residency not to be suspicious for your home country and Cyprus.

 

[thomio]

Long term rental:

Should I use a virtual office services for this purpose and have this virtual address as my Cypriot address? These services are very useful, they can forward my mails if I will receive anything from the government and it's not expensive. If I will use the address of virtual office as my permanent Cypriot address do you think it is alright? Technically this also gives me the rental agreement as a proof of my permanent address there, I can rent one virtual office as a natural person and another one for the Ltd company, and I can't imagine a tax officer to go to investigate on my address if I have there a bed and shower or if I sleep on the floor in office. Or am I wrong?

Other choice is to make a deal with somebody on the island to rent me a room for some smaller fee and explain that I am not going to use that room, I only want to have it to be "theoretically" accessible for me during the whole year, but I will never really be there and just pay basically for the rental agreement and mail forwarding. And simply during my 2 months stay on the island I will rent some nice beach villa and enjoy my two months there but it's not necessary to pay expensive beach villa for 12 months if I am planning to stay only 2 months. For the 12 months rental agreement I am considering options of virtual office or renting a cheap room somewhere in a village not on the beach and make a deal with property owner.

Do you have similar experience or different advice?

 

[Sols]

What do you think about the above described model?

Got it. Clearer now. It sounds like you might be resident/citizen in a country such as Finland, Germany, or Spain, which have a very aggressive approach to taxing its own citizens (and tax residents). However, my experience with people from these types of jurisdictions is that as long as actually do sever your ties with your home country, they don't bother you. Where people make mistakes is when they keep an apartment, a local business, or spouse and/or children in their home country. That's where things can get murky.

I can't really answer whether your home country will accept your tax residence in Cyprus after just 60 days. However, if you establish yourself there and spend first 60 days and then another 123 days during the year there, you will have satisfied most reasonable requirements.

If you want to be resident in Cyprus and fulfill the requirements of the 60-day scheme (MEU1/yellow slip, tax ID, and private health insurance), you don't have to prove anything to the authorities in Cyprus. To them, you are tax resident in Cyprus. I have never heard of Cypriot tax authority ask for proof that you are not tax resident in your home country. They just don't care.

It's if your home country comes asking questions, that you need to have your things in order. Make sure that your place in Cyprus also has at least one utility in your name, such as electricity or water, to show that you not only rent the place, you also live there. I've heard of (but, to be clear, never actually seen first hand) cases where a hostile tax authority looks at power consumption to prove that a person didn't actually live there.

 

[Sols]

Let's say that I don't want to withdraw profits from my company each year. That's really not necessary for me. Let's say I want my company to pay me dividends only once per two or three years. Do I still have to keep running this 60-days-in-Cyprus schema all the time? Even in the years when my Cypriot company will not give me any dividends? I am just trying to understand if it is necessary for every year, or if it is enough to do such thing only in those years when I am planning to receive dividends (and of course in such year I prefer Cypriot tax residency because of 0% tax on dividends).

It would be in your best interest long term to spend at least 60 days a year in Cyprus to show that you actually have ties there. You can technically lose your residence status and regain it (including non-domiciliation), but I would be worried you would have to go through the hassle of getting a new MEU1 and renew your TIN. Never really heard of anyone in that situation. People tend to really like Cyprus and stick around once they find out which part of the island is right for them.

So I need to incorporate the Ltd at first, and then to do my non-dom status, right? This is the correct ordering?

Things are very, very loose in Cyprus. As long as it's all done or at least everything submitted within 60 days, you'll be fine. Let your lawyer guide you.

Long term rental:

Do you have similar experience or different advice?

Most people in your situation either buy an apartment and house and rent it out, or rent a very cheap apartment in the outskirts of Larnaca or Paphos, which is usually cheaper than the main business hubs Limassol and Nicosia.

I don't think it would be wise to try to register as resident with a virtual office address. Most virtual office leases specifically state you can't live there. If your rent is over a certain amount (I think 500 EUR per month), you must have it stamped by the tax authority before you apply for your MEU1. They will then make a note of it and make sure the lessor is adding rental income on their tax return. It might work but it sounds like an unnecessary risk.

 

[thomio]

Most people in your situation either buy an apartment and house and rent it out, or rent a very cheap apartment in the outskirts of Larnaca or Paphos, which is usually cheaper than the main business hubs Limassol and Nicosia.

I don't think it would be wise to try to register as resident with a virtual office address. Most virtual office leases specifically state you can't live there. If your rent is over a certain amount (I think 500 EUR per month), you must have it stamped by the tax authority before you apply for your MEU1. They will then make a note of it and make sure the lessor is adding rental income on their tax return. It might work but it sounds like an unnecessary risk.

Thanks a lot for your advices and tips!! If you want, just feel free to PM me and we can meet in Cyprus have a beer together or I can tell you bit more about my business and what I actually do, it can be interesting for you too.

Anyway, I was also thinking about to buy an apartment there, but then I decided not to do things so quickly. Let's say I will try this Cypriot non-dom model for year or two, and if everything is ok and I will find myself to hang out in Cyprus for more than the necessary 60 days and I will like the local life there, then why not. But at the begin I would like to "test" it little bit at first.

So basically my most preferred model now is this: I will rent very cheap room in an apartment (not the whole apartment but just a room there) somewhere bit more far away from the beaches and city center and night life. I will travel there and find some cheap small room in an apartment somewhere in a village in the middle of the island where is nothing interesting, so I suppose such room will be really cheap. And I will not be really living or staying there at all, it will be just my officially registered place and I will be receiving the official mails there. That will be my official place where I can officially keep my personal things and where I can stay over the nigh anytime when I wish to during the whole year.

And during those 60 days when I will be really physically present on the island I will also rent some nice comfortable airbnb on the beach and stay there. I guess that nobody can force me to stay my 60 days in my official long-term rented room in the center of the island, and it's only my personal thing that I want to enjoy my 60 days in short-term rented apartment on the beach and not in my official boring small room. Of course that I will keep renting that room non-stop, I will just not be using it at all.

Do you think this is ok? This also means, that I will have no utility bills from that room at all (because I will not be renting the whole apartment, just a room). There will be regular payments from my bank account to the apartment owner bank account with a message that it's a rental for the room based on our room rental agreement. And if someone will ask me where I was staying my 60 days then I can always proof it by the airbnb rented beach house where I will really physically be so there will be used electricity and so on showing that I was really staying there. It doesn't matter that I am maintaining one room for 12 months and also one beach house in the same time for 2 months, right? I just think that it doesn't make sense to pay for a beach house for 12 months if I am planning to stay only 2 months. But I have to pay for "something" for 12 months, so I would prefer to pay for small cheap room in boring cheap area.

 

[GrumpyMess]

Make sure that your place in Cyprus also has at least one utility in your name, such as electricity or water, to show that you not only rent the place, you also live there

How one can have an utility bill in his name if he is just renting a room?

and I can't imagine a tax officer to go to investigate on my address if I have there a bed and shower or if I sleep on the floor in office. Or am I wrong?

that's why I have asked how strict is Cyprus tax office, because tax officer can ask how are you living in a small room in the middle of the island while having a 300k-500k EUR income, but I don't think it's what they are interested in.

Have you thinked about another option if you would be unable to get 2.5% tax rate? I am also thinking about Cyprus, but I really doubt I can get reduced 2.5% rate. There is also Malta and Georgia which both have an attractive 5% rate, but especially for the Georgia there is too little information and reviews.

 

[Sols]

find some cheap small room in an apartment somewhere in a village in the middle of the island where is nothing interesting

You might want to double check the map. The middle of Cyprus is a large (and beautiful) mountainous pine forest. You won't be finding many apartments there.

Do you think this is ok?

I can't recall dealing with anyone who has it this way, so I can't say for sure. In principle, I don't see a problem.

Everyone I know who's been through this rent apartments in their own name with their own utilities. Even if they then spend the other months of the year travelling, they still have an apartment in their name. Sometimes, they sublet it.

How one can have an utility bill in his name if he is just renting a room?

You can get a mobile plan or mobile/wireless internet in your name. Not everyone accepts these are proof of address since they aren't as physically tied to a location, though. Electricity and water are best.

that's why I have asked how strict is Cyprus tax office, because tax officer can ask how are you living in a small room in the middle of the island while having a 300k-500k EUR income, but I don't think it's what they are interested in.

They don't care. Why would they care? You're not required to spend all your money, and it's not illegal to have a high income and live in a small apartment. The implication would be what -- that they don't want you as tax resident and would say no to your taxes?

As I said before, it's not the Cypriot tax authority you have to worry about. Make sure you sever ties with your home country correctly.

 

[GrumpyMess]

As I said before, it's not the Cypriot tax authority you have to worry about. Make sure you sever ties with your home country correctly.

In the modern world you have to worry about everything, especially when there are grey zones such as CFC, when the DTT tax residence certificate is hard to get and when there is such a big EU and international pressure on people wanting lower their tax base

 

[thomio]

Hi fellows

so I am already in touch with the local lawyers there, one international lawyers group with activities on Cyprus as well. Who has real experience with this, I would be thankful for following advices:

1) The lawyers will give me an offer for how much they will incorporate my local Cypriot ltd. What is the normal average price? So I could know they are not trying to "milk" me.

2) For the purpose of become non-dom I have to move there now, I will do so in following days or weeks. I have to take some long-term apartment. Is there some local Cypriot websites where people offer their properties? When I am googeling it I always see only these "luxury properties in Cyprus" holidays rentals etc, tourist traps. Is there some websites for locals where they have these offers?

3) Which area do you actually recommend? I am 29 years old and I have no kids, sometimes I have a girlfriend, dating, you know. It would be nice to stay somewhere where is nice beach so I can enjoy summers, also some local life so I can create local friends and hang out with them, meet at the evening and go to have a beer together, classic life. Since what I found online, it seems that Ayia Napa is crazy touristic place with wild nightlife during summer, something like a little Ibiza. That's not exactly what I am looking for, I feel bit old for such things already I am more interested about some town (not a city) next to a city and close to beach. So if you need you can visit city and clubs and cinema and shopping malls you can be there within 10 mins, but you don't live in middle of that.

4) I have just found out today, that Cyprus is not member of Schengen zone, which really surprised me a lot, I had no idea. I have EU passport and citizenship as I said before, am I actually allowed to stay in Cyprus for as much long time as I want to? Can I buy car there? In fact it seems to be nice place, maybe I will hang out there even more than just the necessary 60 days.

5) Currently I have Russian girlfriend, don't you know anything about possibilities how my russian gf can stay with me in Cyprus as well? Her Schengen visa is going to expire in 3 weeks and we are looking for opportunities how to stay together. I think it's a good thing that Cyprus is not in Schengen, because I don't need to deal with Schengen visa for her now since I am basically leaving Shengen too. Do you have some info about Russians and long-term permit to stay in Cyprus? She doesn't need to have work permit there, she has her online remote job for Russian company so work permit is not needed at all.

Thanks for your advices, this forum is amazing

 

[John Morris]

A bit offtopic, but how the hell do you find a russian GF, let alone one who has a remote job!?

In regards to 3), check out Larnaca - I think you can stay as long as you want but you'll have to apply for MEU1.

 

[Sols]

1) The lawyers will give me an offer for how much they will incorporate my local Cypriot ltd. What is the normal average price? So I could know they are not trying to "milk" me.

2–4,000 EUR for incorporation, drafting of T&Cs for selling your product/services, first year registered office fees, and VAT registration.

Running costs of a few hundred EUR per quarter and starting around 2-3,000 EUR per year for audit. Accounting/audit costs if you have a lot of transactions. Keep your invoices in order and you can keep accounting costs down.

Is there some websites for locals where they have these offers?

https://www.bazaraki.com/

3) Which area do you actually recommend?

Nicosia: pretty boring and mostly locals. Surprisingly few expats for being the nation's capital. Divided city and easy access to TRNC which can be fun for day-trips.

Larnaca: more touristy than Nicosia and a decent business hub with some younger expats.

Ayia Napa: dead for 8 months of the year. Non-stop party for 4 months. Outside of the party area, you can find many older expats and quiet areas.

Limassol: the richest and most vibrant city. Full of expats (Russian/CIS, Middle Eastern, European, you name it) working in forex, fintech, and related areas. This is the place to be to make friends and make business connections. Rents are at the highest here, though. But if you get a car (long-term rentals are common), you can live quite affordably in one of the suburbs or nearby villages.

Paphos: a bit like Ayia Napa but a little bit more lively all year around. Full of expats, many slightly older (pensioners) and British.

Additionally, hundreds of smaller towns and villages between the cities. Not to mention the Troodos mountains and Paphos forest. If you want to really isolate yourself, that's the place to be.

4) I have just found out today, that Cyprus is not member of Schengen zone, which really surprised me a lot, I had no idea. I have EU passport and citizenship as I said before, am I actually allowed to stay in Cyprus for as much long time as I want to? Can I buy car there? In fact it seems to be nice place, maybe I will hang out there even more than just the necessary 60 days.

Yes to all. As an EU national, the only difference is that you need to show your passport when you come and go, whereas for Schengen you can just use your ID card sometimes.

Do you have some info about Russians and long-term permit to stay in Cyprus? She doesn't need to have work permit there, she has her online remote job for Russian company so work permit is not needed at all.

Unless you're married, I don't think she can apply under MEU2 as a family member of an EU national.

Ask an immigration lawyer for guidance. There are a lot of different visas she could apply for if she is financially self-sufficient. If she can transition her remote work into a consulting business she runs through a Cypriot company, I think she might be able to use the same 60-day scheme as you as a way to obtain a visa.