Recommendation Malta or Cyprus?

[Marzio]

hosting via a Malta company and doubly so in Cyprus, unless there is a very specific business case with an incredibly high return on investment , is simply, stupid.

If running a company from Malta or Cyprus is stupid, where would you run it from?

 

[onlma]

If running a company from Malta or Cyprus is stupid, where would you run it from?

Seriously, guys, you need to read, I already pointed you there!

 

[Marzio]

you need to read, I already pointed you there!

I've read you said Czech and Hungary. I only wanted you to explain why those are interesting jurisdictions in your opinion.

 

[onlma]

I've read you said Czech and Hungary. I only wanted you to explain why those are interesting jurisdictions in your opinion.

Because I know someone running a successful hosting company from there.

 

[ghouldog]

@jackfrost please share your views on following.


Gibraltar holding company - 100% Shares owned by me and I am the sole director
Malta Trading company - 100% Shares owned by Gibraltar holding company and I am the sole director of Malta trading company.
Myself - Personaly tax resident in Malta and holding non-dom status

Consider that Malta trading company made a profit, paid corporate tax at 35% and a divided is paid out to Gibraltar holding company. Even the IRS refunded the 6/7 tax to the Gibraltar holding company
as it is the sole owner of Malta trading company.

Now the real issue.

1) Where is the tax residency of Gibraltar holding company? [According to Malta rules, a foreign incorporated company managed from Malta is treated as tax resident in Malta. ]
2) CFC rules also kick in [ an entity in which a Maltese resident taxpayer alone or together with its associated enterprises holds a direct or indirect participation of more than 50% of the voting rights, or owns directly or indirectly, more than 50% of the capital or is entitled to receive more than 50% of the profits of that entity, and
the actual corporate tax paid by the entity is lower than the difference between the tax that would have been charged on the entity under the ITA and the actual foreign corporate tax paid.]


What I understand is that non-dom's don't have to pay taxes on foreign income if it remains outside of Malta ( Income >35K EUR / 5000EUR minimum tax).
But in our case the income received by Gibraltar holding company is of passive in nature and is sourced from Malta.Also,Gibraltar holding company is tax resident in Malta due to "place of management rules"; Which means the whole profit of Gibraltar holding company is taxable in Malta as personal income.

@Nomad did you get an answer to this? I have a similar situation and not sure if this is the way to go. I am concerned the holding company could be treated as Maltese due to CFC rules.
Any thoughts @jackfrost?

 

[1nomad]

No, I didn't, but as far I know if you are non-dom, your foreign company is considered as non-dom too

 

[jackfrost]

sorry so yes i got two of the large law firms to answer this, its quite lengthy i told them to put it in writing for me. i will post here once i have that in my hand. recollection from calls was basically it boiled down to multiple things. in terms of the corp refunds cfc does not play a role at all in this case because cfc will work other way round for the dividends to the shareholder that is maltese resident it boils down to how the full imputation system works in which CFC has no bearing at all. basically when you pay your 35% corp tax on the maltese active ltd and distribute dividends you also get 35% in tax credits. even if someone would say ok you are liable for income tax on anything - the highest income tax rate is 35% and it cancels with the tax credits to 0%. you still get your 6/7th refund as cfc is irrelevant there (wrong direction) and is being signed off by the tax department so at the end of the day cfc doesnt matter at all. also in general you would only be liable for "remitted" income and that definition is extremely loose in malta, even more so than i thought. basically almost all money that comes from outside of malta and does not hit a maltese bank account is off limits for them except for very few exceptions. and even after about 6months you can actually remitt it to malta tax free just not right away.

i dont remember all the details there was more to it but will post once i got the written legal opinion from them.

2 of the big law firms (one of which consults the government on the actual laws...) as well as two accountants all said the same thing though.

 

[Rod1]

I could be wrong but i don't see the numbers working for Cyprus at all if you make a healthy profit + the Maltese system is so easy and clear cut. At the end of the day operating, living etc expenses will be similar and more likely to be a rounding error in the big scheme of things so it comes down to 5% + 5k minimum payment vs 12.5% + income tax on fair market salary.

Malta you will need the second company which is a piece of cake both financially + 0 time effort both in setup and upkeep.

Cyprus you have the issue of only dividends etc to be non taxed and to play by the rules you will have to earn a fair market salary at least which will be taxed - on top of the 12.5% corp rate. This is big.

So it is 1) more difficult 2) more grey zone and 3) much more expensive if you have the profits that you -should- be having before going on such a venture.

Cyprus does have its 60 days for tax residency + easier remittance rules going although the latter is subjective as pretty much anything that is older than a couple years can be remitted to Malta tax free too so kind of a null point.

60 days is a nice thing if you travel a lot but you might again run into problems with your passport country, other country you stay in for longer. Malta btw will not check those 183 days... they will not check at all really to be honest unless yøu apply for the actual tax certificate (WHICH IS A MUST people thats why nomad life blah blah does not work at all). They will then ask you for receipts or bank statements of your card that you swipe in Malta to support the fact that you are actually living on the island and spending money there apart from just having a rental contract.

But going by the rules yes Cyprus has the 60 days going for itself if you travel a lot. I have to kind of manage my year a bit to make sure with all my travels i still hit my 183+ days on Malta (yes i make sure to really hit 200).

Cyprus might be easier if you require local banking instead of EU banking (again i wouldnt bank in either country...) although both Lombard and BNF seem to be easy to get fully insured regular bank accounts for both private + corporate lately.

Hi. Regarding this " 12.5% + income tax on fair market salary. " for Cyprus - why is a fair market salary required? For residence one can be there for 60 days and be a Director, without being paid a salary, right?

Second question: If I have a Cyprus company which trades stocks and futures, and pays a dividend, I believe it all should be tax free?

Last question please: Would the above (second question) benefit from a Malta HoldCo above it to receive dividends and pay to me, or is that just over-complexity? I would only do it if Malta is considered more whitelist than Cyprus for where I may live, whether that be Malta or in Portugal under the NHR programme, or for safer banking or something.

Thanks and regards
Rod

 

[bab00n]

Profits from disposal of securities and dividend income are exempt from tax. Futures are only exempt if they fall in the definition - check Note 4 here. As individual receiving dividends from your company, you will pay 2.65% health contribution in 2020 on amounts up to 180k EUR.

As for salary, it might be required depending on the status you want to get. Compare the conditions and social security contribution obligations for the non-dom status and for the HNWI status, respectively.

 

[Rod1]

Profits from disposal of securities and dividend income are exempt from tax. Futures are only exempt if they fall in the definition - check Note 4 here. As individual receiving dividends from your company, you will pay 2.65% health contribution in 2020 on amounts up to 180k EUR.

As for salary, it might be required depending on the status you want to get. Compare the conditions and social security contribution obligations for the non-dom status and for the HNWI status, respectively.

Thanks. That note 4 covers basically everything that can be traded in a brokerage account. Perfect. The health contribution applies to employees and self employed people. If just get dividends from a company you own and direct for trading there seems to be 0 tax. No corporate tax on securities trading. No tax on dividends. No tax on earned income as no earned income. Any objections welcome!

 

[bab00n]

(1) It contains a lot of corporate finance related stuff. I have not seen e.g. commodity derivatives being part of the exemption.

(2) These new GHCS contributions apply to individuals and for all income. Quoting from a Deloitte paper which can be found online:

No tax on dividend and interest income A non-domiciled individual, irrespective of his/her tax residency status is exempt from tax on dividend and interest income. However, such income is subject to contributions to the GHCS at the rate of 1.7% up to 29 February 2020 / 2.65% from 1 March 2020. The (total) income ceiling on which contributions to the General Healthcare System are calculated is €180.000 per annum.

 

[jackfrost]

Hi. Regarding this " 12.5% + income tax on fair market salary. " for Cyprus - why is a fair market salary required? For residence one can be there for 60 days and be a Director, without being paid a salary, right?

Second question: If I have a Cyprus company which trades stocks and futures, and pays a dividend, I believe it all should be tax free?

Last question please: Would the above (second question) benefit from a Malta HoldCo above it to receive dividends and pay to me, or is that just over-complexity? I would only do it if Malta is considered more whitelist than Cyprus for where I may live, whether that be Malta or in Portugal under the NHR programme, or for safer banking or something.

Thanks and regards
Rod

Most developed countries and as far as i remember cyprus had that too require a fair market salary because of the way dividends are taxed. otherwise nobody would pay income tax anymore but just pay everything in dividends to themselves. That can be low though but cyprus in general is quite expensive unless you have special requirements as you do if you only do trading. The countries that do usually have "hidden dividends" provisions for that and after a tax audit will make you back pay income tax on the dividends + much more nasty things if its a country like Germany.

Also the 60days as said multiple times are just a very very small part of the picture. Everyone always falls for the stupid days rules. This is just the hard cutoff (which nobody checks anyways). Your point of interest in life is what determines your tax residency for most countries in the EU and they wont give a s**t about your cyprus tax certificate (if you get it) if they can proof one of the -many- things that they declare to be "point of interest in life" in one of their countries.

 

[JustAnotherNomad]

Also the 60days as said multiple times are just a very very small part of the picture. Everyone always falls for the stupid days rules. This is just the hard cutoff (which nobody checks anyways). Your point of interest in life is what determines your tax residency for most countries in the EU and they wont give a s**t about your cyprus tax certificate (if you get it) if they can proof one of the -many- things that they declare to be "point of interest in life" in one of their countries.

Amen!

 

[Rod1]

Thanks @jackfrost and Baboon re #2 (I don't get your point on #1 - it is clear basically all securities trading is tax free).

Jack, you make a good point re hard cutoff, but I don't think it is too hard. To fulfill the Cyprus requirements you have a rental contract or home, and have a business related position in Cyprus (can be company Director, and I am paraphrasing). You also can't spend more than 183 days or so in another country.
- could spend time in Portugal. As long as I rent out my place there, advertising it all year (but people only rent in summer) it can easily not be considered a place of abode.
- I could see my family in Spain for some time.
- I could go to the UK for <90days, as they have that rule.

In short, one just needs to know all the countries rules and be intelligent about it.

Regards
Rod

 

[bab00n]

I gave you one example of what is not part of the tax exemption in Cyprus - commodity forwards/futures.

As for tax residence, many people who thought "it is not too hard" got their holes properly busted by their local tax authorities. Anti avoidance rules in Europe are no joke. Regardless of any x-day rules, your country's tax authorities will successfully claim that your habitual residence is still there if you are not truly establishing your base where you want to be tax resident. Read some of your local court decisions.

 

[jackfrost]

Thanks @jackfrost and Baboon re #2 (I don't get your point on #1 - it is clear basically all securities trading is tax free).

Jack, you make a good point re hard cutoff, but I don't think it is too hard. To fulfill the Cyprus requirements you have a rental contract or home, and have a business related position in Cyprus (can be company Director, and I am paraphrasing). You also can't spend more than 183 days or so in another country.
- could spend time in Portugal. As long as I rent out my place there, advertising it all year (but people only rent in summer) it can easily not be considered a place of abode.
- I could see my family in Spain for some time.
- I could go to the UK for <90days, as they have that rule.

In short, one just needs to know all the countries rules and be intelligent about it.

Regards
Rod

It is not about cyprus side. It is about your home country! They wont give a s**t about the cyprus certificate if all you can proof is 60 days there and probably even more days in another country or your home country. You can stay 200 days in cyprus and little things like owning a car, key to an apartment (no matter of ownership), a closet in someones apartment, going to your old doctor, hair dresser, gym etc all of this can instantly be used to still declare you tax resident in your old country and then it is tax evasion X years back, penalty pay, criminal proceedings and so on. And yeah tax is going to be more than you have / actually earned.

 

[Rod1]

I gave you one example of what is not part of the tax exemption in Cyprus - commodity forwards/futures.

As for tax residence, many people who thought "it is not too hard" got their holes properly busted by their local tax authorities. Anti avoidance rules in Europe are no joke. Regardless of any x-day rules, your country's tax authorities will successfully claim that your habitual residence is still there if you are not truly establishing your base where you want to be tax resident. Read some of your local court decisions.

Where are you seeing that commodity futures are not exempted? The note 4 from Deloitte begins:
" The term “Securities” is defined as shares, bonds, debentures, founders’ shares and other securities of companies or other legal persons, incorporated in Cyprus or abroad and options thereon. Two Circulars have been issued by the Tax Authorities clarifying that the term also includes among others, options on Securities, short positions on Securities, futures/forwards on Securities, ..."

It is the last term above. As background, I have traded for 19 years and worked in corporate finance for 20 years so I am not a dunce.

 

[Rod1]

It is not about cyprus side. It is about your home country! They wont give a s**t about the cyprus certificate if all you can proof is 60 days there and probably even more days in another country or your home country. You can stay 200 days in cyprus and little things like owning a car, key to an apartment (no matter of ownership), a closet in someones apartment, going to your old doctor, hair dresser, gym etc all of this can instantly be used to still declare you tax resident in your old country and then it is tax evasion X years back, penalty pay, criminal proceedings and so on. And yeah tax is going to be more than you have / actually earned.

Scary, but wouldn't the other country do the same to get you to pay tax there? Ie wouldnt Cyprus, or England or whatever say no, screw you Portugal, we want Rod1 to pay tax in our country not yours? It would be evocative of Stalin's Russia if 2 countries are trying to destroy you simultaneously. For example, what if you ARE resident in Cyprus with all real meaning - job, girlfriend, life etc, and Portugal says "you own a home in Portugal and still have a gym membership here". There has to be some basic rationality somewhere.

 

[bab00n]

Where are you seeing that commodity futures are not exempted? The note 4 from Deloitte begins:
" The term “Securities” is defined as shares, bonds, debentures, founders’ shares and other securities of companies or other legal persons, incorporated in Cyprus or abroad and options thereon. Two Circulars have been issued by the Tax Authorities clarifying that the term also includes among others, options on Securities, short positions on Securities, futures/forwards on Securities, ..."

It is the last term above. As background, I have traded for 19 years and worked in corporate finance for 20 years so I am not a dunce.

A commodity is not a security even in common/financial sense. Much more importantly, "Security" for tax purposes is defined in the tax code. Everything not explicitly listed is not part of the definition. Where do you spot commodities in the definition of "Securities" ("shares, bonds, debentures, founders’ shares and other securities of companies or other legal persons")?

 

[Rod1]

Baboon, hardly anyone trades actual commodities, apart from oil companies and iron ore companies for example. All the hedge funds and people like me trade commodity futures. Futures are securities. Futures are the obligation to deliver a physical commodity at a certain date (but they are usually cash setlled and brokers like IB don't allow physical settling of commodity futures). Where Deloitte writes "futures/forwards on Securities " in my quote above I take that as futures. The actual phrase doesn't make sense as a future is a security - it would have been written by a bureaucrat, but it can only mean futures as traded on the CME etc.