Recommendation Malta or Cyprus?

[Silvio]

Relocating to Malta as a trader owning a tax-free offshore company in let's say Seychelles. Things like that won't work out anymore because Malta, Cyprus etc. apply to the CFC rules since last year, too! If you don't have the right setup (Malta LTD + UK Holding or Malta LTD + Cyprus Holding for example) you won't be able to save any taxes, but actually commit tax evasion in Malta instead.

Not fully accurate, there are exceptions:
"The CFC rule shall not find application in relation to an entity or permanent establishment:

1. with accounting profits of no more than EUR 750,000 and non-trading income of no more than EUR 75,000; or
2. of which the accounting profits amount to no more that 10% of its operating costs in the tax period."

Sources:
https://www2.deloitte.com/mt/en/pag...AD-implemented-into-Maltese-domestic-law.htmlhttps://www.ey.com/Publication/vwLU... implement EU ATAD and NID rules approved.pdf
So as long as the company doesn't generate profits of more than 750K EUR and non-trading income of more than 75K EUR it falls outside CFC scope.

 

[Paper Chaser]

Multiple agencys in cyprus told me, that the 2019 CFC rules apply to companys but not to personal non-dom status holders. Still, these agencys now offer seychelles companys with the usual nominee and flexi-desk "substance" to implement global OECD rules in seychelles so other businesses can accept your invoices.

The following is a quote of a newsletter I got after the CFC update - in german as I think you are german? Paste it into deepl.com to translate if needed.

"Bitte beachten Sie, dass die in Zypern eingeführten CFC-Rules ausschließlich für Unternehmen in Zypern gelten. Sie gelten ausdrücklich nicht für natürliche Personen mit Wohnsitz in Zypern, deren ggf. bestehenden Beteiligungen an Auslandsgesellschaften oder gar dem Empfang von Dividenden aus dem In- und Ausland. Im Übrigen ist es für natürliche Personen durchaus denkbar, sowohl Gesellschafter einer Offshore- als auch Zypern Gesellschaft zu sein. Die CFC-Rules betreffen, um es nochmals deutlich hervorzuheben, lediglich Zypern Gesellschaften mit Auslandsbeteiligung."

"Non-Dom in Zypern besitzt eine Offshore- und Zypern Gesellschaft: In diesem Beispiel sind Anpassungen nur dann erforderlich, wenn eines der beiden Unternehmen im Besitz von Gesellschaftsanteilen des jeweils anderen Unternehmens, insbesondere über 49,99%, ist."

May I ask which agencies did tell you this?

However, I read so too, but I couldn't find out if Maltas CFC update applies only to companies or to both companies and personal non-doms. I may need to ask my consultants about this.

Nonetheless, be sure every single country who falls for the CFC rules once will by then constantly tighten the regulations.

Not fully accurate, there are exceptions:
"The CFC rule shall not find application in relation to an entity or permanent establishment:

1. with accounting profits of no more than EUR 750,000 and non-trading income of no more than EUR 75,000; or
2. of which the accounting profits amount to no more that 10% of its operating costs in the tax period."

Sources:
https://www2.deloitte.com/mt/en/pag...AD-implemented-into-Maltese-domestic-law.htmlhttps://www.ey.com/Publication/vwLU... implement EU ATAD and NID rules approved.pdf
So as long as the company doesn't generate profits of more than 750K EUR and non-trading income of more than 75K EUR it falls outside CFC scope.

Like I just said, if I'm not mistaken they started with ATAD 1 but will apply to ATAD 2 soon, too. So be sure the regulations will be tightened sooner or later.

Anyways, I'm planning on a profit way more than that so it wouldn't be possible for me to make use of the advantages anyways.

 

[JustAnotherNomad]

@CuriousUser So how much tax will you be paying under your setup? 5% CIT and personal income tax only on what you remit to Malta?

 

[Paper Chaser]

@CuriousUser So how much tax will you be paying under your setup? 5% CIT and personal income tax only on what you remit to Malta?

Yes exactly!

There are 2 different ways, one of them will result in the 6/7 taxation thing (slow way) and then there's a newer way so you don't have to pay those taxes upfront (fast way). Following the fast way, you basically don't pay those 6/7 taxes at all, instead you'll just have to pay the 5% directly. I've asked my consultants about this and am waiting for a response now so that I can tell you which setup would result in which of those ways.

But yeah, you got me. Those setups mentioned above enable you to legally save as many taxes as possible in the EU - both company and personal-wise.

 

[Marzio]

Following the fast way, you basically don't pay those 6/7 taxes at all, instead you'll just have to pay the 5% directly.

This is interesting. Keep us posted.

 

[NataliaDeynega]

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

Guys, will really suggest you to dig into the definition of the "place of management". Because as far as I recall it, it should be to the place the Directors (Board) meetings take place. So if you as a Director goes to Gibraltar once a year to participate in board meeting, you should be able to claim that the "place of management" is Gibraltar.

If you can't travel there, you can dial in for the meeting to the Gibraltar Registered office (if your company has a company secretary, they should be able to assist with that. just make sure that you are not in Malta that day (go to Sicily for a day) the meeting shall be recorded as taking place from Gibraltar.

some read in this respect: Management and Control in Malta Companies | Chetcuti Cauchi Malta

 

[Paper Chaser]

This is interesting. Keep us posted.

I just got the response about both strategies! So let me make it short but clear.

Option 1 (slow way): establishing one Malta LTD as the operating business and one UK LP as the Holding. This is probably the way 95% of all people know and use. Positive thing about this setup is it's cheaper than option 2. Negative thing is you'll have to wait up to 12 months to get the 6/7 tax refund - you can watch the first pages of this thread and find other people complaining about long waiting times for tax refunds!

Option 2 (fast way): establishing one Malta LTD as the operating business, one Malta Holding and one UK LP as the main Holding. There have been many changes in 2019(+), one of them actually allows setups like this to avoid the 6/7 tax refund but to pay the 5% effective tax rate directly. Like I already mentioned, this way is pretty new so only people use it yet or even know about it. Negative thing about this setup is higher costs and more connections to watch over. Positive thing is you won't have to wait for the tax refund and will be way more flexible with your money.

I'm not sure yet which way I'll go, so I'd love to hear your opinions about this matter. I tend to prefer option 2 since being more flexible with money - especially in times like this - is a pretty damn good argument. However, I f*cking hate having additional businesses, bank accounts or pretty much anything that's actually unnecessary.

 

[JustAnotherNomad]

I always thought you can go with option 1, then simply not pay the 35% until the very last moment (after the official deadline?). Then you get the refund a short time later.

 

[Paper Chaser]

I always thought you can go with option 1, then simply not pay the 35% until the very last moment (after the official deadline?). Then you get the refund a short time later.

I haven't found any reliable source for this yet (besides this forum), so do you have any? I've read something about having to pay additional fees when passing the deadline, which numbers are we talking about here?

No matter the country, I rather don't screw with governments and their deadlines.

 

[JustAnotherNomad]

No, just what I’ve heard, sorry. But I think I’ve heard it from several people.

 

[Paper Chaser]

No, just what I’ve heard, sorry. But I think I’ve heard it from several people.

It seems quite risky to me. Do you have any particular numbers of the additional charges when passing the deadline?

 

[JustAnotherNomad]

Nope, sorry, can’t help you there. It’s only stuff I’ve heard/read different places.

 

[BlueMist]

I always thought you can go with option 1, then simply not pay the 35% until the very last moment (after the official deadline?). Then you get the refund a short time later.

Normally you have 18 months to pay income tax. So if your financial year run from 1st Jan until 31st December 2020 it means you have to pay tax until 30 June 2022. I always pay like 2 weeks before deadline, but my tax refund experience vary from 2 weeks to 6 months. Last year it was exactly 6 months. This year less than 2 weeks.

If you have fairly liquid, profitable and predictable business, the only problem is that for 18 months 35% tax amount is sitting on the account to be paid. Perhaps some advanced interim dividends could be paid (out of future predicted profits) but you have to be sure to have this tax money for the deadline. However the Covid showed nothing can be entirely predictable, so what if you paid yourself interim dividends from the tax money but the business did not bring profits to meet the deadline payment requirements...

 

[Paper Chaser]

Normally you have 18 months to pay income tax. So if your financial year run from 1st Jan until 31st December 2020 it means you have to pay tax until 30 June 2022. I always pay like 2 weeks before deadline, but my tax refund experience vary from 2 weeks to 6 months. Last year it was exactly 6 months. This year less than 2 weeks.

If you have fairly liquid, profitable and predictable business, the only problem is that for 18 months 35% tax amount is sitting on the account to be paid. Perhaps some advanced interim dividends could be paid (out of future predicted profits) but you have to be sure to have this tax money for the deadline. However the Covid showed nothing can be entirely predictable, so what if you paid yourself interim dividends from the tax money but the business did not bring profits to meet the deadline payment requirements...

I asked my consultant about this matter and he pretty much replied like you. I didn't have in mind there is 18 months to pay income tax, which is the reason I will go for the classical setup of 2 companies!

I don't really see how any of this could work as long as you are MT tax resident and ubo of the MT operating company at the same time..
Any active MT company business profits withdrawn by MT tax resident is taxable full MT income tax rate. Regardless of how many Hold. com. you put on top of it. This MT income tax refund is only applicable for non-MT-resident ubos. Statement of ubo non-MT-residency is submitted during the MT co tax refund application.

You will be the owner of the UK LP and the UK LP will be the owner of the Malta LTD. That's called a 'Holding' if I'm not completely out of my mind right now.
Same with the second option. Again you'll be the owner of the UK LP which holds the Malta 'Holding' which holds the Malta LTD. Same tax benefits (effective rate of 5%) but instead of having to wait up to 12 months for a tax refund of 6/7 (30%) you'll just have to pay 5% directly and don't need to wait for s**t to return.

 

[Paper Chaser]

Schemes like this are legal loopholes which have worked for many years. Like one user said earlier, I think @Martin Everson mentioned it, islands like the UK, Ireland (even though Ireland closed the Double-Irish-Dutch-Sandwich for the majority this year), Malta, Cyprus and others won't ever close their loopholes since it would kill their whole economy. I've just read about a statistical research stating that roughly 90% of Malta and 80% of Cyprus are financed by companies using schemes like this.

 

[Paper Chaser]

Have you ever heard of anti-abuse "sledgehammer" and how it works in reality? Such an arrangement certainly would fall in to this category. If your "Holding" above the operating MT company holds only this one operating MT you would not be able to provide sufficient "valid commercial reasons" for such an artificial arrangement.

Everything in this arrangement is just wrong on too many levels.
__________

General Anti-Abuse Rule (GAAR) – effective as from 1st January 2019

The ATAD Implementation Regulations also stipulate a GAAR whereby the tax authorities have the right to ignore any arrangements which have been put into place for the main purpose of obtaining a tax advantage that defeats the objects of the applicable tax law and are not genuine.

For these purposes, a procedure shall be regarded as non-genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality, and hence the tax liability shall be calculated in accordance with the provisions of the ITA.

Mate, tell it to the governments tolerating or even enabling those schemes on purpose. I'm just one out of hundreds of thousands people making use of it. Even though other EU countries complain about the above mentioned EU tax heavens, they still tolerate all of them. It's all legal and that's all that matters.

I've heard this too many times already.
...dismantling Swiss Banking secrecy "would kill their whole economy"
...discontinuing Panama bearer shares "would kill their whole economy"
...closing down Latvia non-resident banking business "would kill their whole economy"
...CRS implementation at BVI etc "would kill their whole economy"

It just does not work the way you say or think at the decision making level

Sure, as time goes by there will always be changes to the system. Malta, Cyprus and others are by no means exceptions, don't get me wrong. But for now, there is absolutely nothing to it; the EU knows it, the governments know it, the people know it. As long as you play the tax avoidance game instead of the tax evasion game, you will have nothing to be worried about.

 

[BlueMist]

You will be the owner of the UK LP and the UK LP will be the owner of the Malta LTD. That's called a 'Holding' if I'm not completely out of my mind right now.
Same with the second option. Again you'll be the owner of the UK LP which holds the Malta 'Holding' which holds the Malta LTD. Same tax benefits (effective rate of 5%) but instead of having to wait up to 12 months for a tax refund of 6/7 (30%) you'll just have to pay 5% directly and don't need to wait for s**t to return.

I don't understand how does holding A + holding B + MT trading mitigate the waiting time for tax refund. In such case things should work as usual: MT trading pay 35% tax, holding B get 6/7 tax return and another holding A gets dividends from the holding B that got a refund.

 

[Paper Chaser]

I don't understand how does holding A + holding B + MT trading mitigate the waiting time for tax refund. In such case things should work as usual: MT trading pay 35% tax, holding B get 6/7 tax return and another holding A gets dividends from the holding B that got a refund.

My consultant mentioned it's due to some changes in 2019 ("LN 110.2019"), I can't tell how it's working exactly because I didn't ask for more details. If you really want me to, I will ask my consultant about this. For me personally it doesn't matter anymore since I already made a choice to go for the classical setup.

According to GAAR it is not.
You should just ask your lawyer on whether he had a case to defend such structure and what sufficient "valid commercial reasons" he provided to tax authorities for such an artificial arrangement.

If his other clients never had problems with this specific arrangement then you should know that your case will be the first for him of this kind. And you will pay his hourly rate for him to learn this. And you will learn it all the hard way.

Don't say that you wasn't warned.

I still don't see the problem you're referring to. He's doing it the same way thousands of companies do it right now. And there is nothing wrong to it; like I said those loopholes were created on purpose and they won't even be considered to shut down in the near future.

 

[Paper Chaser]

I don't understand how does holding A + holding B + MT trading mitigate the waiting time for tax refund. In such case things should work as usual: MT trading pay 35% tax, holding B get 6/7 tax return and another holding A gets dividends from the holding B that got a refund.

Not quite sure what that has to do with the taxation system at the moment but ...

On another note as for the tax refunds.

2020 has brought a change into the system that apparently for some companies the 35% corporate tax has not to be paid but is directly calculated against the possible 6/7th refunds so that you would only pay the 5% and not 35 and get 30 back.

Dont have details yet though:

"New rules (see Legal Notice 110 of 2019) a Malta company which elects to be treated as part of a fiscal unit (formed of one holding company and at least one or more trading companies) will not be obliged to pay the full 35% income tax, of which subsequently 6/7 could be regularly claimed back by its shareholders (Tax Refund)."

There you go. Just look what I've found here. The circle is about to be closing.

 

[Martin Everson]

Having in mind that MT has CFC regulations and sometime in the future (likely pretty near future) MT's Commissioner for Revenue checks all the MT operational companies that have MT residents as ubo (this info is going to be in MT companies registry) and their companies did not pay any Income tax in MT - and sends out questionnaire to provide legal basis for this.

Then what your lawyer would advice to reply CfR? That this arrangement was put in place to reduce payable tax? Or some other business based rationale? Just think what kind of business reasoning you could use to rationally back this "holding" arrangement. If you don't have any, then all this arrangement will be disregarded and all profit taxed if it was not in existence.

Your right. btw CfR would not even ask you as your lawyer as part of DAC6 since 1 July 2020 would have reported the crossborder structure arrangement already. You would just get a tax bill for unpaid taxes for such a non-genuine arrangement . It's far simpler to get a letter of confirmation from CfR for such an arrangement in advance of doing it or stay well away from rolling the dice or blaming a tax advisor servicing you from the back of a malta barber shop.

https://www.offshorecorptalk.com/th...eporting-comes-into-effect-1-july-2020.29711/