Social Insurance in Cyprus (Hidden Cost?)

[unicorn]

I think that is where the confusion comes from : "domicile".

Citizenship = where you are born
Residency = where you live part time or full time (but where you don't necessarily pay tax) - eg. have house in country A, rent flat in country B, travel around in country C D E
Tax residency = where you live part time or full time AND pay personal income tax (eg Cyprus : with company : tax resident if you live there 2 months ; without company : if you live there +183 days)

In the EU, "domicile" is generally a synonym for tax residency. The country where you pay tax, is then your domicile. Domicile = my official address for the government to reach me.



So statements like these : "cyprus tax resident individuals who are not domiciled in Cyprus" are like saying "cyprus tax resident individuals who are not tax residents in Cyprus". You can't be AND tax resident AND non tax resident at the same time. It's one or the other.


Unless what they mean is : cyprus tax resident individuals who are not BORN in Cyprus - then it would make more sens. But BORN = citizenship.

So basically, if we would want to make a status update of Cyprus in 2020, that would be something like (PLEASE DO CORRECT me if I got it wrong) :

On a personal level :
PLUS : 0 % tax to pay on dividends received from your company as long as you are NOT a tax resident of cyprus - correct ?
MINUS : 17 % SDC to pay on dividends if you ARE a tax resident of cyprus - correct ? with potential changes coming up mid 2020 as Martin Everson was so kind to share

On a company level :
PLUS : can receive dividends from daughter company in the EU tax free - correct ?
MINUS : expensive to have company + so so reputation company - correct ?


I asked 3 accounting firms these questions and none replied. I wrote the government tax office and no reply. Which is why it is interesting to have real life feedback from people actually living there / having a company there and know the situation TODAY, as things keep changing all the time.

 

[challenge]

"Domicile" in UK and common law countries has a specific meaning that's different from other EU countries.

Common law countries: UK, Cyprus, Malta etc
Civil law: rest of EU and many other countries

This tricks people into faulty reasoning when they try to understand these "non-domiciled" regimes . I suggest to read about domicile in common law or you'll continue to mix things up.

https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm20070#IDAWT0XG

 

[unicorn]

Andress explained it so now I understand it perfectly, thank you - it's actually very simple : cyprus domiciled means either born there or having lived there for 17 out of 20 years previous to the tax year. But you are right, it is confusing when the same word means something different in different countries !

 

[pierino]

I don't think your wrong that is same info I have.

Btw Cyprus has not yet announced what their Exit Taxation rules are as part of EU ATAD that they must implement. This is expected to be announced mid this year .

Public consultation - ATAD Cyprus

Thanks for pointing to this!
I tried to read it through, but frankly, due to the language used i didn't get much out of it..
Could someone more knowledgeable distill it a bit and clarify what this effectively means?
If i dont get it wrong, whatever it means it will be applicable to anyone beginning with Cyprus starting 1.1.2020?

 

[Martin Everson]

If i dont get it wrong, whatever it means it will be applicable to anyone beginning with Cyprus starting 1.1.2020?

No one knows the date it will apply from yet but applying it retrospectively is possibility. You may want to look at Poland's draft exit taxation law to see how bad it can be. ATAD is no joke if your a successful business owner or a rich individual. Get out of EU while you can without being stripped of your wealth for simply moving abroad.

Individual taxpayers will be liable for the 19 percent exit tax in case they transfer assets related to their business (sole proprietorship). In the case of assets unrelated to business activity, the exit tax will apply only to shares, stocks and securities as well as all the rights and obligations of partnerships, provided that the individual (ie, the owner of the assets) has been domiciled in Poland for at least five years. In this case, the tax rate will be three percent and will be calculated on the market value of the asset.

Key takeaways

The scope of the draft exit tax in Poland is wider than the scope required by ATAD, as the latter, in principle, applies only to corporate taxpayers, whereas the Polish law will also include natural persons if they move their assets with a value exceeding PLN2 million abroad or change their tax residency by moving to another country.

 

[pierino]

Thanks Martin, the link helps a lot! So, if we presume it's going to look exactly the same as in Poland, this would mean that, for those moving to Cyprus, once these enterpreneur decide to move elsewhere, Cyprus will exit tax them on unrealized assets, is that right?
So i wonder:
What happens if the company is, lets say, a consultancy company owning no assets (because, for example, assets are owned by the owner of the company, purchased with dividends)
What happens if the company succeed in liquidating all the assets, hence issuing the gain in dividends taxed as usual to the UBOs before they shut down and move elsewhere?

 

[Martin Everson]

So, if we presume it's going to look exactly the same as in Poland, this would mean that, for those moving to Cyprus, once these enterpreneur decide to move elsewhere, Cyprus will exit tax them on unrealized assets, is that right?

I don't know if you meant to say 'unrealized gains' but whatever assets you have such as house, car, boat, stocks, bonds etc will be priced at current market value (as if you were selling them) and you would pay the tax on them based on this fictional selling price and fictional profit. So a guy with a $10m investment portfolio would be forced to pay $1.9m in exit taxes just for leaving Poland with his portfolio.

What happens if the company succeed in liquidating all the assets, hence issuing the gain in dividends taxed as usual to the UBOs before they shut down and move elsewhere?

Where is the owner/UBO based?

Hypothetically as long as UBO is not in same country as company that is winding down, plus is not relocating with his capital, plus the taxman does not see it exit taxation avoidance by dissolving company with intent to start similar business elsewhere it should be fine.

Personally I would wait to see what Cyprus does for exit taxation. However if your not making millions then generally you should not be afraid. The idea or exit taxation is to punish large companies and their executives that try to relocate out of a EU country and escape to freedom while continuing their business elsewhere in a much tax friendlier country.

 

[HSharpe]

There's seems to be 17% tax on dividends in Cyprus, did you take that into account ?

Only applicable to Cypriot domiciled individuals. None Domicile individuals are exempt from this.

 

[HSharpe]

I don't think your wrong that is same info I have.

Btw Cyprus has not yet announced what their Exit Taxation rules are as part of EU ATAD that they must implement. This is expected to be announced mid this year .

Public consultation - ATAD Cyprus

Thank you for the mention of my site! Proposed laws are circulating in the Greek Language. I have been meaning to write up an article but never got around to it!

 

[fshore]

So a guy with a $10m investment portfolio would be forced to pay $1.9m in exit taxes just for leaving Poland with his portfolio.

I didn’t read the polish exit tax law, but do you mean that they will tax 19% of all assets you have, or 19% of the unrealized profits that you have made ?

 

[Martin Everson]

I didn’t read the polish exit tax law, but do you mean that they will tax 19% of all assets you have, or 19% of the unrealized profits that you have made ?

According to Deloitte:

"Where an individual moves assets outside of Poland or loses Polish tax residency, exit tax at 19% (3% in specific cases) may apply to unrealized gains."

So it seems the law has been watered down from what was proposed in 2018. Maybe our polish friends here can offer more insight.

 

[orangekangaroo]

Just to sum things up here in this thread. EU person setting up a company in Cyprus to then use non-dom scheme.

1. You can pay up to 19.500 euros tax-free in salary - however social security contribution on employee and employer level is about 25% in total.
2. Divi is not completely tax-free for the non-dom you are still required to pay 2.65% gysa payments.

What is a grey area if you only pay yourself divi, at what level are you allowed to use free or subsidised local health care as your social security contributions are very low.