Question Software developer from Austria to operate from Cyprus for low tax

[soberman]

Hello!

There seems to be a change of rules for the companies registered in Cyprus starting from December 2022, thus, it makes it a bit unclear for me, so I would hugely appreciate your help and advice.

I want to move my tax residency to Cyprus. I am a software developer from Austria, working as self-employed and mainly contracting for companies in the UK.
Now I would have to register a company in Cyprus as a non-dom and be sure to spend 60 days per annum there. I would be the director and a shareholder. I would need to rent an office (?) and will hire a company to do accounting for me.
This should give a corporate taxe at the rate of 12.5%, the rest of which I am going to distribute to me as dividends afterward under a 0% tax rate if I understand the scheme correctly. Does my personal bank location matter in this case? Austria or Cyprus?
Please correct me I am wrong somewhere.

Now another question is whether this scheme still holds true or are there any changes coming up to this by the end of the year?
Moreover, in case I won't move out of Austria, will only my dividends be taxed at a rate that sets the Austrian government, or company income as well per Austrian rate too?

Does this mean that to have these sweet low tax rates I would have to move to Cyprus for at least 60 days per annum and then make sure I don't spend more than 183 days in Austria so that I don't get tax residency of Austria once again?
And if I eventually decide to stay all the time at Cyprus, does that mean that after 17 years or so, is my tax rate going to be greater? Considering that I am still going to be working as a software developer through my LTD in Cyprus and pay myself dividends.

Thank you in advance.

 

[soberman]

If he is not one of those fools that wants to take out every penny from the company

What if I am that fool and don't know why I should NOT do it? ':-D

 

[Marzio]

What if I am that fool and don't know why I should NOT do it?

You could pay yourself the bare minimum to live comfortably in Austria and leave the rest in the company so that if you decide to move later to say Cyprus those dividends would be tax free. That would be one reason, the other more obvious reason is that if you take out every penny from the company you would not be able to reinvest in the company.

 

[soberman]

if you take out every penny from the company you would not be able to reinvest in the company.

There is no point and nowhere to reinvest that revenue since I am going to be simply a software developer and offering my services to other companies. I don't need marketing - there's LinkedIn for that. I don't need staff, since there is nothing to do for them, technically.

 

[Sols]

If the alternative is to pay full 100% Austrian tax then why not?

Sure, it's just basic math (if the assumption that the setup is compliant is correct). Austrian corporate tax rate is 25%, going down to 23% by 2024. The Liechtenstein tax rate is 12.50%. So it's 12.50% going down to 10.50% saving. Then there are the payroll and other such taxes to sort out. But if those savings are greater than the cost of setting up and maintaining a company in Liechtenstein and if soberman is OK with driving to Liechtenstein every day, it makes sense.

From the little research i did i see that there's a no tax area in Austria till 11K and the DTA between Liecthenstein and Austra says that divends are taxed at 15%.

The DTA doesn't apply to soberman personally since there is no reasonable claim for soberman being a Liechtenstein tax resident. Anything that goes into his pocket is taxable under Austrian tax code.

Yes, the cost involved in a setting up a Liechtenstein company could be a high but if he is not one of those fools that wants to take out every penny from the company he could be comfortably living receiving a minimum salary + dividends taxed at 15% (instead of 27.5%).

The dividends are paid to an Austrian tax resident and taxes must be paid by the Austrian tax resident at 27.50%.

 

[soberman]

if soberman is OK with driving to Liechtenstein every day, it makes sense.

It doesn't unless I move, since I currently reside in Vienna, which is an 8-hour drive to Lichtenstein.

It seems that the only way to take advantage of those lower tax rates of other countries is to actually move living to those countries. At minimum for at least more than half a year every year.
If I am getting it correctly, there is no other way, is there?

 

[Marzio]

The DTA doesn't apply to soberman personally since there is no reasonable claim for soberman being a Liechtenstein tax resident.

He doesn't have to claim to be Liectheinstain tax resident.

Under DTA article 10: https://www.gesetze.li/konso/pdf/1970037000?version=3
1) Dividends paid by a company resident in a Contracting State to a resident of the other Contracting State may pay in the other be taxed by the state.
2) However, these dividends may also be paid in the Contracting State in which the the dividend-paying company is resident under the laws of this be taxed by the state; however, if the beneficial owner of the dividends is a resident of the other Contracting State, the tax may not exceed:
a) 0 per cent of the gross amount of the dividends if the beneficial owner is a company (but not a partnership) which at the time the dividends accrue, for an uninterrupted period of at least 12 months holds at least 10 percent of the capital of the company paying the dividends;
b) 15 per cent of the gross amount of the dividends in all others cases.

I currently reside in Vienna, which is an 8-hour drive to Lichtenstein.

But it's one hour drive to Hungary or Slovakia and Austria has double tax treaties valid with both. Hungary CIT is 9% (the lowest of EU) but you need to consult double tax treaties with both countries.

Also all 3 countries are in Schengen meaning noboby will know if you really went in the office or not.

Since you are a developer you could organize yourself to go one day a week in your office.

 

[soberman]

But it's one hour drive to Hungary or Slovakia and Austria has double tax treaties valid with both. Hungary CIT is 9% (the lowest of EU) but you need to consult double tax treaties with both countries.

Also all 3 countries are in Schengen meaning noboby will know if you really went in the office or not.

Since you are a developer you could organize yourself to go one day a week in your office.

That is a very interesting observation, thank you! However, this won't resolve the problem of me actually living in Austria, being married to an Austrian, and having a house in Austria - Austria might say that I am still taxable there even though I "work" in Hungary/Slovakia, no?

 

[Marzio]

Austria might say that I am still taxable there even though I "work" in Hungary/Slovakia, no?

That's exactly what a double tax treaty does in cases when income could be taxable by two countries at the same time.

You could commute to Hungary for example to work from there and the hungarian company would pay 9% corporate taxes on your income VS 23% or whatever is Austrian tax rate right now.

Here you could find Austrian tax treaties: Österreichische Doppelbesteuerungsabkommen

I can't translate from german so i don't know how are salaries taxed for commuters.

 

[soberman]

So the corporate tax would be applied by Hungary, but would the dividends be taxed by Hungary as well for me? Or by Austria in that case since I am commuting there but living in Austria?

 

[Marzio]

You have to read double tax treaties, i don't understand german.

Inside the treaty they say how dividends and salaries are taxed.

Read article 10 and article 14

 

[soberman]

Got it, thanks for the help. I will get an appointment with my tax advisor, maybe he will know some intricacies of Austrian taxation in regard to this scheme that might be advantageous as well.

 

[RealDude]

Please let us know how it went.

 

[anotherone]

I doubt it is possible to pay little tax while living in Austria. I think about:

• Compulsory social contribution
• Local taxes
• Consumer prices

Vienna is close to cheap cities in a different jurisdiction: Brno in Czech Republic, Bratislava in Slovakia, Maribor in Slovenia, Gyor in Hungary.