Will Cyprus ND make a non-Cyprus company tax liable in Cyprus?

[Don]

Highlighted it for you.

You're lucky I'm bored.

It works like this (in theory - in practice they probably don't care in Cyprus):

1. Is the company managed and controlled in Cyprus (no matter where it was registered)? If yes, the company is tax resident in Cyprus.
2. Is the company incorporated in Cyprus and not tax resident in any other country (under that country's rules)? If yes, the company is tax resident in Cyprus.
3. If the answer to both 1. and 2. is "no" (i.e. the company is not managed and controlled from Cyprus and, if it's a CY company, some other country claims it as tax resident under that country's rules): The company is not tax resident in Cyprus.

4. If the company is tax resident in Cyprus (either 1 or 2 answered with "yes"), then all income that the company has is taxed in Cyprus - unless a tax treaty says otherwise.
5. If the company is not tax resident in Cyprus (both 1 and 2 answered with "no"), then only the income that is earned through a PE in Cyprus is taxed in Cyprus.


What does this mean (in theory - the practice can be different in Cyprus):

Company A is registered in the Seychelles.
But its owner and director lives in Cyprus all year. He rents an office in Cyprus in the company's name where he meets clients and does all the work for the company.
He also has an employee in Japan (there is no tax treaty with Japan). The person is employed directly by the Seychelles company and there is an office in Japan that is rented in the company's name where the employee meets clients and works.
This company is clearly managed and controlled in Cyprus and it will be taxed just as if the company was registered in Cyprus.
All company profits, including the profits generated by the employee in Japan, are taxed in Cyprus. On top of that, the profits generated in Japan are probably also taxed in Japan under the Japanese rules (there would likely be double taxation), but that's not our focus here.

Company B is registered in Japan.
Its owner lives in Japan all year. He rents an office in Japan in the company's name where he meets clients and does all the work for the company.
He also has an employee in Cyprus (there is no tax treaty with Cyprus). The person is employed directly by the Japanese company and there is an office in Cyprus that is rented in the company's name where the employee meets clients and works.
This company is clearly not registered in Cyprus and also not managed and controlled from Cyprus - the employee in Cyprus is just an employee, he doesn't manage the company.
There is a permanent establishment (office) in Cyprus. For this reason, Cyprus can tax all profits that the "CY office" makes for the company. However, since the company isn't tax resident in Cyprus (since it's not managed or controlled from Cyprus), the income generated in Japan or any other country is not taxed in Cyprus.
Japan might still also tax the company profits generated in Cyprus (not sure about the Japanese rules), then there could be double taxation. But again, not our focus here.

I hope it's clearer now.

In summary your company would be fully exposed to tax in Cyprus with the ND.

 

[JustAnotherNomad]

In summary your company would be fully exposed to tax in Cyprus with the ND.

It would probably depend on how they see the nominee director. Is he really managing and controlling the company?

 

[Don]

It would probably depend on how they see the nominee director. Is he really managing and controlling the company?

Tax authorities hit you with a bill, and then it's up to you to prove them otherwise.
It's not like they send you an inquiry and kindly wait for your answer for a few months and then decide based on the evidence.
You have an automated exchange of information and public registers. Based on publicly available information, it's easy to make conclusions.

 

[GrumpyMess]

Tax authorities hit you with a bill, and then it's up to you to prove them otherwise.
It's not like they send you an inquiry and kindly wait for your answer for a few months and then decide based on the evidence.
You have an automated exchange of information and public registers. Based on publicly available information, it's easy to make conclusions.

Exactly. That's why we need the only correct answer. The fact that many of the regulations now are not enforced doesn't make you sleep safe.

 

[CyprusLawyer101]

Exactly. That's why we need the only correct answer. The fact that many of the regulations now are not enforced doesn't make you sleep safe.

There is never a one correct answer. It is a matter of interpetation and therefore a matter of understanding and securing risks correctly. Its who you are facing not what you are facing.

 

[GrumpyMess]

There is never a one correct answer. It is a matter of interpetation and therefore a matter of understanding and securing risks correctly. Its who you are facing not what you are facing.

If I were a Cypriot resident, I would write a letter to the tax office and if their answer coincides with the lawyer's answer, that's a 100% true answer for me.

 

[CyprusLawyer101]

If I were a Cypriot resident, I would write a letter to the tax office and if their answer coincides with the lawyer's answer, that's a 100% true answer for me.

That is a decent approach. There is such a way forward, whereby you write to the tax office requesting for a tax rulling on a particular subject.

 

[Don]

There is never a one correct answer. It is a matter of interpetation and therefore a matter of understanding and securing risks correctly. Its who you are facing not what you are facing.

Its also about who you are - whether your annual revenue and profit is 6 digit or 8 digits makes a big difference, as your often facing somebody who plans its activities taking into account the expected costs and returns.

 

[flyingadventures662]

If I were a Cypriot resident, I would write a letter to the tax office and if their answer coincides with the lawyer's answer, that's a 100% true answer for me.

I would never do this and for me it's suicidal because, first, if things are subjective, they will always take their point of view and second, you will have exposed yourself forever so you wan't be able to do obscure things in the future.

Many things in practice just work, regardless of how scary sounds the written law. For example, the PE, many people on this forum are paranoid about when talking even about home office/crypto trading - I am yet to find a lawyer to tell me you will have issues if you don't declare it. Depends on the country as well I guess, I wouldn't do that in Spain for example, but just saying.

They are helping you too while they take 4 month for a simple task to register a Gibraltar company? Is the failure on your end?

But but but sir, why are you so short-tempered?

There was even no need to write the whole second part of your message.

I think my confusion came from the bad (yes, I claim it to be bad) wording of PWC: non-Cyprus tax resident company instead of non-resident company in Cyprus. It sounds like a company which is tax-resident of Cyprus, but is not incorporated there. And not like a non-resident one.

Because exceptions like this exist, for example in the Philipines. There, a foreign company, even if resident, pays tax only on local income. While Filipino company pays tax on a worldwide income. I assumed it was something like this in Cyprus as well.

Thank you for your post.

 

[CyprusLawyer101]

Its also about who you are - whether your annual revenue and profit is 6 digit or 8 digits makes a big difference, as your often facing somebody who plans its activities taking into account the expected costs and returns.

Definitely true.

 

[GrumpyMess]

I would never do this and for me it's suicidal because, first, if things are subjective, they will always take their point of view and second, you will have exposed yourself forever so you wan't be able to do obscure things in the future.

Even though they sometimes look like the mafia, they are ordinary employees and they obey the laws. It doesn't make sense for them to send an inspector in a helicopter after you, otherwise they will scare everybody off the island. As for obscurity, just ask yourself, what if they find out?