Retroactive Taxation (Canada)

ecommerceoffshore · Mar 23, 2024

Hi all, I am wondering if, say, I live in Cyprus and have tax residency in Cyprus, and a CY compnay that pays 12.5% tax there, if Canada were to try and challenge me in the future, since I dont actually have payable tax in CY (only the company does at 12.5% and I pay 0 dividend tax), then they could say I didnt pay tax anywhere anyways, and therefore, I was tax residnet of Canada the whole time, and then charge retroavtive taxes on my Cyprus corporation as a Canadian Controlled Foreign Corp, with penalties. Thoughts?

TheCryptoAnt · Mar 23, 2024

If you were actually living in CY and can prove it, this situation is highly unlikely.
Granted you deregistered in CA, have no place of residence, etc... Canada can get weird about it.

Sols · Mar 23, 2024

You might want to make sure your tax returns in Cyprus show the income (you still pay no tax on it), so that you can prove your income was duly declared in Cyprus.

ecommerceoffshore · Mar 23, 2024

TheCryptoAnt said:
If you were actually living in CY and can prove it, this situation is highly unlikely.
Granted you deregistered in CA, have no place of residence, etc... Canada can get weird about it.

@TheCryptoAnt I technically live in CY in that I have a lease there all year but I spend 70 days there and the rest it’s empty.

Sols said:
You might want to make sure your tax returns in Cyprus show the income (you still pay no tax on it), so that you can prove your income was duly declared in Cyprus.

@solas fwir enough and I will with the returns and tax R certificate but still skeptical

CyprusLaw · Mar 24, 2024

ecommerceoffshore said:
@TheCryptoAnt I technically live in CY in that I have a lease there all year but I spend 70 days there and the rest it’s empty.

@solas fwir enough and I will with the returns and tax R certificate but still skeptical

As long as you follow the right procedures, declare your income as Sols has mentioned and obtain a TRC in Cyprus you shouldn't have a problem. However, I should note that the 60-day rule is only recognized in Cyprus and therefore it is not 100% bulletproof from challenges, I would therefore suggest considering spending at least 183 days in Cyprus to ensure a more bulletproof tax optimization.

It is also important for your company to show actual business and that it is not just a sham company to enable you to get the TRC under the 60-day rule.

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