Recommendation Malta or Cyprus?

[Paper Chaser]

Alright, let's make it clear once again. There might be a huge misunderstanding here, I don't know if it's on your end or on mine and how we even got so far.

So basically what I'll do is relocating to MT. Yes, you're right on this one. I'll be a tax resident achieving the non-dom status. I'll still be a foreigner, not a domicile.

Next thing to clarify, my business is not local by any means. I'm running an international (EU-based) e-commerce which doesn't even have any source of funds in MT.

Third point, I will ofcourse pay all of the taxes in MT, which will result in a total of 35%. However, due to my non-dom status I will be allowed to file a tax refund of 30% (6/7). That's the loophole I'm talking about. The Maltese government wants foreign business men to relocate to their country so they can benefit from them, in return they offer us business men a tax reduction of up to 6/7.

Last but not least, now this is where the Holding comes in play. Unfortunately, the tax refund itself would be subject to MT taxation again, because they are considered as dividends. So I'd basically have to pay personal income taxes on the returned 30% again. To work around, instead of me personally receiving the dividends, there is a foreign Holding claiming them (which is owned by me, too). If done right (UK Holding, CY Holding etc.), there is absolutely no additional taxes to be paid.

TLDR: I don't do tax evasion, but tax avoidance which is completely legal in any given scenario. The Maltese government offers a special system to foreigners so both Malta as well as the foreigners benefit. So the first loophole would be the tax refund any foreigner can achieve, which is completely legal, because it's been created by the Maltese themselves. However, to fully benefit you will have to establish a second company (Holding) to not have to pay taxes on your tax refund again. So the second loophole would be the foreign Holding achieving the tax refund instead of you. That's completely fine again since you've regularly paid all of the taxes, but instead of having to re-tax the tax refund again (which is kind of ironic), it will just be paid to your Holding. If the tax refund wouldn't be considered as DIVIDENDS instead of TAX-FREE TAX REFUNDS (like they should be), there was no need for an additional company at all.

Peace.

 

[BlueMist]

You can be a resident of Malta, living there, running LTD company which shares are held by CY holding. LTD pay full 35% tax which 6/7 gets refunded to CY holding. The important part is not transfer the dividends from CY holding back to Malta if you are a resident there. I think some time need to pass before you can do that, can’t remember how long. You would need to check that.

However I still don’t get what structure allows to pay 5% directly by LTD without having to wait for the refund. Maybe something has indeed changed, I would need to check that with my accountant.

 

[Paper Chaser]

You can be a resident of Malta, living there, running LTD company which shares are held by CY holding. LTD pay full 35% tax which 6/7 gets refunded to CY holding. The important part is not transfer the dividends from CY holding back to Malta if you are a resident there. I think some time need to pass before you can do that, can’t remember how long. You would need to check that.

However I still don’t get what structure allows to pay 5% directly by LTD without having to wait for the refund. Maybe something has indeed changed, I would need to check that with my accountant.

THANKS GOD, that is exactly what I just tried to explain!

Brother, I just told you above! Please scroll up a little bit! It has something to do with the changes that came out a year ago ("Legal Notice 110 of 2019"). If you're setting up a 3rd company (Malta Holding this time) you'll benefit from the faster way.

My accountant/lawyer just confirmed this way is legit and works very well already. However, if you're really up to knowing the exact structure and how it works exactly, you will need to ask your accountant/lawyer. Or you tell me whether it would be worth to pay for another company but benefit from a faster tax advantage, so I'll consider talking about this to my guys and be able to provide you a more specific answer.

Like you already know from the other thread, the setup involving 2 companies would cost ~10k once in the beginning and ~12k annually. For the comparison, the setup involving 3 companies would cost ~14k once in the beginning and ~16k annually (including all accounting stuff ofcourse).

10k - 14k
12k - 16k
Having to wait up to 12 months for a tax refund - Paying 5% directly and being able to use your money instantly

Which one would you prefer/recommend?

I now also see why all law firms as well as you guys earlier in this thread recommend Cyprus for an income of <100k/year and Malta for >100k/year. I'd even set it higher, let's say like 200k/year. Earn less? Cyprus might be the better choice for you. Earn more? The more you earn, the more you will benefit from Malta.

 

[Silvio]

You guys are making it too complicated, or some agent is making some BANK off you

The laws (and top 4 accountants) clearly say that CFC doesn't apply to companies that don't make 750K in yearly profits. Just open any offshore anywhere and don't f**k with complex expensive structures.

 

[Paper Chaser]

Unfortunately, I couldn't edit my post so I will have to write another one.

Example 1: Assuming your annual income is 100k. Having the right setup, you will roughly pay ~12k-16k/year (company costs, accounting costs etc.) plus 5k/year (5% taxes) which would be ~17k-21k/year in total. This equals a loss of ~17-21%. I don't know for Cyprus, but I don't think the setup is needed to be that complicated and therefore won't be that expensive as it is in Malta. So considering the 12.5% company taxes in Cyprus as well as the annual company/accounting etc. costs, you might end up with a slightly higher income in Cyprus.

Example 2: Assuming your annual income is 1kk (1M). Malta: let's even set the annual company/accounting etc. costs to 20k, you still won't lose more than ~7% of your income (20k+50k (5% taxes) = 70k/1M = 7%). Cyprus: there will always be the minimum of 12.5% of company taxes (plus the additional annual company/accounting etc. costs). Dang, Cyprus lost this one by far.

Hopefully all of the past pages of this thread could actually help other people, too. Personally I could learn alot from you guys already and still am learning every single day.

You guys are making it too complicated, or some agent is making some BANK off you

The laws (and top 4 accountants) clearly say that CFC doesn't apply to companies that don't make 750K in yearly profits. Just open any offshore anywhere and don't f**k with complex expensive structures.

It is as complicated as it is simple. And it is as simple as it needs to be.

Nonetheless, you're absolutely right, law firms specializing in those kind of things always treat you as a walking pocket from what I've learned recently. It's just up to you if you want to go big and don't care for the comparable small costs or if you want to go small and flip every single K in your pocket. Therefore you would obviously want to go for cheaper firms/accountants which won't provide you the best possible service and structures, but cheaper prices. I just haven't found out yet which pricings are considered to be overpriced.

As for the top 4 accountants, which ones are you talking about? You're right again, that's what you guys have been suggesting earlier on this/last page, you can still make use of using offshores if staying beneath 750k of yearly profits. However, what I've been trying to add to your suggestions is the fact that once someone falls for the first stage of the rules, they will fall for all other stages sooner or later, too. That's why I've been telling you about the ATAD 1 (stage 1, as it is applied right now), so you can decide for yourself. I just googled up ATAD 2 and it took me 2 minutes to find out Malta already applies to it, too. Be very careful with those kind of offshore structures in the EU, especially the European countries considered to be 'tax heavens' are constantly applying to all rules and agreements of the EU. Just look how fast Malta suddenly applied to those changes, most of you (including me) didn't even know about this yet. That's what I'm trying to explain right now, look how rapidly the truck can hit you. Quoting another user in this forum: if you keep staying in the EU, choose only 2 out of 3 possible options: a) legal b) cheap c) low taxes.

 

[JustAnotherNomad]

Great input, @TodMca . Though I suspect Malta to find ways to keep this stuff going.
In which country are you licensed as an accountant?

 

[JustAnotherNomad]

Oh, I thought you mentioned somewhere you’re an accountant? So you just run an accounting... agency then? Nothing wrong with that, I’d just like to understand better what you can offer.

 

[Paper Chaser]

Without prejudice to any other Qs discussed it should be noted that you better make 100% sure that the country you departing from would not treat such non-remitted to MT income (i.e. that does not become taxed in MT) as still taxable in the country you departed from. I'm sure everyone is aware, that to become new tax resident is easier than to terminate such relationship. There are some countries that dont' let go their tax residents for some years after they severe all ties. It is quite hard to achieve "non residence" in respect of some part of person's income.



Does your lawyer advised you that such business income via MT company will be treated as foreign sourced?
As far as I'm aware any active business income of operational MT co. (including coming from international clients) shall be treated as MT sourced due to management and control of the MT co. is exercised in MT.

As per MT income tax foreign source income (THE FOREIGN INCOME ACCOUNT) is only when it comes from foreign dividend/capital gain/royalties and other similar passive income.



The foreign holding co. on the top of the structure would be receiving 100% as dividends (i.e.all as non-trading income) from the below subsidiary, thus the exemption threshold for this co. is as low as €75,000
_____________________

Exceptions to the CFC rule
A CFC that satisfies the following criteria would not be charged to tax in Malta:

• CFC with accounting profits of no more than €750,000, AND non-trading income of no more than €75,000;

There's absolutely no right for my home country (Germany) to tax me once I cut all ties and live/work abroad. I made sure about that.

But once again you're talking about non-remitted income, which was never even considered to be a thing since it would be tax evasion. You clearly did not understand or read a single word @BlueMist and I tried to explain earlier.

All taxes will be regularly paid in Malta. However, to not pay taxes on the TAX REFUND (it's kind of ironic, the word even says it all) just because it is considered to be a dividend (which is absolutely nonsense, again), you will have to set up another company (Holding) which will achieve the REFUND in a TAX-FREE yet LEGAL way. I explained both legal loopholes already, one was created by the Maltese themselves and the other one is tolerated by them in any kind of way since you shouldn't have to pay taxes on a refund again. At this stage, it doesn't even matter where the funds come from, like I said, they all will be subject to taxation in Malta and therefore be legit paid in Malta. Tax evasion won't pay out in the long run, tax avoidance does since there will always be legal loopholes left to use, it just might need smaller/bigger changes to your setup from time to time.

Out of curiosity, would you mind elaborating on those special cases in which a relocated resident still was held liable to pay taxes in his or her home country? Based on EU laws and agreements, there is absolutely no right for the home country, no matter what, to still tax you if your business and centre of life is abroad. Germany, France, Italy, they can all try and they will try, but if you got your s**t together, if you've done your homework, you won't have to fear anything. Upside of the EU.

So personally speaking, I've done my homework and spent weeks on reading, researching and discussing with international law firms. Have you done yours? I respect your engagement, though you're not a certified tax consultant, lawyer or accountant. Ofcourse this does not mean that you might know less than those guys I'm in touch with, however it's hard to trust your words if you didn't come all the way those firms did.

Regarding the second part in which you responded to @maxmmm, you might be true. I already mentioned to be careful about using offshores in the EU from what I've learned so far, but it seems even less worth to use them in tax heavens like Malta and Cyprus anymore (Cyprus along Malta joined the ATAD last year by the way). Every European country will fall for the rules and agreements, it's just a matter of time. Regardless, there will always be completely legal loopholes until the day every European country is based on the exact same tax laws and fees. Might be a thing in the future, but there also might be another 1000 different viruses exterminating mankind before.

 

[jackfrost]

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

The direct 5% instead of waiting for tax refund scheme only works with two maltese companies though or something like that. It does not work with Maltese active ltd + foreign holding. (I was told)

 

[jackfrost]

As for the CFC concerns on the holding also search for how dividends work in Maltese law - Most Efficient European Tax Structures for Company Owners in 2020 | Jean Galea

Along with the dividend comes a tax credit on the 35% which is also the max tax rate in general.

 

[Paper Chaser]

The direct 5% instead of waiting for tax refund scheme only works with two maltese companies though or something like that. It does not work with Maltese active ltd + foreign holding. (I was told)

Please scroll a bit or visit the page before, I already mentioned this case, too.

Darn, some of you guys should really consider reading more closely. lol

As for the CFC concerns on the holding also search for how dividends work in Maltese law - Most Efficient European Tax Structures for Company Owners in 2020 | Jean Galea

Along with the dividend comes a tax credit on the 35% which is also the max tax rate in general.

Yes, exactly. Nonetheless, the 'tax credit' is considered to be a 'dividend' (only God knows or some user on here may explain to me why) instead of a tax-free 'tax refund'. So you would basically have to pay taxes on your tax returns, to make it as clear as possible.

@BlueMist @JustAnotherNomad for those who were wondering, reading the article @jackfrost just mentioned might be helpful to you, too. There it says:

"One new feature as of 2020 is also the possibility for a holding and trading company to present consolidated accounts, and in this manner there will be no need to first pay 35% tax and then wait for the refund for around a year. You would net things and pay 5% tax directly. That’s a big improvement to the scheme in my opinion."

We may should be talking about whether it's worth switching to this setup now. Let me allow to quote myself:

10k vs 14k (single-time setup costs)
12k vs 16k (annually maintaining costs - all accounting, tax filing etc. included)
Having to wait up to 12 months for a tax refund vs Paying 5% directly and being able to use your money instantly

Which scenario would you prefer/recommend? Worth the extra costs?

 

[BlueMist]

I would go with 5% route, so I can effectively keep 5% cash due for taxes, instead of being 18 months without 30%. My accountant confirmed it is possible, but two companies need to have the same fiscal period. I will definitely explore the possibilities of adding it into existing setup.

 

[JustAnotherNomad]

Wow, the costs are really high. Isn’t Cyprus much cheaper?

 

[BlueMist]

Wow, the costs are really high. Isn’t Cyprus much cheaper?

For some businesses, especially gaming related, Malta makes more sense than Cyprus. Also 5% tax is better than 12.5%.

 

[Paper Chaser]

Wow, the costs are really high. Isn’t Cyprus much cheaper?

@Admin can you tell us?

Let me allow to quote myself again:

"Example 1: Assuming your annual income is 100k. Having the right setup, you will roughly pay ~12k-16k/year (company costs, accounting costs etc.) plus 5k/year (5% taxes) which would be ~17k-21k/year in total. This equals a loss of ~17-21%. I don't know for Cyprus, but I don't think the setup is needed to be that complicated and therefore won't be that expensive as it is in Malta. So considering the 12.5% company taxes in Cyprus as well as the annual company/accounting etc. costs, you might end up with a slightly higher income in Cyprus.

Example 2: Assuming your annual income is 1kk (1M). Malta: let's even set the annual company/accounting etc. costs to 20k, you still won't lose more than ~7% of your income (20k+50k (5% taxes) = 70k/1M = 7%). Cyprus: there will always be the minimum of 12.5% of company taxes (plus the additional annual company/accounting etc. costs). Dang, Cyprus lost this one by far."

I would not be planning what's cheaper, but how much your income will realistically be. Based on situations and experiences.

Don't plan for 10 years. Plan for 100 years or don't plan at all (ok well, that's plain stupid to say, because all action needs to require at least a bit of planning to increase your chances of success, so let's say just say 2 years).

 

[Silvio]

Don't plan for 10 years. Plan for 100 years or don't plan at all

I think this is the most German thing anybody has ever written in this forum

 

[Paper Chaser]

I think this is the most German thing anybody has ever written in this forum

I don't know whether this is a good or bad thing.

 

[jackfrost]

Yes, exactly. Nonetheless, the 'tax credit' is considered to be a 'dividend' (only God knows or some user on here may explain to me why) instead of a tax-free 'tax refund'. So you would basically have to pay taxes on your tax returns, to make it as clear as possible.

Yeah but not in the foreign holding as you stated too earlier i think. It is clear to most i think that you absolutely need a foreign holding. The whole thing does not make sense without one (income tax wise) anyways.

 

[jackfrost]

Btw planning for more than 5 years with any EU setup is
unrealistic. Expect things to change 2025 on. Of course MT & Co will try to uphold similar structures for longer but it will likely be a lot harder. The time is ticking for these budget setups that you can pull off so easily with so little money.

Covid might amplify things faster. MTs finances are not looking too rosy and there are several other dynamics involved in the political landscape.

Yes that is coming from another GER that is living on MT and doing the whole thing.

 

[jackfrost]

If you have at least the minimum treshhold in profits that you need for any of those moves then MT is much cheaper than CY. 10k is a good ballpark figure for MT active + GIB/CY holding + accounting, two virtual offices, etc unless you have insane accounting requirements.