Cyprus + UAE company

[BasedOperative]

Hi guys, thoughts on this setup?

A Cyprus non-dom resident owns a UAE company with a UAE office. You work remotely from Cyprus but:

- Have no Cyprus clients.
- Keep funds in non-EU bank accounts (or even just leaving them in the UAE company).
- Don’t remit huge amounts of money into Cyprus (very little, just to cover personal living expenses).
- Keep the company’s management and control documented as UAE-based as much as possible, possibly using a local director, small rented office, and flying there once a year for “board meetings”. (but no expensive substance setups).
- Benefit from Cyprus non-dom rules (0% tax on foreign dividends + 2.5% GESY capped at 4500€).

Result: The UAE company is very unlikely to be treated as tax resident in Cyprus (hopefully, but correct me if I’m wrong), and you benefit from non-dom Cyprus taxation on foreign dividends.

Let me know your thoughts and whether you know anyone who is currently using a similar setup successfully.

Update 1: If this does work, would it also work with a HK company or other zero tax company, instead of UAE?

Update 2: I’ve also read on this forum that some people run this setup but handle the POEM/PE issue by having a staffing company in cyprus and paying some tax on a small part of the profits, or by employing themselves through an EOR. Anyone knows more about how (and if) this works?

Thanks in advance.

 

[Sols]

- Have no Cyprus clients.

Generally a good idea. B2B clients might be fine, especially if they're foreign owned/operated.

- Keep funds in non-EU bank accounts (or even just leaving them in the UAE company).

Doesn't make a difference.

- Don’t remit huge amounts of money into Cyprus (very little, just to cover personal living expenses).

Doesn't make a difference.

- Keep the company’s management and control documented as UAE-based as much as possible, possibly using a local director, small rented office, and flying there once a year for “board meetings”. (but no expensive substance setups).

This determines everything. Do this and you're pretty much set.

- Benefit from Cyprus non-dom rules (0% tax on foreign dividends + 2.5% GESY capped at 4500€).

OK.

Result: The UAE company is very unlikely to be treated as tax resident in Cyprus (hopefully, but correct me if I’m wrong), and you benefit from non-dom Cyprus taxation on foreign dividends.

Correct. And even if it were, Cyprus exerts almost zero effort in going after foreigners, as long as you're well behaved and don't cause any problems.

Update 1: If this does work, would it also work with a HK company or other zero tax company, instead of UAE?

Yes.

Update 2: I’ve also read on this forum that some people run this setup but handle the POEM/PE issue by having a staffing company in cyprus and paying some tax on a small part of the profits, or by employing themselves through an EOR. Anyone knows more about how (and if) this works?

Waste of time and money.

 

[Milei]

Correct. And even if it were, Cyprus exerts almost zero effort in going after foreigners, as long as you're well behaved and don't cause any problems.

Not sure about that. Google Abramovich + Blue Ocean Yacht Management

 

[BasedOperative]

Doesn't make a difference.

I’m aware that due to CRS this would be barely of use nowdays. I’d still do it to avoid making more noise than what’s necessary.

This determines everything. Do this and you're pretty much set.

That’s the goal. I want to understand how this can be done without “taking it too far”. I want to be clear that this would be a totally artificial substance setup, and that I don’t intend to spends lots of money into it. I would be willing to get a cheap one-room office + UAE nominee director, but not more. Nothing would be actually done in the UAE except the yearly “board meeting”. Even my presence in the UAE would be limited to 1 or 2 yearly weekend trips.

Waste of time and money.

Got it, thanks.

Correct. And even if it were, Cyprus exerts almost zero effort in going after foreigners, as long as you're well behaved and don't cause any problems.

That’s what I’ve heard on this forum, henche my post. I wouldn’t try to do this in any other EU country, except a couple maybe.


My main concern is understanding what’s the lowest amount of substance that I could get away with, without triggering POEM/PE in Cyprus, and whether this is a path even worth pursuing or not.

Thanks for the good advice, man
You seem to be very active and savvy on this topic. I appreciate it a lot

 

[BasedOperative]

Not sure about that. Google Abramovich + Blue Ocean Yacht Management

He used to dodge VAT by creating invoices for fake yacht charters that never even took place. They’re still after him for a few tens of millions I believe, lol.

Hurts to say, but my operations are nowhere near that.

 

[Sols]

Not sure about that. Google Abramovich + Blue Ocean Yacht Management

You mentioned one of the highest-profile people in the world doing things that I'd say qualify as causing problems locally. I wouldn't worry too much if @BasedOperative isn't a high-profile public figure Russian oligarch.

I’m aware that due to CRS this would be barely of use nowdays. I’d still do it to avoid making more noise than what’s necessary.

There are lots of good reasons to not bank in EU. But it's not a factor that determines tax residence for companies in Cyprus.

That’s the goal. I want to understand how this can be done without “taking it too far”. I want to be clear that this would be a totally artificial substance setup, and that I don’t intend to spends lots of money into it. I would be willing to get a cheap one-room office + UAE nominee director, but not more. Nothing would be actually done in the UAE except the yearly “board meeting”. Even my presence in the UAE would be limited to 1 or 2 yearly weekend trips.

Excellent. Cyprus probably won't question you anyway but this might give banks and other such partners peace of mind.

My main concern is understanding what’s the lowest amount of substance that I could get away with, without triggering POEM/PE in Cyprus, and whether this is a path even worth pursuing or not.

On paper, Cyprus has laws that aren't that different from what you find elsewhere in Europe. But Cyprus doesn't prioritise going after wealthy foreigners who do a little bit of tax evasion. Cyprus knows what draws people to the island and it's not the brilliant infrastructure, efficient bureaucracy, lack of corruption, quality of healthcare, or quality of education. It's laissez-faire business environment.

They want people like you. Sure, you might not pay corporate income tax nor income tax. But you'll rent a luxury apartment or villa - maybe buy property. You spend above average amounts at restaurants, shops, insurances, car, and so on.

If you go as far as appointing a nominee director in UAE (or anywhere outside of Cyprus), you've put up enough of a front that they will most likely just leave you alone. Some people don't even bother with the director, and it still doesn't get questioned.

 

[BasedOperative]

You mentioned one of the highest-profile people in the world doing things that I'd say qualify as causing problems locally. I wouldn't worry too much if @BasedOperative isn't a high-profile public figure Russian oligarch.


There are lots of good reasons to not bank in EU. But it's not a factor that determines tax residence for companies in Cyprus.


Excellent. Cyprus probably won't question you anyway but this might give banks and other such partners peace of mind.


On paper, Cyprus has laws that aren't that different from what you find elsewhere in Europe. But Cyprus doesn't prioritise going after wealthy foreigners who do a little bit of tax evasion. Cyprus knows what draws people to the island and it's not the brilliant infrastructure, efficient bureaucracy, lack of corruption, quality of healthcare, or quality of education. It's laissez-faire business environment.

They want people like you. Sure, you might not pay corporate income tax nor income tax. But you'll rent a luxury apartment or villa - maybe buy property. You spend above average amounts at restaurants, shops, insurances, car, and so on.

If you go as far as appointing a nominee director in UAE (or anywhere outside of Cyprus), you've put up enough of a front that they will most likely just leave you alone. Some people don't even bother with the director, and it still doesn't get questioned.

Sounds good, man. Thanks

Totally agree with what you said. I feel like Cyprus implemented CFC/POEM rules just to make the EU happy, but they have almost no interest in actually implementing them. The CFC exemption (for companies making less than 750k€ profit) seems to prove it. In Cyprus they actually understand what brings business and prosperity to a nation, unlike the EU.

That said, I’ll definitely appoint a UAE-based director, just to be sure. Would you say renting a small office space and travelling to the UAE multiple times per year is necessary?

Would also like to know whether local tax lawyers recommend this kind of setups or not

 

[Sols]

That said, I’ll definitely appoint a UAE-based director, just to be sure. Would you say renting a small office space and travelling to the UAE multiple times per year is necessary?

It's certainly not bad but it may be overkill. The director simply being Cypriot non-resident goes a very long way, especially if it's a small business and you don't have a bunch of staff based in Cyprus.

 

[BasedOperative]

It's certainly not bad but it may be overkill. The director simply being Cypriot non-resident goes a very long way, especially if it's a small business and you don't have a bunch of staff based in Cyprus.

Got it, thanks for the clarification. I run my company solo (+ occasional independent contractors, none of which are based in cyprus). A small office room in the UAE would be cheap, so I might do that just to be sure.

What other companies aside from a UAE FZ would you say would work for this setup? HK maybe? UK ltd (as payment agent) + something else as main co? That would be golden for payment processing as I would easily be able to offer Klarna to EEA buyers.

What are your thoughts on this?

 

[Phillip]

I agree with the main consensus here. It is not that legal in Cyprus but also nobody wants to punish this. Just be good with your GESY

Got it, thanks for the clarification. I run my company solo (+ occasional independent contractors, none of which are based in cyprus). A small office room in the UAE would be cheap, so I might do that just to be sure.

What other companies aside from a UAE FZ would you say would work for this setup? HK maybe? UK ltd (as payment agent) + something else as main co? That would be golden for payment processing as I would easily be able to offer Klarna to EEA buyers.

What are your thoughts on this?

HK is fine. Even Seychelles works but you will have expensive transactional banking. For HK you can use Chinese banks that form your HK company for you and open an account immediately, this is more profitable, but you should consider the audit requirement, which might be an unnecessary expense.

UK Ltd is outdated for calm business. Every UK and British Commonwealth will AML you to death to even form a company. Esp those places like Anguilla or Gibraltar.

 

[BasedOperative]

I agree with the main consensus here. It is not that legal in Cyprus but also nobody wants to punish this. Just be good with your GESY


HK is fine. Even Seychelles works but you will have expensive transactional banking. For HK you can use Chinese banks that form your HK company for you and open an account immediately, this is more profitable, but you should consider the audit requirement, which might be an unnecessary expense.

UK Ltd is outdated for calm business. Every UK and British Commonwealth will AML you to death to even form a company. Esp those places like Anguilla or Gibraltar.

Got it, thanks for the input.

I’d rather stay away from Seychelles since I need payment processors for my biz. HK is a great option and maybe even cheaper than UAE, but it would probably be harder to build substance in HK (since I must not have any there, to access the foreign income exemption).

The UK ltd would be only used as a payment agent, many players in my industry are using that. But that would require a second 0% tax company.

US llc wouldn’t work because it is transparent and it’s income would fall under personal income in CY instead of dividends. (still not sure whether Cyprus treats it as opaque or not)

What other options do you think are there?

 

[Phillip]

Got it, thanks for the input.

I’d rather stay away from Seychelles since I need payment processors for my biz. HK is a great option and maybe even cheaper than UAE, but it would probably be harder to build substance in HK (since I must not have any there, to access the foreign income exemption).

Forget about foreign income exemption, its just marketing, you will pay 8.25-16.5% but you can deduct almost all expenses, in principle this is not an issue

The UK ltd would be only used as a payment agent, many players in my industry are using that. But that would require a second 0% tax company.

Nonetheless do not recommend, you will get zero physical banking and Hk does not really need payment agent

What other options do you think are there?

Practically very little I mean you are looking for low risk PSPs so you cant go for any classic zero tax offshores

You can do Singapore non resident domestic which will have a local nominee but cannot conduct any work from there or sell to local clients. Then you pay zero and with high trust. You are looking at about $15K for formation + good quality local nominee + physical bank opening and then $5-10K yearly upkeep

 

[BasedOperative]

Forget about foreign income exemption, its just marketing, you will pay 8.25-16.5% but you can deduct almost all expenses, in principle this is not an issue

Really? I had no idea that was the case. That may not be worth the hassle then, since CIT would be 12.5% in Cyprus anyway (soon to be 15%).

Maybe it would keep me off the EU VAT system which is nice.

In that case, UAE would still top the rest of the options despite the setup costs. Payment processing is not great there though, so a US llc or UK llp as a subsidiary would still be needed. Everyone I know that lives in Dubai uses this setup.

 

[Dandyline]

Hi guys, thoughts on this setup?

A Cyprus non-dom resident owns a UAE company with a UAE office. You work remotely from Cyprus but:

- Have no Cyprus clients.
- Keep funds in non-EU bank accounts (or even just leaving them in the UAE company).
- Don’t remit huge amounts of money into Cyprus (very little, just to cover personal living expenses).
- Keep the company’s management and control documented as UAE-based as much as possible, possibly using a local director, small rented office, and flying there once a year for “board meetings”. (but no expensive substance setups).
- Benefit from Cyprus non-dom rules (0% tax on foreign dividends + 2.5% GESY capped at 4500€).

Result: The UAE company is very unlikely to be treated as tax resident in Cyprus (hopefully, but correct me if I’m wrong), and you benefit from non-dom Cyprus taxation on foreign dividends.

Let me know your thoughts and whether you know anyone who is currently using a similar setup successfully.

Update 1: If this does work, would it also work with a HK company or other zero tax company, instead of UAE?

Update 2: I’ve also read on this forum that some people run this setup but handle the POEM/PE issue by having a staffing company in cyprus and paying some tax on a small part of the profits, or by employing themselves through an EOR. Anyone knows more about how (and if) this works?

Thanks in advance.

It really depends on your revenue and profits. Running a UAE company with even minimal substance (small office, local director, filings, etc.) will cost at least $10–12K USD per year, so make sure it’s worth it.

Also, opening a UAE business account is very hard if you’re not a UAE resident, banks check the real UBO and usually want the UBO to have UAE residency.

 

[BasedOperative]

It really depends on your revenue and profits. Running a UAE company with even minimal substance (small office, local director, filings, etc.) will cost at least $10–12K USD per year, so make sure it’s worth it.

Also, opening a UAE business account is very hard if you’re not a UAE resident, banks check the real UBO and usually want the UBO to have UAE residency.

Thanks, man.

I’m aware of the costs, for this reason I’m considering other setups as well. Lots of people seem to be using US LLCs from Malta without issues. So that might be an option.

 

[Milei]

I’m aware of the costs, for this reason I’m considering other setups as well. Lots of people seem to be using US LLCs from Malta without issues. So that might be an option.

Probably less of an issue than Cyprus because you don't even need to report non-remitted foreign income in the tax return (as opposed to Cyprus). And you can keep travelling to make sure you don't trigger PoEM/PE. But you have to pay a minimum of 5000 EUR non-dom tax every year and rent a home permanently in Malta.

 

[BasedOperative]

Probably less of an issue than Cyprus because you don't even need to report non-remitted foreign income in the tax return (as opposed to Cyprus). And you can keep travelling to make sure you don't trigger PoEM/PE. But you have to pay a minimum of 5000 EUR non-dom tax every year and rent a home permanently in Malta.

That’s not bad at all, honestly. I plan to actually live in Malta though. What could I do to avoid triggering POEM/PE? Or is it just not an issue for a US llc since it’s kind of private anyways?

 

[Milei]

I don't see how you could avoid triggering PE or POEM if you spend most of your time in Malta (maybe if you hire an employee and director somewhere else for that company). Also depends on what the activity of that LLC is. If it's only passive holdings/investments, then it's not an issue. But if you are, for instance, working as a freelancer from Malta it is seen as locally sourced income, taxable at a marginal rate of 35%. And even if you don't report that income in your tax return it gets somehow reported via CRS to the tax office. The only alternative is to create a complex & expensive holding structure with local MaltaCo and foreign Holding to pay effectively only 5% after the distribution of dividends.

 

[BasedOperative]

I don't see how you could avoid triggering PE or POEM if you spend most of your time in Malta (maybe if you hire an employee and director somewhere else for that company). Also depends on what the activity of that LLC is. If it's only passive holdings/investments, then it's not an issue. But if you are, for instance, working as a freelancer from Malta it is seen as locally sourced income, taxable at a marginal rate of 35%. And even if you don't report that income in your tax return it gets somehow reported via CRS to the tax office. The only alternative is to create a complex & expensive holding structure with local MaltaCo and foreign Holding to pay effectively only 5% after the distribution of dividends.

Well, I’m aware of PEOM rules. My question is that I’m not sure if they are really applied in practice and whether that risk can be mitigated by using a director in a tax-neutral jurisdiction. Even some artificial substance ( ie: a small office room) if needed.

Regarding CRS, technically the US is a non-CRS jurisdiction and doesn’t share their data (not even the UBO). Obviously that can change though, and still carries some risk.

A Malta fiscal unit would indeed let me pay only 5%, but would also mean paying EU VAT. Many fiscal unit setups involve a Maltese company + foreign holding, which does indeed still carry the risk of POEM for the foreign holding. Lots of people are doing it without issues, especially non-doms.

In Malta, just like in Cyprus, the laws regarding CFC/POEM/PE don’t always reflect what happens in practice, as we know these countries only added those laws because of EU pressure, not because they’re really interested in going after foreigners.

I’m just trying to understand what the situation is like in practice. Maybe some Malta/Cyprus residents or tax lawyers with hands-on experience can tell us more about it

 

[jiejq]

Waste of time and money.

Why do you say it? could you elaborate? I've seen a lot of people here suggesting this set up.

Forget about foreign income exemption, its just marketing, you will pay 8.25-16.5% but you can deduct almost all expenses, in principle this is not an issue

Is this real? I've heard a lot of people doing it with HK companies paying 0%, how they do it?