60 Day Cyprus Tax Resident Valid For Tax Treaty Benefits?

[Konstanz]

Both of these (CY 60day and GE hnwi) are certificates issued based on domestic law and they will be disregarded for the purposes of double tax treaties, which have their own tests for determining tax residency.
As noted with 60 days rule in Cyprus you would lose tax residency of you are tax resident somewhere else - the fact that the cyprus service providers often fail to mention.
Valid tax certificates for treaty purposes are always issued based on the tax treaty and this will be clearly mentioned on the TRC.

Thats what I was informed by my lawyer.
If it is mentioned on the TRC is not good. This would be red flag for other high tax country

 

[JohnJ81]

I guess nobody knows the true answer as it can change on a case by case basis.

So from reading all the comments, the only way to make this really work is to spend more than 183 days per year in either Portugal or Cyprus or to set up a holding company in Dubai and take a corporate dividend from the European Subsidiary to the UAE parent freezone company so it zero tax due to having "qualifying income, and live there personally myself for 90 days and get the tax cert in order to safely prove that the company is "managed and controlled" in the UAE. My European Country does have a tax treaty with the UAE exempting witholding tax for corporate dividend paid by the European Subsidiary to the UAE parent company as long as the beneficial owner of owner of the UAE Company also has a personal tax cert for the UAE. I have no interest in nominees and taking risks.

 

[Marzio]

I guess nobody knows the true answer

Nobody knows the true answer because you omitted to explain why are you so worried about your home country to come after you and which are your ties.

If you don't have ANY ties then why are you so worried?

the only way to make this really work is to spend more than 183 days per year in either Portugal or Cyprus or to set up a holding company in Dubai

There could be more wasy but without knowing which is your home country (and which DTT are available to you) there's no way to tell.

 

[JohnJ81]

Nobody knows the true answer because you omitted to explain why are you so worried about your home country to come after you and which are your ties.

If you don't have ANY ties then why are you so worried?



There could be more ways but without knowing which is your home country (and which DTT are available to you) there's no way to tell.

If your structure is not done correctly, you leave yourself open to fines and penalties as well as the full amount owed. Although I dont have any ties from my own understanding of the tax treaty, my money is obviously coming from here, so if my structure is not in order it will be open to attack

Nobody knows the true answer because you omitted to explain why are you so worried about your home country to come after you and which are your ties.

If you don't have ANY ties then why are you so worried?



There could be more wasy but without knowing which is your home country (and which DTT are available to you) there's no way to tell.

I cant message you as you have restricted your profile for private messaging. Can you send me a private message me and I will go into more detail

 

[Don]

I guess nobody knows the true answer as it can change on a case by case basis.

So from reading all the comments, the only way to make this really work is to spend more than 183 days per year in either Portugal or Cyprus or to set up a holding company in Dubai and take a corporate dividend from the European Subsidiary to the UAE parent freezone company so it zero tax due to having "qualifying income, and live there personally myself for 90 days and get the tax cert in order to safely prove that the company is "managed and controlled" in the UAE. My European Country does have a tax treaty with the UAE exempting witholding tax for corporate dividend paid by the European Subsidiary to the UAE parent company as long as the beneficial owner of owner of the UAE Company also has a personal tax cert for the UAE. I have no interest in nominees and taking risks.

If you have a company in UAE, receiving a directors salary might be better, because its normally exempt based on the treaty even if you are a resident of another contracting state.

However, wherever you incorporate please invest in substance.

Businesses operating in the UAE must pass the Economic Substance Test in order to engage in a Relevant Activity. However, as per Article 14 of Cabinet Resolution No. 57 of 2020 for the first year, failing to pass the Economic Substance Test for each financial year will result in a fine of AED 50,000. However, in accordance with Article 14 of Cabinet Resolution No. 57 of 2020, a repeat of the same infringement in the succeeding Financial Year will result in an administrative fine of AED 400,000.

 

[European]

Well it all depends how those 264 people structured their NHR.

I mean, if you rent an apartment and you don't put any clothes, furnishing, dishes, fridge and you don't spend any day in the year in that apartment obviously you are abusing the NHR.

If you do things the "smart" way, have an apartment that looks like you are really living there, you have some receipts that you spent money in PT then those are all the proofs you need.

Also since PT is a Schengen country, you as EU passport holder can freely move without any controls so how the tax administration could know that you "really" lived there?

The only way they have is to check your bank statement and see where you are spending money.

If you have an apartment ready and spend money in PT they are satisfied.

The thing i overlooked is that tax administration will find all the proof they need in your passport stamps!

So if you don't have a second passport, Cyprus is probably a better option.



If your company is operating in any of those countries then forget NHR.

Why would you be abusing the NHR? If the law explicitly states that a person is a tax resident in PT if:
"Regardless of spending less than 183 days in Portugal, maintains a residence (i.e. a habitual residence) in Portugal during any day of the period referred above"
you'd be abusing the law only if you claim to maintain that residence and you do not. But if you are renting a place for the whole year for instance (and have all legit paperwork in place for the rental contract), even if you are never there you would still be fully complying with the law, wouldn't you?

 

[Marzio]

You'd be abusing the law only if you claim to maintain that residence and you do not.

Nope, in this context you are abusing the law because even if you the law states "regardless of spending 183 days" there is a presumption that you will spend some time in Portugal instead some folks rent for the whole year without staying there any day.

On paper they are tax resident, in reality they are not so they are abusing the law.

That's why PT tax agency verified those 264 NHRs

The program is called "non habitual resident", it's not called "paper residency"

 

[European]

Nope, in this context you are abusing the law because even if you the law states "regardless of spending 183 days" there is a presumption that you will spend some time in Portugal instead some folks rent for the whole year without staying there any day.

On paper they are tax resident, in reality they are not so they are abusing the law.

That's why PT tax agency verified those 264 NHRs

The program is called "non habitual resident", it's not called "paper residency"

So how many days would you have to stay to qualify? You talk about "some time". How long is that? is it open to interpretation by the tax office? Is one day enough? Is one month?

This is what the law says exactly:
b) Tendo permanecido por menos tempo, aí disponham, num qualquer dia do período referido na alínea anterior, de habitação em condições que façam supor intenção atual de a manter e ocupar como residência habitual;

https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/cirs_rep/Pages/irs16.aspx

 

[Don]

So how many days would you have to stay to qualify? You talk about "some time". How long is that? is it open to interpretation by the tax office? Is one day enough? Is one month?

This is what the law says exactly:
b) Tendo permanecido por menos tempo, aí disponham, num qualquer dia do período referido na alínea anterior, de habitação em condições que façam supor intenção atual de a manter e ocupar como residência habitual;

https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/cirs_rep/Pages/irs16.aspx

I understand that Portugal needs to be your usual residence, so you should not have a habitual abode anywhere else and at any tax year Portugal should be the country where you spend the longest time or have the most significant ties. As always you shouldn't move anywhere to gain tax benefits only, and even if you do it shouldn't be your "story", so building little substance can help yo reduce risk of non-compliance.

The potential for abuse of NHR regime could arise if individuals manipulate the NHR criteria to gain tax advantages without genuinely contributing to the Portuguese economy or society. Examples could include:

• Living in Portugal for the bare minimum period or maintaining a nominal residence without genuine occupancy or significant ties to the community. (not getting a gym membership and avoiding membership in a local synagogue)
• Artificially structuring personal affairs or business transactions to exploit the tax benefits of the regime without engaging in meaningful economic activities in Portugal.
• Misrepresenting facts or circumstances to qualify for the regime, such as providing false information about residency or income.
• Using the NHR status to evade taxes in another jurisdiction, which could involve international tax avoidance strategies.

 

[Marzio]

So how many days would you have to stay to qualify?

It's not about a magic number of days, it's about giving the tax office the "perceived" intention of living in Portugal.

You can rent the apartment for a year without having any furniture, clothes.

Do you think that, in case of a control, you will get away with the "regardless of spending 183 days" law?

Maintaining a nominal residence without significant ties to the community

That's what i'm talking about.

 

[European]

Hmmm, I'm not that sure.
I agree that approach would be less risky, of course, but that paragraph of the law doesn't state you have to have strong economic ties to the country. The problem I see is that the wording is quite ambiguous, since it talks about maintaining a residence in such conditions that lead to the supposition of an intention to maintain and occupy it as a habitual abode

This "supposition of an intention to..." is a very gray area, clearly open to interpretation, because how do you prove or disprove "intention" to stay there. If everything is ready for you in the house to step in at any type of the year, is that not intention to stay?

My question is, doing everything by the book, legal rental contract, furnished house with utilities and, living there, say, one month in the year. Why would that disqualify you as a resident based on what the law says?
If they specify explicitly that you can stay less that 183 days, why is this not allowed?
Maybe the law clarifies some of this elsewhere
How about if you own a house?

 

[Marzio]

The problem I see is that the wording is quite ambiguous

Stop for a second and just think about how they worded the program "non habitual resident"

How would you define an habitual resident? And a non habitual?

The ambiguous wording is there so that they could interprete things as they please.

How about if you own a house?

Owning a house imho showcase a stronger desire to reside in Portugal.

 

[marble123]

Similar situation to @JohnJ81:

*Cyprus Non-Dom
*Cyprus company
*Dividends from shares in a Spain company as main income (I do pay the 5% withholding tax)
*Less than 183 days in Spain // No home // no wife or kids

Article 4.2 of the DTT Spain/Cyprus states regarding residency that: “he shall be deemed to be a resident only of the State in which he has a permanent home available to him”

If, and only if he has an home at his disposal does it go into personal/economic ties, vital interest, etc

Spain, however, defines tax residency based on +183 days or having your centre of economic interest in the country.

1. As I understand by @Marzio comment, when considering the 60-day Non Dom it is more important to look at the criteria Spain uses to define tax residency (and not so much the DTT per se)

2. Assuming the above is true: Can Spain successfully claim tax residency even if I can prove I own a home in Cyprus (with stamp duty, property tax, utilities, etc), company in Cyprus with substance & director salary, active banks accounts, etc?

3. If yes, would it help to sell the stake in the Spanish company to the Cyprus company?

4. If no, and taking into account this structure, would it make more sense to study the Portugal NHR option?

Any insight is much appreciated!

 

[Marzio]

Dividends from shares in a Spain company

1. Are you a spanish citizen?

2. how much shares?

would it help to sell the stake in the Spanish company to the Cyprus company?

Definitely yes, because if the CY LTD holds directly at least 10% of the Spanish company withholding taxes are lowered to 0%

 

[marble123]

Thanks for getting back.

Spanish citizen and 50% shareholder

Selling the shares to the Cyprus company is preferred over the NHR option, but are there any potential drawbacks/downsides for the cyprus company owning the shares in the long run?

 

[Marzio]

Spanish citizen and 50% shareholder

This could be enough for Spain to claim you are tax resident because have a predominant interest in a Spanish company.

If they do and you don't stay 183 days in CY and rely on the 60 days non dom residency rule, you are screwed.

If you sell your shares to the CY LTD then you'll cut all the ties with Spain without any issues down the line.

You could even live in Purtugal under NHR and receive tax free dividends from the CY LTD.

 

[marble123]

Thanks @Marzio

Would selling the shares to the CY LTD indeed cut ties with Spain (or would it still be an issue since I am the UBO)?

If not an issue and it does indeed mean that I cut ties with Spain, I could in theory continue to be a Cyprus 60-day Non-Dom and not face any risk from Spain (provided no home, less than 183 days, no wife/children etc)?

 

[Marzio]

Would selling the shares to the CY LTD indeed cut ties with Spain (or would it still be an issue since I am the UBO)?

You are the UBO but it's the CY LTD that owns the shares and a LTD is a different entity.

If not an issue and it does indeed mean that I cut ties with Spain, I could in theory continue to be a Cyprus 60-day Non-Dom and not face any risk from Spain (provided no home, less than 183 days, no wife/children etc)?

If you sell your shares then i don't see any reason why Spain would consider you to be tax resident but don't rely only on my advice and seek a legal advice from a professional.

 

[marble123]

Thanks again - 100% agree that should seek legal advice from a professional.

Back on the topic of 'centre of economic interest', a term which, perhaps intentionally, is not well defined. As I understand this refers to the geographic source of income/investments/assets.

Let's take a hypothetical example based on the structure defined above:

*Non-Dom individual in Cyprus (60 days) has three companies in different jurisdictions: Estonia, Spain and Cyprus.
*Estonia Co pays an annual salary of 15k
*Spain Co pays an annual dividend of 50k
*Cyprus Co pays an annual dividend of 50k
*60% of total accumulated wealth is held in foreign (not Spanish) banks and foreign real estate
*No home at disposal in Spain, but 2 homes at disposal in Cyprus

Under this scenario, and in the event of a dispute, do you think there would be a good chance of emerging victorious?

Special thanks for taking the time on a Sunday.

 

[Marzio]

in the event of a dispute, do you think there would be a good chance of emerging victorious?

No because in case of a dispute CY will not consider you tax resident so all the proof you are piling up re worhthless because they are only useful in cause of you being considered tax resident in two countries at the same time (which is not this case).

You will not be protected by Cyprus if you only stay 60 days and if Spain claim you are tax resident.

You have to PREVENT the dispute, not fighting the dispute.

The legal advice is to be 100% sure that Spain will not have any basis for claiming your tax residency otherwise you already lost without even beginning the battle.