A question of CFC and double taxation.

[Jaydo]

I'm hoping someone here may know, as I'm finding it difficult to find the info online.

Let's suppose I live in Hungary where the corporate tax rate is 9% and I have a Cyprus company (12.5%).

As the Cyprus company is controlled from Hungary, would Hungary see this as a CFC and have rights to apply the 9% tax, or would the double taxation treaty prevent this?

 

[JustAnotherNomad]

Forget about CFC rules. They are only one of several ways how that can happen. And they certainly wouldn’t apply when the tax paid in the other country is HIGHER.

But if you work from Hungary, they can simply say that there is a permanent establishment in Hungary, for which you will have to pay the Hungarian tax. If there is a DTT, then that money wouldn’t be taxed in Cyprus.

But why would you worry? 9% is less than 12.5%?

 

[fshore]

wouldn’t be taxed in Cyprus.

But it normally isn’t that easy. You might have to pay tax twice then submit a certificate of tax residency and claim to have the money back, it might take long time and be complicated. I would personally try to avoid that, especially if it’s a small company and not huge sums in tax to save.

 

[Jaydo]

I'd be happier to pay the 9% in Hungary. The issue is privacy. Hungary doesn't allow single corporate directors but Cyprus does I believe. It's a clean business so tax isn't the concern.. paying twice is and and not being listed personally on public records.

 

[JustAnotherNomad]

I would talk to a Hungarian lawyer/service provider. Maybe they have some other solution, like nominee directors.
You might have to register a Hungarian branch of your Cyprus company to be able to pay the Hungarian tax. And then it’s very likely that the same restrictions as for a Hungarian company would apply.
The upside however is that I think it wouldn’t necessarily be as bad as @fshore described since the branch would be a legal entity of its own.