Best low tax setup for tax residency in Schengen with UAE FZ?

[mzs034]

What country is the best for tax residency within EU (Schengen) to base yourself as tax resident (renting flat, EOR, establish company), to run with an operational UAE company? What is the lowest tax setup with also ability to travel freely within EU?

I understand tax residency in UAE doesn’t matter in EU if you don’t stay 183 days, with TRC being useless, and 183 days are too much to be living in UAE.

What are the options? Malta, Portugal?

In Malta, would you need to declare CFC, I read Malta doesn’t really have defined PE rules?

Is the Portugal NHR a viable option?

 

[Milei]

Bulgaria has been in Schengen since this year and has a favorable DTT with UAE (place of incorporation as opposed to place of effective management as corporate residency tie-breaker rule). 5% flat tax on dividend income.
Cyprus will probably be in Schengen from next year on. There is a 2.65% social security tax for non-doms (capped at about 5k) but they have a standard tie-breaker rule in their DTT (place of effective management for corporate residency) with UAE, so it's more risky.

 

[SCHLOSSFINANZ]

Bulgaria is your best deal

 

[mzs034]

How would one best setup in this case in Bulgaria as EU citizen? Company or just registering to live for the tax residence? How would one structure if the plan is to move around EU?

 

[Milei]

How would one best setup in this case in Bulgaria as EU citizen? Company or just registering to live for the tax residence? How would one structure if the plan is to move around EU?

As EU citizen you can easily register for 5 year residence permit in Bulgaria. All you need is a 1 year rental contract (with notarized form filled out) or property deed, health insurance (either EHIC, Bulgarian social security or private) and a minimum of 13.000 BGN bank balance (sometimes they just accept a photocopy of credit card depending on migration office).

I guess your question is more about what you need in order to be considered a tax resident, even if you don't stay there for 6 months and travel around in Schengen zone? In that case, you can either create a company, register as a freelancer, or buy property to have your center of vital interests there. Otherwise, you need to stay at least 183 days there and keep all expense receipts.

https://taxsummaries.pwc.com/bulgaria/individual/residence

 

[mzs034]

As EU citizen you can easily register for 5 year residence permit in Bulgaria. All you need is a 1 year rental contract (with notarized form filled out) or property deed, health insurance (either EHIC, Bulgarian social security or private) and a minimum of 13.000 BGN bank balance (sometimes they just accept a photocopy of credit card depending on migration office).

I guess your question is more about what you need in order to be considered a tax resident, even if you don't stay there for 6 months and travel around in Schengen zone? In that case, you can either create a company, register as a freelancer, or buy property to have your center of vital interests there. Otherwise, you need to stay at least 183 days there and keep all expense receipts.

https://taxsummaries.pwc.com/bulgaria/individual/residence

I presume in the second case, you would need both the rental agrement, bank account opened, etc. and then also get a work-related activity (business, freelance, employment) set up?

Do you need to make any income on say “registering as a freelancer”, or would an empty activity + only dividends from UAE as personal income work? If you can’t have it empty, would an EOR setup work?

What about utilities, expenses in the case where you have a work/freelance agreement in Bulgaria? Do those need to be maintained?

Also on declarations of the UAE activity, would you need to share your bank accounts (personal or corporate) there, financial statements, etc? Would they tax on dividends paid wherever or just directly to Bulgaria?

 

[Milei]

You don't need a local bank account opened, just proof that you have funds with any.


For the income in Bulgaria, it depends on what you want to achieve with a tax residency in Bulgaria. The problem is that your main business is in the UAE, so from a standpoint of DTT, your centre of vital interest is rather in the UAE if you spend less than 183 days in Bulgaria. If you want a TRC from the Bulgarian tax authority, they will ask for proof that your center of vital interest is in Bulgaria. I don't know whether a simple freelance registration without income is enough as proof for them, you would need to ask a tax advisor.

The question is why you want to have the tax residence in Bulgaria? Is it to convince another tax authority in a high tax country that you are not a tax resident there anymore? In that case, the DTT between that country and UAE/Bulgaria matters as well.

You could also use a Bulgarian company as a holding for the UAE company instead of freelance registration or pay yourself a salary or a freelancer rate from the UAE. Freelance income is taxed effectively at 7.5% + social security (capped) in Bulgaria.

Also, the question is why you want to have your business in UAE instead of Europe, If it is for tax reasons you should first check that your business qualifies for 0% tax in the freezone. Otherwise, you pay almost the same rate as in Bulgaria (or more if you consider the cost).




In the case of Cyprus AFAIK, you would create a company (even if that is without activity or it could be a holding for the UAE one) to get the residence permit and that would be enough for them to issue a TRC if you spend at least 2 months in Cyprus and not more than 6 months elsewhere.

 

[mzs034]

You don't need a local bank account opened, just proof that you have funds with any.


For the income in Bulgaria, it depends on what you want to achieve with a tax residency in Bulgaria. The problem is that your main business is in the UAE, so from a standpoint of DTT, your centre of vital interest is rather in the UAE if you spend less than 183 days in Bulgaria. If you want a TRC from the Bulgarian tax authority, they will ask for proof that your center of vital interest is in Bulgaria. I don't know whether a simple freelance registration without income is enough as proof for them, you would need to ask a tax advisor.

The question is why you want to have the tax residence in Bulgaria? Is it to convince another tax authority in a high tax country that you are not a tax resident there anymore? In that case, the DTT between that country and UAE/Bulgaria matters as well.

You could also use a Bulgarian company as a holding for the UAE company instead of freelance registration or pay yourself a salary or a freelancer rate from the UAE. Freelance income is taxed effectively at 7.5% + social security (capped) in Bulgaria.

Also, the question is why you want to have your business in UAE instead of Europe, If it is for tax reasons you should first check that your business qualifies for 0% tax in the freezone. Otherwise, you pay almost the same rate as in Bulgaria (or more if you consider the cost).




In the case of Cyprus AFAIK, you would create a company (even if that is without activity or it could be a holding for the UAE one) to get the residence permit and that would be enough for them to issue a TRC if you spend at least 2 months in Cyprus and not more than 6 months elsewhere.

Regarding why UAE - some actual physical presence in business within the country, some business-specific licenses which would take time and money to acquire for another jurisdiction/company, little to no bureaucracy, ease of banking with third world countries (no questioning on transactions), and effectively still 0% tax under 375k AED threshold, and anything above can be expensed as salary (taxed 0%) or other easier justifiable expenses.


- A question here again as discussed in a previous comment on the declaring of personal bank accounts and salary received in the UAE to the EU. Is such income taxable in BG/CY, and visible anyhow, since UAE is non-CRS for residents?


Why another EU country’s tax residency - in the eyes of home EU country it’s less of a red flag than just declaring departure to UAE/UAE tax residency. Especially if the 183 days in UAE threshold is not reached, even with TRC there (with 90 days or less).


The idea initially was to pursue this type of residency TRC with proof of vital interest in UAE with 90 or less days, but most everyone on the forum discourages it.


There is the possibility to technically have tax residence nowhere and be the perpetual traveler but seems risky (I don’t know if that’s better than to claim UAE TR), as I would still need to declare the country I move to in the home country.

Cyprus becomes an option once it is Schengen-approved. What would be the effective total tax rate in this UAE>Cyprus holding>dividends structure?

Probably best to pay some low tax somewhere in EU like Cyprus/Bulgaria so that if any country would try to claim me it would not look like a red flag, whether home or another EU country I would spend sizable time in. Though, I wonder if the Cyprus TRC (even with 60 days) does help against another EU country or if it is the same red flag as UAE.