CFC rules in the EU

[unicorn]

If you take a closer look at CFC rules in EU countries, you'll see that MOST countries ONLY apply CFC rules on companies : meaning, a parent company controlling a subsidiary.

But what if you are "controlling" a foreign company as an INDIVIDUAL ? Meaning : running an offshore business.

The "CFC" rules do not apply, but most countries have a provision saying that a (offshore) company is considered as a resident company when the place of management is in the individual's home country.

If you can prove that you regularly go to (the offshore's) country to "manage" your business, isn't it then up to the high tax country to proove that you are "managing" the offshore in the high tax country ?

Especially if it is an online business. Eg you travel around, spend 4 months in 3 countries, and you are taxed in a high tax country that claims that you "managed" the offshore there.

If you can proove you were NOT (or 1 or 2 or 3 months only) physically in the high tax country : how on earth could that high tax country possibly claim that the offshore was managed from there ???

Seems impossible. This way, it does look like the offshore could keep its offshore tax regime, no ?

 

[fshore]

You can’t talk about this generally, you need to look at the specific country that you have in mind and look into court cases and policy.

Probably in the best case scenario you will get an unclear answer and might have to fight a tax claim through the courts claiming your point.

 

[MarkusM]

Very good question, Unicorn!! I was asking almost the same in the past, but instead to get an accurate answer, i become even more confused.
I suspect that people on this forum don't really want to undercover certain things, because there is a paid section , called Mentor Group, so they will refrain from giving a clear answer.

 

[MarkusM]

Very good question, Unicorn!! I was asking almost the same in the past, but instead to get an accurate answer, i become even more confused.
I suspect that people on this forum don't really want to undercover certain things, because there is a paid section , called Mentor Group, so they will refrain from giving a clear answer.
From my point of view, you are right, CFC rules only applies to a parent company controlling a subsidiary company.
But then it comes the RESIDENCY test, meaning that if the offshore company is managed from your place of residence, then it will be tax resident in your own country. And here you have an option: to hire a manager for that company! This way, even if you are the UBO ,that company will not be tax resident in your country!
So, in this case, even if you are both, the shareholder and director of the company, but you have a manager for that company everything should be fine!

 

[GrumpyMess]

And here you have an option: to hire a manager for that company

Where you can find such a trustable manager from an offshore jurisdiction?

 

[unicorn]

I agree on the RESIDENCY part, BUT here too, if I would rent an apartment (for office and living combined) in the offshore country I could claim residency in 3 countries as I have a "permanent abode" in 2 EU countries at the moment.

So that would make 1 offshore, 3 permanent houses in 3 countries, and being nowhere for 183 days, proven by passport stamps, family travels along so no family ties to the high tax country either ... the offshore then becomes the "strongest" country as that would have the only economic activity (so income) which is an extra tie to the country, absent in the other 2.

I think the high tax country can simply not claim you are a personal income tax resident there. I think you'ld effectively be tax free.

and as there are 3 residencies, the proof of residency / utility bill is no problem either. Those come all year round, wheather you live there or not all year long.

 

[robertcold]

I'd be very careful here. I assume that the high tax country is your passport country, and depending on which country it is, owning/renting real estate, or even very regularly go there to a hotel might get you into trouble. As long as your income is quite small and you keep a low profile AND have no economic ties (customers etc.) in that first country, you can assume to be more or less fine.

If you want to play it safe, you'd rather stay 183+ days in the country where you want to cause a tax residency, and transfer ownership/rent contracts of the other real estate to friends/family.

 

[Perry8]

You can’t talk about this generally, you need to look at the specific country that you have in mind and look into court cases and policy.

Correct. I think that the reason why this is not so much talked about is that:
1) These rules are very different from country to country. The OECD has a "minimum" recommendation of CFC-rules, the EU has a directive that forces all EU countries to have CFC-rules (from 2019), and the different countries have different implementations of these rules. So, to make it short; the differences are huge.
2) There are also the "domicile test" of companies, meaning where a company is considered to be domiciled or resident. Again, this varies. The general rule is, of course, that a company is domicled where it is incorporated. But, tax authorities have begun to re-domicile companies for tax purposes, especially where the company is incorporated offshore and where all else is happening in one jurisdiction. These are the "obvious" cases. Her you also have to look at each country individually, but also where the company is incorporated. In the EU this re-domiciling is in conflict with the right to establish business in all member states (one of the fundamental rights). So, you will see that the Swedish tax authorities (to take one example) treats Malta companies different from Seychelles companies. In the case of Malta companies you do not really need that much activity on Malta to be able to claim that the company is in fact a Maltese company, wheras a Seychelles one would take a lot more.
3) On top of all this you have the question on the individuals (UBOs) residency. Here it will nearly always be an advantage to have a residency in a different jurisdiction than your passport jurisdiction.

I have worked with this type of issues for many years, but I am not a member of the Mentor Group (i might be some day) so I cannot tell what information that you could find there. My point here is that the way the rules have evolved you cannot really talk about one standard anymore. You always need to make a total assessment of the situation, and sometimes you will have to dig really deep to be able to make this assessment.

My way of thinking is this: Always stay well on the right side of the fence, unless you go for total anonymity. For most people (combination of citizenship and residency), there are still a lot of possibilities to create a good structure, but you need to put in a bit more time and effort to get there.

 

[lonizzita]

Correct. I think that the reason why this is not so much talked about is that:
1) These rules are very different from country to country. The OECD has a "minimum" recommendation of CFC-rules, the EU has a directive that forces all EU countries to have CFC-rules (from 2019), and the different countries have different implementations of these rules. So, to make it short; the differences are huge.
2) There are also the "domicile test" of companies, meaning where a company is considered to be domiciled or resident. Again, this varies. The general rule is, of course, that a company is domicled where it is incorporated. But, tax authorities have begun to re-domicile companies for tax purposes, especially where the company is incorporated offshore and where all else is happening in one jurisdiction. These are the "obvious" cases. Her you also have to look at each country individually, but also where the company is incorporated. In the EU this re-domiciling is in conflict with the right to establish business in all member states (one of the fundamental rights). So, you will see that the Swedish tax authorities (to take one example) treats Malta companies different from Seychelles companies. In the case of Malta companies you do not really need that much activity on Malta to be able to claim that the company is in fact a Maltese company, wheras a Seychelles one would take a lot more.
3) On top of all this you have the question on the individuals (UBOs) residency. Here it will nearly always be an advantage to have a residency in a different jurisdiction than your passport jurisdiction.

I have worked with this type of issues for many years, but I am not a member of the Mentor Group (i might be some day) so I cannot tell what information that you could find there. My point here is that the way the rules have evolved you cannot really talk about one standard anymore. You always need to make a total assessment of the situation, and sometimes you will have to dig really deep to be able to make this assessment.

My way of thinking is this: Always stay well on the right side of the fence, unless you go for total anonymity. For most people (combination of citizenship and residency), there are still a lot of possibilities to create a good structure, but you need to put in a bit more time and effort to get there.

what do you think Malta Self sufficient + foreign company, in this case I have to pay double taxation?

 

[Konstanz]

0% tax country with no CFC rulings. Only safe options. Cut all economic and personal ties with your home country. Move family with you.
Other options like Cyrpus, Singapore possible to make almost tax free too.

 

[GrumpyMess]

Other options like Cyrpus, Singapore possible to make almost tax free too.

How can you be almost tax free in Cyprus?

 

[lonizzita]

0% tax country with no CFC rulings. Only safe options. Cut all economic and personal ties with your home country. Move family with you.
Other options like Cyrpus, Singapore possible to make almost tax free too.

therefore Malta self sufficient + country without CFC
example
self sufficient + Nevis or self sufficient + Delaweare LLC

 

[Perry8]

what do you think Malta Self sufficient + foreign company, in this case I have to pay double taxation?

Cannot really answer that because it will depend on a number of factors.

Maltas CFC rules only applies to corporations or individuals resident in Malta, and only where either the trading profits exceed €750,000 or the non-trading income in the foreign entity exceeds €75,000. Maltas rules are not very strict. They only target either huge trading companies or passive income.

Whether you need to pay "double taxes", depends on the tax situation in the two jurisdictions and also on the tax treaty between them. Malta has currently tax treaties with around 70 countries and jurisdictions.

Please also note that the Maltese income tax is a very special case since it is normally 35%, but then the shareholders - not the company - can receive refunds of up to 30%. So, when you deal with taxes on an international level it is always a question if calculate the tax for the company or for the company and the shareholders combined.