Cheaper substance through residency?

[JustAnotherNomad]

Some countries require companies to have a resident director. In other cases, you’d want to have a resident director anyway to prove substance.

One example I have been thinking about is Cypriot holding companies.
I guess you can expect the tax authorities in other EU countries to take a closer look when they see that a Cypriot holding company is involved - knowing that Cyprus doesn’t tax capital gains nor withhold taxes on dividend payments to non-EU residents.
Sure, you can rent a shared office space and hire a “director” for a couple hundred EUR per month. But I would be very worried that such a structure wouldn’t meet other countries’ minimum substance requirements.
For example, I have read that the Netherlands require a Cypriot holding company to pay its directors a salary of at least EUR 90,000. I’m not sure if that applies to all holding companies or only intermediary holding companies that are in turn owned by another holding company.
Either way, 90k is a fair bit higher than what the average nominee would be paid.

I have been wondering if it would be possible to lower these requirements by taking residency in Cyprus.
Let’s assume I am a major shareholder in a Dutch BV (but I’m not Dutch resident or citizen) through a Cypriot holding company. I’m also a Cypriot resident, but not Cypriot tax resident.I pay myself a very low salary or no salary at all from the Cypriot holding company - after all, it’s just my own piggy bank.

Do you think they would accept the company’s tax residency as being in Cyprus?

Replace NL with any other high-tax EU country if you prefer, it’s just a general question.
If this could work, it would probably be a much better idea to rent a cheap apartment instead of spending the same money on a worthless nominee director?

I think @Sols or @fshore mentioned something about Cyprus lately, maybe you guys have an opinion?

 

[Marzio]

I don't understand how could you not be a cypriot tax resident if you own a cypriot holding. Isn't the thing about not paying a nominee director? If you are not using nominees you are the one that has to be tax resident there.

 

[JustAnotherNomad]

No, you would usually have to be resident.
This is not about where you pay your taxes, it’s about being “present” for all kinds of reasons.

If you rent an apartment in Cyprus and register as a resident, but then only go there 2 days per month, you’d be far from Cyprus’ own minimum requirements in terms of days spent in the country.

You could also spend 100 days in Cyprus (tax resident per domestic rules), but if you have an Italian passport and spend 200 days per year with your wife and kids in Italy, your tax residency would still clearly be in Italy. But I don’t think that would make it illegal to be the director of a Cypriot company.
I have to admit I didn’t check the rules though.

I’m quite confident Cyprus wouldn’t mind such a setup, but would other countries accept it? Especially since Cyprus doesn’t levy a capital gains tax. Would you be able to use the holding company to trade tax free if you can prove that you only traded while you were physically present in Cyprus? Of course assuming you keep the profits in the company. Do you think a country like Italy would accept it?
I strongly doubt that they would accept a company with a nominee director making a couple hundred EUR per month. But if you have a secondary residency on the island?

 

[Marzio]

If you rent an apartment in Cyprus and register as a resident

Maintaining a home in Cyprus would make you tax resident but other than that i don't understand what are you trying to achieve here. What's the point of such a structure? Do you fear about operating through a Cypriot company?

 

[JustAnotherNomad]

Interesting! I thought you had to spend at least 60 days there in addition to having a home to be considered tax resident.

I was just wondering if there is a cheap way to have an EU holding company to use the PSD and get dividends out of the EU without paying WHT.

Edit:
This explanation is better, it is exactly like I thought. If you don’t spend 60 days there, you are not considered tax resident.

https://home.kpmg/content/dam/kpmg/cy/pdf/2018/cyprus-tax-residency-and-non-dom-rules.pdf

Probably still a silly idea on my part though.

 

[Marzio]

I was just wondering if there is a cheap way to have an EU holding company to use the PSD and get dividends out of the EU without paying WHT

Take a look at Hungary then

 

[JustAnotherNomad]

Hmmm, yeah, looks like Hungary could work, too. If there’s a treaty to reduce the WHT, otherwise it’s 15%. Thanks!
Latvia would also work.

But the big question is whether the other EU country (NL in my example) would accept the holding company as having enough substance. Otherwise they might charge WHT.