Cyprus and Malta non-dom status with an Estonian LLC?

[sriracha]

Does the Cyprus (or Malta for that matter) non-dom status really work if I have an Estonian LLC?

I am a digital nomad, not spending 183 days anywhere (I usually move every 2-3 months) and use my Estonian LLC to bill my customers.

So let's say I decide to become a Cyprus non-dom, I go there and stay for 60 days or whatever their rule is, and then I leave. So now I am a non-dom tax resident of Cyprus, and my Estonian LLC becomes a controlled foreign company - controlled from Cyprus - so I have to pay company taxes in Cyprus and the benefit of being a Cyprus non-dom is negated?

 

[CyprusLawyer101]

Cfc's are not enforceable in such a case as this would have been contrary to the intention of the non dom regime which was introduced with the sole intention to attract foreign citizens who are able to take care of their financial requirements with sources of income from abroad.

 

[sriracha]

Cfc's are not enforceable in such a case as this would have been contrary to the intention of the non dom regime which was introduced with the sole intention to attract foreign citizens who are able to take care of their financial requirements with sources of income from abroad.

Thanks, that's good news! Is this stated somewhere? I would not want to move to Cyprus and shoot myself in the foot...

 

[CyprusLawyer101]

Thanks, that's good news! Is this stated somewhere? I would not want to move to Cyprus and shoot myself in the foot...

Its written above actually.

 

[khinkali]

Cfc's are not enforceable in such a case as this would have been contrary to the intention of the non dom regime which was introduced with the sole intention to attract foreign citizens who are able to take care of their financial requirements with sources of income from abroad.

In most non dom regimes the issue would not be a CFC issue (which as you point out is the largely the purpose of a non dom regime), but Permanent Establishment.

PWC claim that Cyprus is broadly in line with 2014 OECD model DTT which "especially" includes such things as an office or place of management as creating a PE. KPMG even warn of extended business travel creating a PE risk.

Am I missing some exclusion that avoids the PE issue for managing a foreign business while in Cyprus, or is it more about lack of enforcement?

 

[Marzio]

is it more about lack of enforcement?

this one.

 

[CyprusLaw]

Thanks, that's good news! Is this stated somewhere? I would not want to move to Cyprus and shoot myself in the foot...

Please note that the information provided is not exactly correct.

(a) In order to be able to really take advantage of the non-dom regime you should be a Cyprus tax resident.

(b) In order to be a Cyprus tax resident using the 60-day rule you should be running a business in Cyprus or hold a position in a Cyprus company, otherwise the 60-day rule does not apply.

(c) The 60-day rule works at the Cyprus level, it does not extinguish the risk of other jurisdictions challenging this.

 

[CyprusLawyer101]

In most non dom regimes the issue would not be a CFC issue (which as you point out is the largely the purpose of a non dom regime), but Permanent Establishment.

PWC claim that Cyprus is broadly in line with 2014 OECD model DTT which "especially" includes such things as an office or place of management as creating a PE. KPMG even warn of extended business travel creating a PE risk.

Am I missing some exclusion that avoids the PE issue for managing a foreign business while in Cyprus, or is it more about lack of enforcement?

A PE is a separate matter. A PE must fulfill certain elements, amongst which for example the conducting of sales from the point of the PE. Whether a PE is created or not is a question of facts and how a business is conducted in general. So if a foreign company concludes agreements and those agreements are signed by the Directors abroad , the fact that the owner of the company is based in Cyprus does not create any PE risk on the basis of him/her being in Cyprus. This is a somewhat different matter which has much factual elements for consideration in determining its existence in comparison to the CFC rule which by merely acquiring residency in Cyprus and owning a foreign company you are immediatly triggerring the rule.
One general point I want to make is that clients and people in general looking into the offshore industry read the rules and immediately draw conclusions as to their applicability. The law is one thing, the application of the law is another. Tax laws and in particular international tax laws introduced by countries are put in place not to ensure who is good or who is bad, but they seek to structure the international tax and economic policies of each country which will have direct impact on attracting foreing investment, business and businessmen in thr country while maintaing a balance of internal govenrance. Therefore the direction and intention of such policies should be understood and taken into consideration when reaching a decision which involves a tax implication. Further each particulra case should be looked at its merits as each carries a different risk profile which depend on a variety of factors. The offshore industry is all about risk and managing risk and this is how it should be approached.

 

[Jerry1911]

A PE is a separate matter. A PE must fulfill certain elements, amongst which for example the conducting of sales from the point of the PE. Whether a PE is created or not is a question of facts and how a business is conducted in general. So if a foreign company concludes agreements and those agreements are signed by the Directors abroad , the fact that the owner of the company is based in Cyprus does not create any PE risk on the basis of him/her being in Cyprus. This is a somewhat different matter which has much factual elements for consideration in determining its existence in comparison to the CFC rule which by merely acquiring residency in Cyprus and owning a foreign company you are immediatly triggerring the rule.

The assumption here is that our company abroad has a nominee director that signs contracts on our behalf?

So what you're saying is that we should appoint a nominee director in order to avoid creating a PE in Cyprus?

 

[khinkali]

@CyprusLawyer101 I very much agree with your comments. Also, from the client perspective I think it is important to get a sense of the range of approaches taken by different offshore providers. And more generally by tax professionals in different jurisdictions.

Some providers are very aggressive in their approaches to optimisation (focus on not getting caught), some are very conservative (focus on being strictly by the book) and there is a wide range in between. From meeting and working with different providers, I would say that it is important to know what one's own goals and risk appetites are and then work out which provider is the best fit.

 

[CyprusLawyer101]

@CyprusLawyer101 I very much agree with your comments. Also, from the client perspective I think it is important to get a sense of the range of approaches taken by different offshore providers. And more generally by tax professionals in different jurisdictions.

Some providers are very aggressive in their approaches to optimisation (focus on not getting caught), some are very conservative (focus on being strictly by the book) and there is a wide range in between. From meeting and working with different providers, I would say that it is important to know what one's own goals and risk appetites are and then work out which provider is the best fit.

Yes that is true, and it really differs from provider to provider.

The assumption here is that our company abroad has a nominee director that signs contracts on our behalf?

So what you're saying is that we should appoint a nominee director in order to avoid creating a PE in Cyprus?

It depends on your actual operations to determine any PE risk. If you would like to discuss it in private kindly let me know and I can PM you.

 

[Gediminas]

Does the Cyprus (or Malta for that matter) non-dom status really work if I have an Estonian LLC?

I am a digital nomad, not spending 183 days anywhere (I usually move every 2-3 months) and use my Estonian LLC to bill my customers.

So let's say I decide to become a Cyprus non-dom, I go there and stay for 60 days or whatever their rule is, and then I leave. So now I am a non-dom tax resident of Cyprus, and my Estonian LLC becomes a controlled foreign company - controlled from Cyprus - so I have to pay company taxes in Cyprus and the benefit of being a Cyprus non-dom is negated?

Hey,

Being a non-dom resident in Cyprus means that you don’t pay defense tax. Passive income is subject to 2.65% GESY contributions. If you pay salary from EE, then full-scale taxation as for ordinary income would be applicable.

Cyprus will never challenge your residency, i.e. it might issue or not issue a tax residency certificate if you ask (depending you spent enough days and have enough substance or not). However, if you don’t ask certificate you can simply report your income in Cyprus in your tax return and consider yourself a tax resident without asking TRC or spending time. The most important is that no one else will ask for this certificate (you would not be a tax resident in any other country). By the way, the certificate issued under 60 days rule is not valid internationally (if you are considered a tax resident somewhere else this certificate will not help since it is not issued under the provisions of tax treaties). So it might help only if some bank is asking, but not authorities.

In Cyprus, CFC rules are not applied to individuals. But theoretically, your business might be taxable under PE (Permanent establishment) concept, however, this is very unlikely, especially if you spend in Cyprus not a lot of time.

 

[sriracha]

Thanks for all the answers - which I think can recap as "non-dom is not useful in my case". Malta has got the setup where you get your taxes back, but you still have to actually live in Malta. Cyprus looked attractive in that I would have to only be there for 60 days and be done, but it's really not the case. What is then a good setup for nomad (traveling) freelancers?

 

[peter55555]

If you like the Estonian OÜ approach of corporate tax applied during profit distribution, then setting your legal residency in Estonia is probably the easiest. No need to involve Cyprus in the solution. Estonia considers you a tax resident as long as you have a registered legal residency in Estonia, there's no need to spend any time in Estonia. Just rent a small cheap apartment there and register your residency in it. Maybe stay a couple of months there in the summer, it's beautiful.

It's similar in Latvia, so you could set your legal residency in Latvia and create a Latvian SIA instead. The Latvian corporate tax is an improved version of the Estonian corporate tax that actually allows you to use your company as a tax-free holding to a good extent, since it allows you to sell shares in subsidiaries tax-free at a corporate level after 36 months of holding those shares. And if you are tax resident in Latvia when distributing the profits related to that sale as dividends, you won't have to pay personal income taxes on them either. This may not be relevant if you don't plan to use the company as a holding, but I'd keep an open mind about it. If you were to sell shares of a subsidiary of an Estonian OÜ, you would have to pay corporate income tax on that whenever you distribute those profits as dividends. Also, Latvia seems to be a bit more flexible than Estonia in terms of what can be considered a business expense, and withholding taxes are usually 0%, so there's that too.

Both Estonia and Latvia give you an identity card that you can use to sign government related things digitally, which makes it easy to do things remotely if you are traveling. You can use the Estonian identity card to sign things in Latvia and vice-versa. If you get legal residency in any of these two countries, you will be able to open bank accounts in them very easily.

In any case, whenever you decide to distribute profits from the Estonian OÜ or Latvian SIA as dividends, you will have to pay 20%. There's no way around that, except in that 36-month thing I mentioned before or if those profits come from a subsidiary and have already been taxed there.

I think Latvia has the cheapest and simplest setup in the EU with company, residency and bank account all in the same country. Generally it's not tax free, but in some cases it can be. Estonia is a bit more digital than Latvia, and sometimes you can use English in official documents. In Latvia, not so much, but it's still better than most other EU countries. Also, Riga's airport is better connected than Tallinn's airport. If you are not an EU citizen, getting residency in Latvia is easier than in Estonia.

Alternatively, leave Europe. The UAE is a decent tax-free option if you will be constantly moving around.

 

[backpacker]

By the way, the certificate issued under 60 days rule is not valid internationally (if you are considered a tax resident somewhere else this certificate will not help since it is not issued under the provisions of tax treaties).

Same with the special HNWI tax residence certificate of Georgia. It is useless when somebody is considered a tax resident elsewhere. Even banks laugh about this HNWI certificate ....
It puzzles me that people still go for these "non-ordinary" schemes.

 

[sriracha]

If you like the Estonian OÜ approach of corporate tax applied during profit distribution, then setting your legal residency in Estonia is probably the easiest. No need to involve Cyprus in the solution. Estonia considers you a tax resident as long as you have a registered legal residency in Estonia, there's no need to spend any time in Estonia. Just rent a small cheap apartment there and register your residency in it. Maybe stay a couple of months there in the summer, it's beautiful.

It's similar in Latvia, so you could set your legal residency in Latvia and create a Latvian SIA instead. The Latvian corporate tax is an improved version of the Estonian corporate tax that actually allows you to use your company as a tax-free holding to a good extent, since it allows you to sell shares in subsidiaries tax-free at a corporate level after 36 months of holding those shares. And if you are tax resident in Latvia when distributing the profits related to that sale as dividends, you won't have to pay personal income taxes on them either. This may not be relevant if you don't plan to use the company as a holding, but I'd keep an open mind about it. If you were to sell shares of a subsidiary of an Estonian OÜ, you would have to pay corporate income tax on that whenever you distribute those profits as dividends. Also, Latvia seems to be a bit more flexible than Estonia in terms of what can be considered a business expense, and withholding taxes are usually 0%, so there's that too.

Both Estonia and Latvia give you an identity card that you can use to sign government related things digitally, which makes it easy to do things remotely if you are traveling. You can use the Estonian identity card to sign things in Latvia and vice-versa. If you get legal residency in any of these two countries, you will be able to open bank accounts in them very easily.

In any case, whenever you decide to distribute profits from the Estonian OÜ or Latvian SIA as dividends, you will have to pay 20%. There's no way around that, except in that 36-month thing I mentioned before or if those profits come from a subsidiary and have already been taxed there.

I think Latvia has the cheapest and simplest setup in the EU with company, residency and bank account all in the same country. Generally it's not tax free, but in some cases it can be. Estonia is a bit more digital than Latvia, and sometimes you can use English in official documents. In Latvia, not so much, but it's still better than most other EU countries. Also, Riga's airport is better connected than Tallinn's airport. If you are not an EU citizen, getting residency in Latvia is easier than in Estonia.

Alternatively, leave Europe. The UAE is a decent tax-free option if you will be constantly moving around.

Thank you!

 

[ilpablo]

Thank you!

If you like the Estonian OÜ approach of corporate tax applied during profit distribution, then setting your legal residency in Estonia is probably the easiest. No need to involve Cyprus in the solution. Estonia considers you a tax resident as long as you have a registered legal residency in Estonia, there's no need to spend any time in Estonia. Just rent a small cheap apartment there and register your residency in it. Maybe stay a couple of months there in the summer, it's beautiful.

It's similar in Latvia, so you could set your legal residency in Latvia and create a Latvian SIA instead. The Latvian corporate tax is an improved version of the Estonian corporate tax that actually allows you to use your company as a tax-free holding to a good extent, since it allows you to sell shares in subsidiaries tax-free at a corporate level after 36 months of holding those shares. And if you are tax resident in Latvia when distributing the profits related to that sale as dividends, you won't have to pay personal income taxes on them either. This may not be relevant if you don't plan to use the company as a holding, but I'd keep an open mind about it. If you were to sell shares of a subsidiary of an Estonian OÜ, you would have to pay corporate income tax on that whenever you distribute those profits as dividends. Also, Latvia seems to be a bit more flexible than Estonia in terms of what can be considered a business expense, and withholding taxes are usually 0%, so there's that too.

Both Estonia and Latvia give you an identity card that you can use to sign government related things digitally, which makes it easy to do things remotely if you are traveling. You can use the Estonian identity card to sign things in Latvia and vice-versa. If you get legal residency in any of these two countries, you will be able to open bank accounts in them very easily.

In any case, whenever you decide to distribute profits from the Estonian OÜ or Latvian SIA as dividends, you will have to pay 20%. There's no way around that, except in that 36-month thing I mentioned before or if those profits come from a subsidiary and have already been taxed there.

I think Latvia has the cheapest and simplest setup in the EU with company, residency and bank account all in the same country. Generally it's not tax free, but in some cases it can be. Estonia is a bit more digital than Latvia, and sometimes you can use English in official documents. In Latvia, not so much, but it's still better than most other EU countries. Also, Riga's airport is better connected than Tallinn's airport. If you are not an EU citizen, getting residency in Latvia is easier than in Estonia.

Alternatively, leave Europe. The UAE is a decent tax-free option if you will be constantly moving around.

Hi thanks for the insight. How much do you end up paying with the Latvian setup?

 

[Marzio]

Estonia considers you a tax resident as long as you have a registered legal residency in Estonia, there's no need to spend any time in Estonia.

In general this is correct but you should be very careful with Estonian tax residency if you have some ties to your home country.

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

 

[FantomOffshore]

Please note that the information provided is not exactly correct.

(a) In order to be able to really take advantage of the non-dom regime you should be a Cyprus tax resident.

(b) In order to be a Cyprus tax resident using the 60-day rule you should be running a business in Cyprus or hold a position in a Cyprus company, otherwise the 60-day rule does not apply.

(c) The 60-day rule works at the Cyprus level, it does not extinguish the risk of other jurisdictions challenging this.

Hi there, was looking into Cyprus and stumbled upon this post and was wondering if it is possible to become:

1. Tax resident of Cyprus by EU passport.
2. Take payments from mostly US customers through an IBC on the Seychelles.
3. Pay these profits out as dividend either:
3.1. Cypriot company I own AS Cypriot tax-resident under non-dom program, living 183+ days per year in Cyprus
3.2 Cypriot personal bank account I own AS Cypriot tax-resident under non-dom program, living 183+ days per year in Cyprus

If so, I would love to connect over phone or mail and explain you my situation.

 

[CyprusLaw]

Hi there, was looking into Cyprus and stumbled upon this post and was wondering if it is possible to become:

1. Tax resident of Cyprus by EU passport.
2. Take payments from mostly US customers through an IBC on the Seychelles.
3. Pay these profits out as dividend either:
3.1. Cypriot company I own AS Cypriot tax-resident under non-dom program, living 183+ days per year in Cyprus
3.2 Cypriot personal bank account I own AS Cypriot tax-resident under non-dom program, living 183+ days per year in Cyprus

If so, I would love to connect over phone or mail and explain you my situation.

Hi, I will send you a PM