Cyprus Company + Non Dom

[ferchina]

Hello, I am Spanish, but I currently reside and have a company in Andorra since January 2021.

Due to YouTube's policy of withholding 30% of income from the United States to countries without double taxation treaties, it is not worth it for me to continue having the company in Andorra and spend at least 183 days to be a tax resident in Andorra.

So I have decided to move to Cyprus next year as a non-dom as I love to travel.

My plan is:
-70 days a year in Cyprus (spread over several weeks a year)
-4 months in Poland
-3 months in Spain (so as not to have a problem with the Spanish government as it is very aggressive with these topics)
- And the rest of the time in several European countries but not more than 3 months in each one.

I have seen here that many people recommend the Nominee Director if I am going to spend only 70 days in Cyprus, other law firms have told me that it would not be necessary if I turn 60 days, I have a 1 year rental and I do not spend more than 6 months in other country. So it is not clear to me if I need a Nominee Director being non-dom.

What is your opinion on this topic? If my main office is there in Cyprus and I go 1 week every 1-2 months to work from there, would there be a problem with not having a director?

Thank you very much in advance!

***I dont have employees, but I have about 15 freelancers from around the world (Mexico, United States, Turkey, Indonesia, Vietnam...)

 

[flyinglow]

Hey there!

I am in the exact same position where I have around 15-20 contractors working around the world and I run multiple Youtube channels. Will be moving to Paphos, Cyprus next year. Which city are you thinking moving to?

In regards to your strategy, I'm sure other members on the forum are more qualified to answer to specifics on how a Cyprus company would work if you were travelling around. However for your home country, how would the tax office view it if you were only in Cyprus for 70 days? In Australia, even if you have that tax residency, they can still challenge you and say you are an Australian tax resident. I'm not sure how it works in Spain, but this may be something to be careful about.

 

[ferchina]

Hello Flying i want to move to Larnaca, this is the spanish law for be tax resident in Spain:

A natural person is a resident in Spanish territory when any of the following circumstances occurs:

-To stay more than 183 days, during the calendar year, in Spanish territory. To determine this period of stay in Spanish territory, sporadic absences will be counted unless the taxpayer proves his tax residence in another country. In the case of countries or territories of those classified as tax havens (as of July 11, 2021, it must be understood that the regulations refer to non-cooperative jurisdictions), the Tax Administration may require that permanence in the same be proven during 183 days in the calendar year.

-That the main nucleus or the base of its activities or economic interests resides in Spain, directly or indirectly.

-That the spouse not legally separated and the minor children who depend on this natural person habitually reside in Spain. This third assumption admits proof to the contrary.



For this reason I want to spend 4 months in Poland and 3 in Spain, so Spain is not the main country where I spend most of the days even if they are less than 183 days.

 

[CyprusLaw]

Hello Flying i want to move to Larnaca, this is the spanish law for be tax resident in Spain:

A natural person is a resident in Spanish territory when any of the following circumstances occurs:

-To stay more than 183 days, during the calendar year, in Spanish territory. To determine this period of stay in Spanish territory, sporadic absences will be counted unless the taxpayer proves his tax residence in another country. In the case of countries or territories of those classified as tax havens (as of July 11, 2021, it must be understood that the regulations refer to non-cooperative jurisdictions), the Tax Administration may require that permanence in the same be proven during 183 days in the calendar year.

-That the main nucleus or the base of its activities or economic interests resides in Spain, directly or indirectly.

-That the spouse not legally separated and the minor children who depend on this natural person habitually reside in Spain. This third assumption admits proof to the contrary.



For this reason I want to spend 4 months in Poland and 3 in Spain, so Spain is not the main country where I spend most of the days even if they are less than 183 days.

Hi Ferchina, for some reason people seem to be confusing the tax residency with the actual residency matter. So I will break it down a bit below:

(a) With the 60-day rule you become a tax resident in Cyprus (your personal tax residency), but essentially you are not living in Cyprus.

(b) The test in Cyprus to determine the tax residency of a company is by looking where the management and control is, the main test for this is by where is the board of directors is located. So if you are the sole director of the company, even if you are a Cyprus tax resident with the 60-day rule, the management and control is in Cyprus, as most of the year it will not be in Cyprus.

Therefore you need nominee directors.

If you would like to discuss more I can PM you.

 

[ferchina]

Hi Ferchina, for some reason people seem to be confusing the tax residency with the actual residency matter. So I will break it down a bit below:

(a) With the 60-day rule you become a tax resident in Cyprus (your personal tax residency), but essentially you are not living in Cyprus.

(b) The test in Cyprus to determine the tax residency of a company is by looking where the management and control is, the main test for this is by where is the board of directors is located. So if you are the sole director of the company, even if you are a Cyprus tax resident with the 60-day rule, the management and control is in Cyprus, as most of the year it will not be in Cyprus.

Therefore you need nominee directors.

If you would like to discuss more I can PM you.

Thanks you very much for your answer, yes PM me

 

[backpacker]

I put it here because it is Cyprus related:

According to the best of my knowledge, crypto-to-crypto is currently not taxed in CY. However, turning crypto into fiat (i.e. cashing out) falls under normal CY income tax (individuals) or corporate tax (companies).

Aside form the above case which refers to plain token trading on an exchange like Binance or Kraken, there is also the possibility to keep crypto in a derivative (i.e. Exchanged Traded Product) and buy/sell it through a regular broker like IB or Saxo. Until now I was under the impression that such an ETP (usually constructed as a debt security which tracks an index or the item, example: -> https://21shares.com/product/abtc ) would be considered equal to normal securities like Nestlé stocks or a GDR on Gazprom. Seems I am dead wrong with that assumption.
CY tax authorities seem to have a very narrow definition of what they consider to be a "Security": "Securities are defined as shares, bonds, debentures, founders' shares and other securities of companies or other legal persons, Incorporated in Cyprus or abroad and options thereon. A circular was issued by the Tax Authorities in 2008 further clarifying what is included in the term “securities”. According to the circular the term includes, short positions, futures, forwards and swaps where they are in respect of securities and depository receipts (ADR/GDR). Index participation are considered securities only if they represent titles." (extract from "BDO Cyprus Tax Facts 2021", page 5 - Income Tax/Exemptions)
This means that capital gains from the sale of a Bitcoin ETF (or any other crypto related ETF) will fall under normal CY income tax because the cryptocurrency such product represents is not considered to be a security, even though the product in itself is listed on a regulated stock exchange. Furthermore, the same unfavorable treatment seems to be valid for a simple Gold-savings account like this -> UOB Gold/Silver Accounts or a Gold-ETF like -> Invesco | Product Detail | Invesco DB Gold Fund (= Gold is no security/title and the ETF just a tracker)

I am not sure how this works out in practice. It looks like this can lead to a bad awakening for some people. Maybe @CyprusLaw or any other person with local knowledge has some insights.

 

[backpacker]

In addition to above post #6 it should be noted that:
"There are two Circulars from the Cyprus Tax authority explaining the concept of a security. Circular 2008/13 of 17.12.2008 and Circular 2009/6 of 29.05.2009, in which the tax authority further clarifies that in addition to the various types of shares and bonds themselves, securities also include derivatives on these securities. At the
same time, the tax service separately explains that, for example, a promissory note issued by a company is not a security for the purposes of the Cyprus tax legislation, which means that the income from its sale is subject to taxation in Cyprus. Despite the fact that in the Circulars issued in 2008 and 2009 the tax authority does not speak separately about cryptocurrencies, we understand that cryptocurrencies, being a means of payment, do not contain a title, and therefore cannot be considered as securities."

According to this regulation an ETF on Bitcoin is a derivative without containing any securities because cryptocurrencies cannot be considered as securities.
Also note that in many jurisdictions a promissory note is considered to be a bond with a shorter duration and officially called "promissory note" which can lead to trouble for an unaware taxpayer in CY.

These sort of lukewarm laws are the perfect tool for a frustrated tax inspector who wants to squeeze a taxpayer.

 

[startfleetio]

In addition to above post #6 it should be noted that:
"There are two Circulars from the Cyprus Tax authority explaining the concept of a security. Circular 2008/13 of 17.12.2008 and Circular 2009/6 of 29.05.2009, in which the tax authority further clarifies that in addition to the various types of shares and bonds themselves, securities also include derivatives on these securities. At the
same time, the tax service separately explains that, for example, a promissory note issued by a company is not a security for the purposes of the Cyprus tax legislation, which means that the income from its sale is subject to taxation in Cyprus. Despite the fact that in the Circulars issued in 2008 and 2009 the tax authority does not speak separately about cryptocurrencies, we understand that cryptocurrencies, being a means of payment, do not contain a title, and therefore cannot be considered as securities."

According to this regulation an ETF on Bitcoin is a derivative without containing any securities because cryptocurrencies cannot be considered as securities.
Also note that in many jurisdictions a promissory note is considered to be a bond with a shorter duration and officially called "promissory note" which can lead to trouble for an unaware taxpayer in CY.

These sort of lukewarm laws are the perfect tool for a frustrated tax inspector who wants to squeeze a taxpayer.

Crypto is normally not regarded as securities. Most countries regard it as a property.

 

[backpacker]

Crypto is normally not regarded as securities. Most countries regard it as a property.

Sure, understand your point.

In my above example (post #6 and #7) I just want to illustrate the danger of holding a cryptocurrency ETF and -naively- believing it would be considered a normal security for CY income tax purposes. This is obviously not the case. Such a cryptocurrency ETF will apparently not be tax exempt because it contains crypto, even though the ETF in itself is a security.

Btw., the same is valid for Thailand should authorities take a deeper look if an ETF contains crypto (rule there: crypto travels with its owner and the ETF is just a wrapper).

 

[startfleetio]

Use a Cyprus + US LLC. US LLC holds the crypto.

 

[backpacker]

Use a Cyprus + US LLC. US LLC holds the crypto.

A complicated way which will be even more complicated when you think of the bank(s) whom you would want to deal with it.
There is a reason for holding crypto in an ETF: No cashout problem, no accounting problem, overall no problem with banks.

 

[bisk]

A complicated way which will be even more complicated when you think of the bank(s) whom you would want to deal with it.
There is a reason for holding crypto in an ETF: No cashout problem, no accounting problem, overall no problem with banks.

Keeping bitcoin futures ETF is as stupid as keeping gold futures ETF. Read about silver and gold markets price manipulation.

 

[backpacker]

Keeping bitcoin futures ETF is as stupid as keeping gold futures ETF. Read about silver and gold markets price manipulation.

I did not talk about Futures. European PM- or crypto ETF's are rarely Futures products.
Anyway, this thread is not about sane investment strategies, it is about potential tax implications!

 

[CyprusLawyer101]

Hi Ferchina, for some reason people seem to be confusing the tax residency with the actual residency matter. So I will break it down a bit below:

(a) With the 60-day rule you become a tax resident in Cyprus (your personal tax residency), but essentially you are not living in Cyprus.

(b) The test in Cyprus to determine the tax residency of a company is by looking where the management and control is, the main test for this is by where is the board of directors is located. So if you are the sole director of the company, even if you are a Cyprus tax resident with the 60-day rule, the management and control is in Cyprus, as most of the year it will not be in Cyprus.

Therefore you need nominee directors.

If you would like to discuss more I can PM you.

I tend to disagree with this position;
Management and control is where board meetings and vital decisions of the company are undertaken not where the members of the board are located/residing. So you can have a director visiting Cyprus and undertaking vital directorship duties and then moving out, still management and control takes place in Cyprus. When advising large companies with many directors some of them not Cyprus residents, we had them flying into Cyprus to convene general meetings and vote on decisions to ensure majority of Directors were present in Cyprus to maintain management and control here.

 

[CyprusLaw]

I tend to disagree with this position;
Management and control is where board meetings and vital decisions of the company are undertaken not where the members of the board are located/residing. So you can have a director visiting Cyprus and undertaking vital directorship duties and then moving out, still management and control takes place in Cyprus. When advising large companies with many directors some of them not Cyprus residents, we had them flying into Cyprus to convene general meetings and vote on decisions to ensure majority of Directors were present in Cyprus to maintain management and control here.

Even though carrying out the meetings in Cyprus would in fact be considered positively in determining the tax residency of a company, I am setting out below a more detailed analysis explaining the concept, concluding that in the absence of specific provisions in the law the safest option is for at least the majority of directors to reside in Cyprus.

A company or an individual are taxed in Cyprus only if they are residents of Cyprus according to the meaning of “resident” as defined in the taxation laws.

The tax system considers a company to be resident of Cyprus and liable to Cyprus taxation when its “management and control” is exercised in Cyprus.

Section 2 of the income tax law No. 118(I) of 2002, as amended, provides the following definition as to residency:

“Resident in the Republic”, when applied to an individual, means an individual who stays in the Republic for a period or periods exceeding in aggregate 183 days in the year of assessment and when applied to a company, means a company whose management and control is exercised in the Republic and “non-resident or resident outside the Republic” shall be construed accordingly.

There is no definition in the income tax law or in any other enactment as to the meaning of the term “management and control” which will identify a company to be tax resident of Cyprus.

There is no definition in the law, stating who exercises management and control and how it is exercised. There is also no definition in the law as to what particular acts constitute the management and control so that its exercise will be in Cyprus.

In the absence of specific statutory provisions we follow (a) common law; and (b) equity principles to reach a conclusion.

It has been decided and stressed repeatedly in court cases that, the place where the directors meet in order to reach their decisions on company’s policy, finance and related matters, subject to various qualifications which will be discussed further below, will be the place of central management and control of the company’s business.

In effect, the place where the directors meet for their board meetings, deciding on company’s policy, finance and related matters, is the location of the central management and control of the company’s business and consequently once the other factors are in place, the company is tax resident at that location.

Authorities supporting the above principle:

Calcutta Jute Mills Co v Nicholson [1876] 1 TC 83,

Cesena Sulphur Co Ltd v. Nicholson 1876 1 TC 88,

De Beers Consolidated Mines Ltd v Howe [1906] Ac 455, 5 TC 198,

Bullock v. Unit Construction Co Ltd [1959] 38 TC 712.

The recurrent emphasis on the place of directors’ meetings must not, however, lead one to suppose that the location of directors’ meetings is the only factor used to determine the company’s tax residency.

The place of directors’ meetings is a significant factor to be taken into consideration but it can be of such importance only if those meetings constitute the medium through which the central management and control is in fact and in reality, exercised.

The above requirement, i.e., to hold the board meetings in Cyprus, will be strengthened further with additional positive surrounding facts which support the real presence of the management and control of a company’s business in Cyprus in the following circumstances:

The residence of the directors is closely connected to the place where board meetings are held. If the intention is to have a Cyprus tax resident company, the directors or at least the majority of them must be permanent residents of Cyprus. In this way, it is easily proved that the board meetings have been taking place in Cyprus and the management and control is exercised in/from Cyprus.

 

[CyprusLawyer101]

Even though carrying out the meetings in Cyprus would in fact be considered positively in determining the tax residency of a company, I am setting out below a more detailed analysis explaining the concept, concluding that in the absence of specific provisions in the law the safest option is for at least the majority of directors to reside in Cyprus.

A company or an individual are taxed in Cyprus only if they are residents of Cyprus according to the meaning of “resident” as defined in the taxation laws.

The tax system considers a company to be resident of Cyprus and liable to Cyprus taxation when its “management and control” is exercised in Cyprus.

Section 2 of the income tax law No. 118(I) of 2002, as amended, provides the following definition as to residency:

“Resident in the Republic”, when applied to an individual, means an individual who stays in the Republic for a period or periods exceeding in aggregate 183 days in the year of assessment and when applied to a company, means a company whose management and control is exercised in the Republic and “non-resident or resident outside the Republic” shall be construed accordingly.

There is no definition in the income tax law or in any other enactment as to the meaning of the term “management and control” which will identify a company to be tax resident of Cyprus.

There is no definition in the law, stating who exercises management and control and how it is exercised. There is also no definition in the law as to what particular acts constitute the management and control so that its exercise will be in Cyprus.

In the absence of specific statutory provisions we follow (a) common law; and (b) equity principles to reach a conclusion.

It has been decided and stressed repeatedly in court cases that, the place where the directors meet in order to reach their decisions on company’s policy, finance and related matters, subject to various qualifications which will be discussed further below, will be the place of central management and control of the company’s business.

In effect, the place where the directors meet for their board meetings, deciding on company’s policy, finance and related matters, is the location of the central management and control of the company’s business and consequently once the other factors are in place, the company is tax resident at that location.

Authorities supporting the above principle:

Calcutta Jute Mills Co v Nicholson [1876] 1 TC 83,

Cesena Sulphur Co Ltd v. Nicholson 1876 1 TC 88,

De Beers Consolidated Mines Ltd v Howe [1906] Ac 455, 5 TC 198,

Bullock v. Unit Construction Co Ltd [1959] 38 TC 712.

The recurrent emphasis on the place of directors’ meetings must not, however, lead one to suppose that the location of directors’ meetings is the only factor used to determine the company’s tax residency.

The place of directors’ meetings is a significant factor to be taken into consideration but it can be of such importance only if those meetings constitute the medium through which the central management and control is in fact and in reality, exercised.

The above requirement, i.e., to hold the board meetings in Cyprus, will be strengthened further with additional positive surrounding facts which support the real presence of the management and control of a company’s business in Cyprus in the following circumstances:

The residence of the directors is closely connected to the place where board meetings are held. If the intention is to have a Cyprus tax resident company, the directors or at least the majority of them must be permanent residents of Cyprus. In this way, it is easily proved that the board meetings have been taking place in Cyprus and the management and control is exercised in/from Cyprus.

Thanks for the detailed answer. Although, I do agree that on a first assumption basis, the residency of the majority of directors is a major indication of where management and control takes place, your notes actually reinforce my position that the actual place where management and control takes place is not restricted to or defined by the place of residence of the Directors.

 

[CyprusLaw]

Thanks for the detailed answer. Although, I do agree that on a first assumption basis, the residency of the majority of directors is a major indication of where management and control takes place, your notes actually reinforce my position that the actual place where management and control takes place is not restricted to or defined by the place of residence of the Directors.

The approach suggested by you, even though not wrong as such, is more risky, also nowadays during the covid era even directors living in Cyprus prefer to have online meetings, therefore even though your scenario could work a couple of years ago, it would not be as feasible now.