Cyprus Holding

[gismor]

Hi everyone,

my current situation:
- Resident in Switzerland and employed by a Swiss company where I'm a shareholder
- In the past, have invested personal money in few startups in Switzerland
- I'm invoicing an offshore company for consulting services

Goal:
- I would like to be able to reinvest some of the money received through the consulting services without having to pay corporate tax + dividends or a bonus

My idea:
- Setting up a Holding company in Cyprus
- Having the Cyprus Holding to make an invoice to receive money for the consulting services I have provided
- Invest these funds into startup companies

Is my assumption correct that if the CyprusHolding make an invoice of 20k these fund will not be subject to corporate tax and can be invested into some startup companies?

Thank you for your advice

 

[Spinat]

The simple answer is, it is how you can do it in most EU countries. If you have expenses which are higher compared to your profits because of investments you don't have to pay taxes. You need to check what the thresholds in Cyprus and you need to consider how you setup the CYP company.

Is my assumption correct that if the CyprusHolding make an invoice of 20k these fund will not be subject to corporate tax and can be invested into some startup companies?

If nothing hase changed since last year then foreign non domestic companies don't pay any tax at all.

 

[Gediminas]

Hi,

If shortly the above model will not work. Cyprus company is subject to a 12.5% corporate income tax rate (unless you might apply special tax incentives). Income received from consulting might be reinvested to startups, but these investments from both, tax and accounting perspectives do not constitute expenses (allowable deductions to from tax perspective). It means that first Cyprus will charge 12.5% corporate income tax and then you will be able to invest these funds to the shares of startups.

Cyprus still might be an option in your case if you manage to apply special tax invectives (as NID) and to reduce the effective tax rates. Income from shares (dividends, capital gains, trading income) is exempt from tax in Cyprus. Also, Cyprus does not apply dividends withholding tax, so still you might benefit from the structure, even you will need to pay some amount of taxes.

Also, an option might be Malta, with an effective tax rate of 5%. Or you can go for HK or some EU based partnerships, but it might trigger some tax issues in Switzerland’s depending on the situation.

I believe you are a domiciled resident in Switzerland. You probably know that Switzerland applies a special tax regime for non-Swiss nationals, under these rules all income received abroad is exempt from tax in Switzerland. However, such residents should pay a significant “flat” amount of tax every year.

I hope this helps.

 

[gismor]

If shortly the above model will not work. Cyprus company is subject to a 12.5% corporate income tax rate (unless you might apply special tax incentives). Income received from consulting might be reinvested to startups, but these investments from both, tax and accounting perspectives do not constitute expenses (allowable deductions to from tax perspective). It means that first Cyprus will charge 12.5% corporate income tax and then you will be able to invest these funds to the shares of startups.

Is the income taxed even if the Cyprus company is invoicing only non-Cyprus based companies?

 

[Gediminas]

Is the income taxed even if the Cyprus company is invoicing only non-Cyprus based companies?

Yes.

As a general rule, Cyprus does not apply territorial approch as for example HK.

 

[HSharpe]

Cyprus does not per se tax the income . . . it taxes the profit!

Furthermore, I think these types of structures will raise several bells and whistles from the bankers and the auditors.

Also seriously if the annual invoice is 20K and the run rate of the company is 4-10K I don't see the benefit of having a Cyprus company.

Now though if you moved your investments to the Cyprus company so as to hold for future sale that is a different structure. Note that Cyprus does not tax the capital gains arising from share sales.

One point to have in mind - when Cyprus companies issue invoices . . . they need to register for VAT, VIEs, etc.

 

[Gediminas]

Cyprus does not per se tax the income . . . it taxes the profit!

Furthermore, I think these types of structures will raise several bells and whistles from the bankers and the auditors.

Also seriously if the annual invoice is 20K and the run rate of the company is 4-10K I don't see the benefit of having a Cyprus company.

Now though if you moved your investments to the Cyprus company so as to hold for future sale that is a different structure. Note that Cyprus does not tax the capital gains arising from share sales.

One point to have in mind - when Cyprus companies issue invoices . . . they need to register for VAT, VIEs, etc.

Your comment is not very accurate, I suggest other readers not to take this into account.

As regards to invoices, you can easily issue those without VAT, etc (speaking from my own experience).

 

[Eintagsfliege]

Cyprus company is subject to a 12.5% corporate income tax rate

This is not very accurate either.

Non-Resident Company: If management and control is exercised abroad (by non-resident Directors) then the Cyprus Company is not taxable in Cyprus. Meaning, there is 0% income tax for non-resident Cyprus companies. Tax non-resident company does not have to pay taxes on net profits (12,5%) but has to pay all other expenses and liabilities.