Turner Little - Company Formation Agents
DLS Dubai - Company Formation & Bank Account
UK Ltd with emi bank account
Offshore Bank Accounts

Cyprus non-dom effective tax-rates (three different cases)

CALL US ON +971 50 4467827 - TO SETUP YOUR NON-CRS COMPANY STRUCTURE IN DUBAI.
Bank Accounts, Company Formations, Tax Planning, Residency Solutions, and more

baitmine

New member
I'm trying to calculate the effective tax rate for three different types of ventures as a non-dom tax resident in Cyprus (I am an EU citizen who is currently residing in Asia but plans on relocating to Cyprus).

Company A - Amazon FBA (Ecommerce)
The company utilizes contract manufacturing in Germany as well as the USA and sells the subsequent finished product in the USA as well as Europe through the Amazon FBA program. Sales tax and VAT are paid in each respective country.
  • Profit: €200,000
  • Payout (Salary): €19,500
  • Taxes - Gesy: €7,200 (4% of up to €180,000 for self-employed)
  • Taxes - CIT: €22,562.5 (12.5% of €180,500 after deducting salary of €19500 that is tax-free)
  • Payout (Dividends): €157,937.5
  • Effective rate: 14.9% (€29,762.5 / €200,000)

Company B - Securities trading/investing
The company buys and sells securities through a broker that is not based on Cyprus (under the assumption that a local broker would carry a tax burden) with the understanding that any income generated from this type of activity is going to be tax-exempt.
  • Profit: €200,000
  • Payout (Salary): €19,500
  • Payout (Dividends): €180,500
  • Taxes - Gesy: €7,200 (4% of up to €180,000 for self-employed)
  • Effective rate: 3.6% (€7,200 / €200,000)

Company C - Cryptocurrency trading/investing
The company buys and sells cryptocurrencies through various exchanges. The company executes hundreds of thousands of trades through automated algorithms. I understand that this type of income may or may not be exempt due to the missing regulations, but I went with the worst-case scenario assumption.
  • Profit: €200,000
  • Payout (Salary): €19,500
  • Taxes - Gesy: €7,200 (4% of up to €180,000 for self-employed)
  • Taxes - CIT: €22,562.5 (12.5% of €180,500 after deducting salary of €19500 that is tax-free)
  • Payout (Dividends): €157,937.5
  • Effective rate: 14.9% (€29,762.5 / €200,000)

Questions:
1. Are the above assumptions and calculations correct?
2. How would bookkeeping be done for a company (C) that generates millions of transactions on an annual basis on a number of different exchanges not to mention wallet to wallet transfers?
 

FreeBit

New member
Since July 2015 the concept of Non-domiciled Individuals for tax purposes was introduced.

Consequently, Cyprus tax resident individuals, who are also non Cyprus domiciled, are now able to enjoy the following additional tax advantages :

  • No tax on Dividend income
  • No tax on Interest Income
  • Rental income : partly exempt (only subject to Income Tax at normal rates)
Note : Since 1 March 2019, the above types of income are subject to GeSY contributions , (currently at the rate of 1.7%), restricted to a maximum of EUR180,000 income annually
 

FreeBit

New member
I'm trying to calculate the effective tax rate for three different types of ventures as a non-dom tax resident in Cyprus (I am an EU citizen who is currently residing in Asia but plans on relocating to Cyprus).

Company A - Amazon FBA (Ecommerce)
The company utilizes contract manufacturing in Germany as well as the USA and sells the subsequent finished product in the USA as well as Europe through the Amazon FBA program. Sales tax and VAT are paid in each respective country.
  • Profit: €200,000
  • Payout (Salary): €19,500
  • Taxes - Gesy: €7,200 (4% of up to €180,000 for self-employed)
  • Taxes - CIT: €22,562.5 (12.5% of €180,500 after deducting salary of €19500 that is tax-free)
  • Payout (Dividends): €157,937.5
  • Effective rate: 14.9% (€29,762.5 / €200,000)

Company B - Securities trading/investing
The company buys and sells securities through a broker that is not based on Cyprus (under the assumption that a local broker would carry a tax burden) with the understanding that any income generated from this type of activity is going to be tax-exempt.
  • Profit: €200,000
  • Payout (Salary): €19,500
  • Payout (Dividends): €180,500
  • Taxes - Gesy: €7,200 (4% of up to €180,000 for self-employed)
  • Effective rate: 3.6% (€7,200 / €200,000)

Company C - Cryptocurrency trading/investing
The company buys and sells cryptocurrencies through various exchanges. The company executes hundreds of thousands of trades through automated algorithms. I understand that this type of income may or may not be exempt due to the missing regulations, but I went with the worst-case scenario assumption.
  • Profit: €200,000
  • Payout (Salary): €19,500
  • Taxes - Gesy: €7,200 (4% of up to €180,000 for self-employed)
  • Taxes - CIT: €22,562.5 (12.5% of €180,500 after deducting salary of €19500 that is tax-free)
  • Payout (Dividends): €157,937.5
  • Effective rate: 14.9% (€29,762.5 / €200,000)

Questions:
1. Are the above assumptions and calculations correct?
2. How would bookkeeping be done for a company (C) that generates millions of transactions on an annual basis on a number of different exchanges not to mention wallet to wallet transfers?
1) as far as I know Gesy is 1,7%
2)not sure
 

baitmine

New member
I believe that the rates have increased.

From 1 March 2019 the scheme will cover out-of-hospital care. Employees and pensioners, income-earners will have to contribute 1.7% of their income, employers 1.85%, the state 1.65%, and self-employed people 2.55%. From 1 March 2020 it will include hospital care, and contributions will rise to 2.65% for employees, 2.9% for employers, 4.7% from the state , and 4% for the self-employed.

An even worse interpretation would be that they refer to self-employed as someone who isn't incorporated, hence, in this case, I might be expected to pay both the employee rate and the employer's rate, totaling 5.55%?
 

CyprusBusiness

New member
Hello

Please see below correct calculations in the three scenarios you presented above, which I hope can help you decide on the best optimised structure for your companies:

Company A - Amazon FBA (Ecommerce)

Self employed taxes and contributions:


Payout (Salary assuming self-employed status) : Euro 19,500
Social Insurance Contribution: Euro 3,042 (15.6%)
Gesy: Euro 780 (4% on Euro 19,500)

Corporation tax:

CIT: 22,562.5 (12.5% on Euro 180,500)

Please note that temporary tax will need to be paid in 2 instalments (1st instalment 31 July and second instalment 31 December) to avoid additional penalty of 10% (Euro 2,256 on total CIT of Euro 22,562.5). This temporary tax is an estimation of the taxable profit of the Company for the year and the estimated liability must be as close as possible to the actual tax liability.If the estimated taxable income is less than 75% of the actual taxable income as declared on the submitted tax return of the year, then an additional 10% on the difference between the temporary tax and actual tax is imposed. Any difference between the actual tax payable and the temporary tax paid for the year 2020 is payable by 1 August 2021 via the self-tax assessment method.

Dividend payout:

Gross Dividend paid: Euro 157,937.5
Gesi: Euro 4,185 (2.65% on Euro 157,937.5)
Special defence tax (“SDC”): Nil (Non domiciled status grants you exemption from SDC)

Effective tax: 15.28% (30,569.5/200,000) - this includes Social Insurance Contribution, Gesy and CIT


Company B - Securities trading/investing

Self employed taxes and contributions:


Similar in A above

Corporation tax:

CIT: Nil (profits from trading in financial instruments defined by Cyprus tax legislation as “titles” are tax exempt)

Dividend payout:

Gross Dividend paid: Euro 180,500
Gesi: Euro 4,783 (2.65% on Euro 180,500)
Special defence tax (“SDC”): Nil (Non domiciled status grants you exemption from SDC)


Company C- Cryptocurrency trading

Self employed taxes and contributions:


Similar in A and B above

Corporation tax:

CIT: 22,562.5 (12.5% on Euro 180,500)

Dividend payout:

Gross Dividend paid: Euro 180,500
Gesi: Euro 4,783 (2.65% on Euro 180,500)
Special defence tax (“SDC”): Nil (Non domiciled status grants you exemption from SDC)

Please note that AMLD5 has just been transposed into Cyprus law. Crypto Asset Service Providers will be registered (no license requirement) in a register set up by the regulator - the procedure will be simple and straightforward. No further regulation is expected until the implementation of MiCA around 2024 at the earliest.

Relating to tax and vat I note the following: with respect to vat: The Court of Justice of the European Union (ECJ), in its Hedqvist decision, Case 264/14, explained that bitcoin represents a direct means of payment between the operators that accept it, therefore, the transaction concerning the exchange of bitcoin for fiat currency may fall within the scope of the exemption under Article 135(1)(e)   of the EU VAT Directive 2006/112/EC, covering, inter alia, currency, bank notes and coins used as legal tender. Hence, most EU countries including Cyprus have a joint consensus that the exchange to or from virtual currencies is not subject to VAT. The same applies for using virtual currencies to buy goods or services. Thus, no VAT should be charged on the use of virtual currencies itself.

With respect to the taxation of cryptocurrencies these will fall under the same tax principles as with any other business activities and a tax rate of 12.5% will apply. This in fact the case as no legal definition was attributed to cryptocurrencies in Cyprus Tax legislation. Thus no clarification exists whether cryptocurrencies are securities (“titles”), currency or a digital asset. The accounting practice (IFRS) considers cryptocurrencies as either inventory or intangible assets, and as the the tax practice usually follows the accounting practice, inventories/intangible assets are part of the normal business operations which are taxed at 12.5%. Due to the uncertainty it could be beneficial to seek an official tax ruling/opinion on the matter if you decide to set up in Cyprus.

Finally, with respect to bank accounts, as things stand banks do not open accounts to crypto asset service providers, this could potentially change very soon due to the implementation of AMLD5, however, even if it does not change there are a number of crypto-friendly EMIs in Cyprus for account opening.

Finally in relation to your query relating to bookkeeping I would suggest to explore whether trades/transaction log can be exported from relevant exchanges (preferably in an excel format). The bookkeeper can then alter the format of the excel and import it automatically on an accounting software supporting such setup.
 
Fast Offshore - Company Formations Since 1998
DLS Dubai Company Formation and banking solution

Latest Threads

Offshore Bank Accounts
DLS Dubai Company Formation and banking solution
Top