Question Dividends as non dom in cyprus

[metronic]

Hello,

i am currently in the process of moving to cyprus (myself and my business of course) and i was informed about the non don status. I understand companies pay 12.5% on corporate level and then the non dom receives tax free dividends. Does that include if you business is in cyprus and you are a tex resident + non dom there ? Or are the dividends then taxed on progressive scale on personal level or it’s pretty much “spend them as you wish” after corporate tax and the contribution.

i was also wondering how cyprus tax residency would work with a maltese company. As I understand in malta corporate is taxed at 5% when distributing the dividends to the shareholders (personal or company) as that would potentially lower the 12.5% down to 5% in the big picture.

I appreciate all the comments and tips

 

[Sols]

There might be circumstances that affect your situation so speak with a tax adviser, but generally speaking...

i am currently in the process of moving to cyprus (myself and my business of course) and i was informed about the non don status. I understand companies pay 12.5% on corporate level and then the non dom receives tax free dividends. Does that include if you business is in cyprus and you are a tex resident + non dom there ?

Yes.

Or are the dividends then taxed on progressive scale on personal level or it’s pretty much “spend them as you wish” after corporate tax and the contribution.

Dividends are not subject to personal income tax and as a non-dom you are excluded from the SDC.

i was also wondering how cyprus tax residency would work with a maltese company. As I understand in malta corporate is taxed at 5% when distributing the dividends to the shareholders (personal or company) as that would potentially lower the 12.5% down to 5% in the big picture.

Maltese companies are subject to 35% tax. If the Maltese company is owned by a shareholder which is non-resident/non-domiciled, the shareholder can claim 6/7 of that 35% back, which is how you end up with a net tax bill of 5%. So you can live in Cyprus, form a local holding company which owns a Maltese company, and distribute profit to yourself from the Maltese company and the tax rebate through the Cypriot holding company to yourself.

The holding company can also be an offshore company.

One thing people often underestimate about a Malta structure is the complexity and costs of setting it up and maintaining. Make sure the tax savings from 12.50% to 5% are greater than the costs of having and maintaining one more company.

 

[metronic]

There might be circumstances that affect your situation so speak with a tax adviser, but generally speaking...

Yes.


Dividends are not subject to personal income tax and as a non-dom you are excluded from the SDC.


Maltese companies are subject to 35% tax. If the Maltese company is owned by a shareholder which is non-resident/non-domiciled, the shareholder can claim 6/7 of that 35% back, which is how you end up with a net tax bill of 5%. So you can live in Cyprus, form a local holding company which owns a Maltese company, and distribute profit to yourself from the Maltese company and the tax rebate through the Cypriot holding company to yourself.

The holding company can also be an offshore company.

One thing people often underestimate about a Malta structure is the complexity and costs of setting it up and maintaining. Make sure the tax savings from 12.50% to 5% are greater than the costs of having and maintaining one more company.

Thank you for all the valuable info. What do you think about romanian micro company + cyprus holding / tax residency? I know romanian micro comp can be a bureaucracy nightmare but it would bring it down to 6-8% depending if you hire talent in romania. I would love to hear your thoughts

 

[Sols]

Thank you for all the valuable info. What do you think about romanian micro company + cyprus holding / tax residency? I know romanian micro comp can be a bureaucracy nightmare but it would bring it down to 6-8% depending if you hire talent in romania. I would love to hear your thoughts

I almost never come across Romanian micro companies in real life. It seems like a concept limited to people in Romania, and as a concept or idea floated around by people who ultimately make other decisions.

Romania uses a different currency, English isn't as well-spoken as in Cyprus or Malta (it's even an official language in Malta), and requires so much more paperwork. Hiring someone might require you to solve payroll tax and various insurances/liabilities.

At the end of the day, it's a cost-benefit analysis. Do you end up with more money in your pocket or time saved if you go for a CY+RO, CY+MT, or CY only? Depends on what you value.

 

[metronic]

I almost never come across Romanian micro companies in real life. It seems like a concept limited to people in Romania, and as a concept or idea floated around by people who ultimately make other decisions.

Romania uses a different currency, English isn't as well-spoken as in Cyprus or Malta (it's even an official language in Malta), and requires so much more paperwork. Hiring someone might require you to solve payroll tax and various insurances/liabilities.

At the end of the day, it's a cost-benefit analysis. Do you end up with more money in your pocket or time saved if you go for a CY+RO, CY+MT, or CY only? Depends on what you value.

got it. thank you for the insight and al the tips

 

[metronic]

I almost never come across Romanian micro companies in real life. It seems like a concept limited to people in Romania, and as a concept or idea floated around by people who ultimately make other decisions.

Romania uses a different currency, English isn't as well-spoken as in Cyprus or Malta (it's even an official language in Malta), and requires so much more paperwork. Hiring someone might require you to solve payroll tax and various insurances/liabilities.

At the end of the day, it's a cost-benefit analysis. Do you end up with more money in your pocket or time saved if you go for a CY+RO, CY+MT, or CY only? Depends on what you value.

which offshore company would you recommend btw to get as close to Maltese company effect on the corporate tax level?

 

[Sols]

I generally wouldn't. I like to keep things simple and compliant, even if lapses in the Cypriot tax system for now leaves room to do fragile setups with offshore companies. That means having a Cypriot company that pays the 12.50% tax.

Most people I deal with run local companies and pay the local tax. However, there are some who have or work for a local company and separately get paid from an offshore company (BVI, Seychelles, US LLC, you name it). They pay full tax on the local income and nothing on the foreign. It's probably not entirely legal but so far no one is really bothering them.

 

[cyprus123]

Romania is a bureaucratic nightmare. As Sols already mentioned Malta is an expensive setup but could work for you if you are ready to implement substance and place of management in Malta. It really depends on your numbers.

As a simple and straight forward setup I can absolutely recommend to become non dom in Cyprus and run a LTD in Cyprus. You will have a business friendly environment with low running costs. In my opinion it's the best setup in the European Union in terms of taxation and even more important: business environment.

 

[orangekangaroo]

I generally wouldn't. I like to keep things simple and compliant, even if lapses in the Cypriot tax system for now leaves room to do fragile setups with offshore companies. That means having a Cypriot company that pays the 12.50% tax.

Most people I deal with run local companies and pay the local tax. However, there are some who have or work for a local company and separately get paid from an offshore company (BVI, Seychelles, US LLC, you name it). They pay full tax on the local income and nothing on the foreign. It's probably not entirely legal but so far no one is really bothering them.

I get the non dom aspect. So are they getting paid dividend from an offshore company even though they manage the offshore company in Cyprus.

 

[Sols]

I get the non dom aspect. So are they getting paid dividend from an offshore company even though they manage the offshore company in Cyprus.

Exactly, and on their tax returns they state dividends from a foreign company which are not taxed.

 

[heliotrope]

Everyone says that dividends are tax-free, but you pay 2.65% for GESY. It's not much, but still.

 

[heliotrope]

In my opinion it's the best setup in the European Union in terms of taxation and even more important: business environment.

What do you base this on? Because it's such a tiny market, costs can be extravagantly high. For example, if you can persuade someone to sell you private indemnity insurance in Cyprus, you can rely on it costing 5-10x as much as elsewhere. Banking also seems to be a bit of a dumpster fire.

 

[metronic]

Exactly, and on their tax returns they state dividends from a foreign company which are not taxed.

So if you have a cyprus company it will pay tax? Or dividends are excluded all around

 

[Sols]

So if you have a cyprus company it will pay tax? Or dividends are excluded all around

If you have a company in Cyprus and you are a non-domiciled resident, the total tax burden is 12.5% in corporate income tax on the company's profits. As long as you pay yourself in dividends, there is no further tax.

Although as @heliotrope correctly points out, you also need to be mindful of 2.65% in GESY. This applies regardless of whether your company is Cypriot or not. All residents must pay GESY.

 

[orangekangaroo]

I was not aware of the 2.65% GESY payments, but in return, you can use the health service in Cyprus. I don't know how good it is though.

I like to stay 2 to 4 months a year in Cyprus. I have read that you could also register as self-employed pay yourself the minimum 8500, plus social security contributions, and qualify for non-dom status. Anyone in the know if this is still the case?

 

[heliotrope]

I was not aware of the 2.65% GESY payments, but in return, you can use the health service in Cyprus. I don't know how good it is though.

I like to stay 2 to 4 months a year in Cyprus. I have read that you could also register as self-employed pay yourself the minimum 8500, plus social security contributions, and qualify for non-dom status. Anyone in the know if this is still the case?

No, you can use the health service only if you make social insurance contributions. But given your stated aim to stay less than 183 days, you would need to do this anyway to justify the 60d tax residence request. From everything I've read the health service is middle tier.

The self-employed route gets a very bad press. I believe social security contributions are higher.

You should distinguish between qualifying for non-dom (providing you don't have Cypriot lineage, you should get this) and qualifying for 60d tax residence (you need an apartment year-round, a company or employment, and social insurance contributions).

 

[orangekangaroo]

No, you can use the health service only if you make social insurance contributions. But given your stated aim to stay less than 183 days, you would need to do this anyway to justify the 60d tax residence request. From everything I've read the health service is middle tier.

The self-employed route gets a very bad press. I believe social security contributions are higher.

You should distinguish between qualifying for non-dom (providing you don't have Cypriot lineage, you should get this) and qualifying for 60d tax residence (you need an apartment year-round, a company or employment, and social insurance contributions).

Why does the self-employed route get very bad press?

 

[orangekangaroo]

I am trying to work out the cost for a couple, and using the Cyprus Non-Dom solution. I would love to know the expert's opinions. I base this on €80,000 earnings. Minimum wage €10440 x 2.

One of costs

Cyprus Company formation & bank account - €2000-2500

Yearly costs €10440 minimum wage x 2 both employer and employee costs

• 16.6% social security
• 1.2% redundancy
• 0.5% training & development
• 2.0% Special Cohesion Fund
• 4.75% NHS rates

This makes for a grand total of 25.1% which equates to €5230.44 in contributions for 2 people

Dividend tax from an offshore company 2.65% NHS rates of €59120 (this is to make the total €80,000 as per example) = €1566.68

Total = €6797.12 or 8.5% of the €80,000

Keeping the minimum wage the same and increasing the dividend part would have the following rates:

• €100,000 = 7.33%
• €150,000 = 5.77%
• €200,000 = 4.99%
• €300,000 = 4.21%
• €500,000 = 3.59%

For this payment you will get:

• Mid-tier health care
• Old-age pension - payable at 65 if paid 5 years, payable at 68 if paid less than 4 years
• Permanent disability benefit of €389.33 plus a pension of 60% of last 2 years earnings
• Sickness benefits - a minimum of 26 weeks contribution
• Maternity benefits - a minimum of 26 weeks contribution
• Survivor pension
• Orphan pension

My unknown is company filing fees and tax advisor stuff. I put that at €1500.

Plus I will have to have permanent residential address even if I plan to stay only 2 months.

Would love some of your input so I can make a comprehensive spreadsheet.

 

[heliotrope]

My unknown is company filing fees and tax advisor stuff. I put that at €1500.

Plus I will have to have permanent residential address even if I plan to stay only 2 months.

I would double that 1500€ at least. Cyprus has to make money somehow, right.

 

[PrestoR3]

Hi all!

If I move to Cyprus and live solely from foreign dividends (the only tax I will pay only 2.65% NHIS contribution) will it give me full access to Cyprus national health care services? By "full" I mean basically the same way as for the people on the payroll.

Thanks