Question Does Cyprus CFC rules apply to non-dom tax residents?

[Marzio]

PwC talks expressly about "Cyprus CIT payer" so i presume CFC rules apply only to Cyprus tax resident companies?

@CyprusLaw @CyprusLawyer101

 

[CyprusBusiness]

Hello

I already posted this in other thread but please see below as well:

At the moment, on a Cyprus level we have a rather peculiar position regarding CFC rules. It seems the local legislation pertaining to CFC rules was ratified but at the moment captures only legal persons and not physical persons. We expect this to be changed though in the near future.

So for now, an individual incorporating both a Dubai and a Cyprus Company, from a Cyprus prespective the Dubai company would not be captured by the CFC legislation. Even if it did, there are certain exemptions as follows:

• De minimis exception

In line with the option given by the Directive, the Law provides that no CFC inclusion should be made of any non-distributed income of a CFC if a CFC has either:

i) Accounting profits that do not exceed Euro 750 000 and non-trading income which is not more than Eur75 000; or
ii) Accounting profits that do not exceed 10% of its operating costs for the tax year.

Of course, careful planning is needed if such a structure is pursued to avoid exposures.

 

[Marzio]

Accounting profits that do not exceed Euro 750 000 and non-trading income which is not more than Eur75 000

If accounting profits are lower than 750K but passive income is more than 75K would be considered a CFC?

 

[CyprusBusiness]

If accounting profits are lower than 750K but passive income is more than 75K would be considered a CFC?

i would assume the exemption would not be granted in this case as the legislation explicitly refers that both conditions be met.

 

[Marzio]

In case you use an Estonian company would that be considered low-taxed? The CIT paid by the Estonian company is more than 12.5% paid in Cyprus but it is paid only when dividends gets distributed.

 

[CyprusBusiness]

I would assume it would depend on the jurisdicstion. In this case Cyprus does not actively challange CFC regulations especially if the basic corproation tax rate of the income receiving country is above the 50% threshold.

Thus, if a specific jurisdiction is above this threshold (thus not a CFC) but there is in place a tax incentive scheme which drives the corporation tax below 50% (this a CFC), from a Cyprus prespective, as the Law explicitly refers to corporation tax paid, then the default position would be that this would be considered a CFC.

All in all, any business setup needs to be thoroughly analysed to avoid any exposures before embarking on a corporate structuring.