Dubai substance

[Alenka]

Hello everyone, interested in if this scheme will work properly:

To make company in UAE with nominee directors and shareholders, live myself in Georgia and have an office in Russia. So that "management" will be in UAE, workers in Russia, and I will just get dividens from that company with 0% dividend tax in Georgia.

 

[Sols]

Nominees do not provide substance.

In your case, the company is probably tax resident in both Russia and Georgia as far as local laws there are concerned.

 

[Alenka]

Nominees do not provide substance.

In your case, the company is probably tax resident in both Russia and Georgia as far as local laws there are concerned.

In Cyprus they do, in UAE no?

 

[Sols]

A big difference between UAE and Cyprus is that by having local directors in Cyprus, the company becomes tax resident and has to pay the 12.5% corporate tax. That creates a modicum of believability to the structure.

But, no, nominees in Cyprus do not provide enough substance if the structure is questioned by a hostile, foreign tax authority. Those types of nominees only work as long as no one looks at the structure.

Or — rather — they might provide substance in UAE/Cyprus, but the company also has substance in Russia (through the employees) and Georgia (through you controlling the company).

 

[uplana]

Go for a real office for your company. Regardless if it is Dubai or Cyprus it is the same. Actually in Cyprus there are CSP's that can offer you foreign nominees which eliminates the 12,5% tax. On the other hand, better pay a little tax to keep the tax office away then pay no tax and ask for trouble.

 

[Alenka]

A big difference between UAE and Cyprus is that by having local directors in Cyprus, the company becomes tax resident and has to pay the 12.5% corporate tax. That creates a modicum of believability to the structure.

But, no, nominees in Cyprus do not provide enough substance if the structure is questioned by a hostile, foreign tax authority. Those types of nominees only work as long as no one looks at the structure.

Or — rather — they might provide substance in UAE/Cyprus, but the company also has substance in Russia (through the employees) and Georgia (through you controlling the company).

Go for a real office for your company. Regardless if it is Dubai or Cyprus it is the same. Actually in Cyprus there are CSP's that can offer you foreign nominees which eliminates the 12,5% tax. On the other hand, better pay a little tax to keep the tax office away then pay no tax and ask for trouble.

And if I decide to work without office in Russia?

Our competitors use Irish and UK LP, US LLC, and Cyprus companies without making their substance but nominal directors. I don't know why they run LP or US LLC, maybe they use dummies. Or to find who runs LP and avoid taxes uneasily?

Some use Cyprus companies with nominal and have Russian offices. I could work without an office. But I'm confused and can't figure out how they do it.

 

[BigUnicorn]

And if I decide to work without office in Russia?

Our competitors use Irish and UK LP, US LLC, and Cyprus companies without making their substance but nominal directors. I don't know why they run LP or US LLC, maybe they use dummies. Or to find who runs LP and avoid taxes uneasily?

Some use Cyprus companies with nominal and have Russian offices. I could work without an office. But I'm confused and can't figure out how they do it.

What kind of business are you into? A lot of Internet business models use UK LLP and Cyprus as front, with nominees, but it doesn't mean then it's not more complicated than that in the backend...

 

[Alenka]

What kind of business are you into? A lot of Internet business models use UK LLP and Cyprus as front, with nominees, but it doesn't mean then it's not more complicated than that in the backend...

In game currencies, coaching and boosting. I understand that, but as I see they don't have problems for years

 

[OJ333]

I am not sure I understand your concern. If you have the company in UAE and have a virtual bank account at least (or a real one) of the company and then you send the profits using it to yourself in Georgia you will just have to pay the dividend tax. Pretty straightforward if all of your business is virtual. What is your issue?

 

[Alenka]

I am not sure I understand your concern. If you have the company in UAE and have a virtual bank account at least (or a real one) of the company and then you send the profits using it to yourself in Georgia you will just have to pay the dividend tax. Pretty straightforward if all of your business is virtual. What is your issue?

Because management(me) living more than 183+ days in Georgia

 

[OJ333]

Because management(me) living more than 183+ days in Georgia

Wait, so in Georgia effectively a person can't own a foreign company? If you own a USA LLC or C corp registered in Nevada and sell furniture from a USA warehouse to USA consumers then Georgia will tell Uncle Sam that "hey, by the way, these profits the company is making actually belong to us, not the IRS", effectively ignoring the part that the entity is under USA jurisdiction and has an effectively connected income in the USA. Are you sure that is the case?
At least in Bulgaria that sounds ridiculous.

 

[Alenka]

Wait, so in Georgia effectively a person can't own a foreign company? If you own a USA LLC or C corp registered in Nevada and sell furniture from a USA warehouse to USA consumers then Georgia will tell Uncle Sam that "hey, by the way, these profits the company is making actually belong to us, not the IRS", effectively ignoring the part that the entity is under USA jurisdiction and has an effectively connected income in the USA. Are you sure that is the case?
At least in Bulgaria that sounds ridiculous.

Yea, there aren't any law in Bulgaria that if your company controlling by director who lives in Bulgaria and owns a US pass-through entity must pay taxes in Bulgaria? As I have been said by Georgia's tax experts that if I live in Georgia more than 183+ days then they will consider me and my company as a Georgian company(even if it's UAE company, it's conrolled by me, and I live in Georgia)

 

[OJ333]

Honestly this sounds so weird and draconian to me that I don't even know where to begin. I have consulted with top local lawyers (one of them was the head of the tax authorities legal department) and accountants before opening the UAE company and none of them even mentioned such a possibility. The offshore company is declared once per year by my personal accountant and I receive divdends from it and pay my taxes on them (so it's not like the local authorities don't know it exists). Very simple and easy.

To be fair - I am not even sure how this would work. Suppose it's not a pass through entity. Let's say it's a standard UK or USA corporation. We are not even talking offshore "schemes" here. How the hell would they convince the USA or UK authorities that a company that is registeted there and sells to their consumers will simply not pay any tax to their government? Or are they just leaving you to be double taxed in both countries? Not even sure how this would hypothetically work.

 

[Alenka]

Honestly this sounds so weird and draconian to me that I don't even know where to begin. I have consulted with top local lawyers (one of them was the head of the tax authorities legal department) and accountants before opening the UAE company and none of them even mentioned such a possibility. The offshore company is declared once per year by my personal accountant and I receive divdends from it and pay my taxes on them (so it's not like the local authorities don't know it exists). Very simple and easy.

To be fair - I am not even sure how this would work. Suppose it's not a pass through entity. Let's say it's a standard UK or USA corporation. We are not even talking offshore "schemes" here. How the hell would they convince the USA or UK authorities that a company that is registeted there and sells to their consumers will simply not pay any tax to their government? Or are they just leaving you to be double taxed in both countries? Not even sure how this would hypothetically work.

They will, but they will pay them in the country when the management and conrolling as well. So double taxation.
Firstly for company in UK or USA(if it's eligible for taxes) and then in home country, where office(employees) and management(you) based. Maybe I make a mistake, but as I know it's right.

 

[OJ333]

They will, but they will pay them in the country when the management and conrolling as well. So double taxation.
Firstly for company in UK or USA(if it's eligible for taxes) and then in home country, where office(employees) and management(you) based. Maybe I make a mistake, but as I know it's right.

And how is it legally justified to pay corporate tax in 2 jurisdictions with the 2nd one being a random country the company doesn't have anything to do with despite the owner? I seriously doubt this is the case and if it is, then thats one seriouslly messed up system. It essentially obliterates 2 principles that capitalism and civilized countries have obided by for years and years:

1. Separation of legal entities (you are not your company, the company is not you)
2. Avoiding unjust double taxation.

I can literally set up a company over the border in the neighbouring country and for EVERYTHING EXCEPT MY DIVIDEND TAX I am under the rule of law of that second country.
I am curious to find out more about your and Georgia's situation.

 

[JustAnotherNomad]

@OJ333, you have received really bad advice. You could not be more wrong.
If what you said was true, everyone would register their company in a tax haven and never pay tax, unless they pay out money from the company. That's not how this works. Then countries might as well abolish corporate income tax, since nobody would pay it.

@Alenka is right.

 

[FixieHartmann]

@OJ333 just have a look at Australia - Corporate - Corporate residence to see why the advise you got is highly questionable.

Australia is just an example, most of the developed high tax countries have similar provisions. If you are a resident of country A and are a shareholder and director of a company in country B then the company will become tax resident in A because control and management is there. In addition, the company will also likely be tax resident in country B, so now you have to file a tax declaration in both countries, take DTTs in account and possibly pay taxes in both countries.

As @JustAnotherNomad said, if that weren’t the case, everyone in a high tax country would have an offshore company in a tax haven to use as piggy bank.

 

[Alenka]

@OJ333, you have received really bad advice. You could not be more wrong.
If what you said was true, everyone would register their company in a tax haven and never pay tax, unless they pay out money from the company. That's not how this works. Then countries might as well abolish corporate income tax, since nobody would pay it.

@Alenka is right.

@OJ333 just have a look at Australia - Corporate - Corporate residence to see why the advise you got is highly questionable.

Australia is just an example, most of the developed high tax countries have similar provisions. If you are a resident of country A and are a shareholder and director of a company in country B then the company will become tax resident in A because control and management is there. In addition, the company will also likely be tax resident in country B, so now you have to file a tax declaration in both countries, take DTTs in account and possibly pay taxes in both countries.

As @JustAnotherNomad said, if that weren’t the case, everyone in a high tax country would have an offshore company in a tax haven to use as piggy bank.

But what's with my case?

 

[FixieHartmann]

But what's with my case?

Well, you mention shareholders, how much will you own and how much will the others own?

 

[FixieHartmann]

In general I’d say that there are three perspectives you need to consider. The company is likely tax resident in UAE (incorporation), Georgia (control and management) and possibly has a permanent establishment in Russia if you have people on the ground.

I doubt that there are people experienced enough with all three jurisdictions in this forum that would be able to give a qualified answer, and even if there are, why would they provide it for free? This is quite a complicated topic and you can either wing it and accept the consequences or get professional advice which probably won’t be cheap.

Another option is to simply use a company in Georgia and have your employees there. You’d likely pay some tax but the setup becomes far easier.