Effective place of management and CFC laws

[wi0]

Hello everyone,

I am a cryptocurrency trader and looking to set up an offshore company to better manage the profits. I have done a lot of research and Malta or BVI look the most promising.

From what I understand, Malta would be 11.66% tax on crypto gains with a 2 company (holding and trading) structure.

BVI would be 0%.

Where I am struggling and could use advice from anyone who has done something similar, is how to satisfy the 'effective place of management' or 'substantive economic activity' regarding the CFC laws. I live in Greece and will continue to live here so moving is a not an option.

I would however consider flying to Malta several times a year to hold the general meetings between my business partner and I. This seems to be a big bonus of Malta vs BVI.

Very interested to hear about other people's experience with this and what worked for you.

Thanks!

 

[Gediminas]

Hey,

I would say, this is a specific question for Greek tax advisor: how much substance you need in order to avoid/mitigate PE or CFC risk in Greece. It is easy to set up both companies, i.e. either Maltese structure (two companies) or BVI, but the question is how Greece tax authorities will consider either of these structures.

I think as soon as they receive information (under CRS or other ways) about BVI you might face two potential issues: CFC and PE. So I would say, 0% and BVI is not an option as long as you are a Greek resident, since you will never be able to prove that this company (BVI) is managed from BVI.

In practice, there are some “techniques” to hire management companies located in other counties and to allocate some functions to these companies, but it will be not easy and costly. On the other hand, maybe paying a bit of taxes under CFC from BVI company is not a big issue.

In BVI you get crypto-friendly regulation, zero percent corporate taxation, some accounting benefits... While in Greece you can pay personal income tax. Dividends from Malta would also be subject to personal income tax in Greece.

I hope this helps.

 

[wi0]

Hey,

I would say, this is a specific question for Greek tax advisor: how much substance you need in order to avoid/mitigate PE or CFC risk in Greece. It is easy to set up both companies, i.e. either Maltese structure (two companies) or BVI, but the question is how Greece tax authorities will consider either of these structures.

I think as soon as they receive information (under CRS or other ways) about BVI you might face two potential issues: CFC and PE. So I would say, 0% and BVI is not an option as long as you are a Greek resident, since you will never be able to prove that this company (BVI) is managed from BVI.

In practice, there are some “techniques” to hire management companies located in other counties and to allocate some functions to these companies, but it will be not easy and costly. On the other hand, maybe paying a bit of taxes under CFC from BVI company is not a big issue.

In BVI you get crypto-friendly regulation, zero percent corporate taxation, some accounting benefits... While in Greece you can pay personal income tax. Dividends from Malta would also be subject to personal income tax in Greece.

I hope this helps.

Thanks so much, great info!

As far as I understand from research Greece adopts fairly standard EU CFC laws, including the following:

- You own more than 50% of the company
- The tax is less than 13%
- More than 30% of the income is from passive income

However, and this is the big however:

"The above do not apply to legal persons or legal entities with tax residence in the European Union or residence in a country that is an EEA member to the extent that they carry on a substantive economic activity that is supported by staff, equipment, assets, and premises, as evidenced by relevant facts and circumstances."

But what this actually means in real terms I do not know...

All this gives me 2 ideas where the Malta option could work:

1. I split the ownership with my partner, so we each own 49.99%

or

2. I rent an office in Malta and use a local resident director/ employee

Thoughts?

 

[Gediminas]

I suppose these CFC rules are new in Greece (this specific wording) since it is based on recent developments of EU law. Currently, most of the countries have similar wordings. So it might be not easy to get legal certainty due to the lack of the tax authorities' practice.

Maybe an option might be to send an inquiry to tax authorities and ask what level of substance would be sufficient.

 

[wi0]

I have an appointment with my Greek accountant soon so I'll be sure to get as much info from him. Thanks for your help!

 

[Max2020]

Hey,

I would say, this is a specific question for Greek tax advisor: how much substance you need in order to avoid/mitigate PE or CFC risk in Greece. It is easy to set up both companies, i.e. either Maltese structure (two companies) or BVI, but the question is how Greece tax authorities will consider either of these structures.

I think as soon as they receive information (under CRS or other ways) about BVI you might face two potential issues: CFC and PE. So I would say, 0% and BVI is not an option as long as you are a Greek resident, since you will never be able to prove that this company (BVI) is managed from BVI.

In practice, there are some “techniques” to hire management companies located in other counties and to allocate some functions to these companies, but it will be not easy and costly. On the other hand, maybe paying a bit of taxes under CFC from BVI company is not a big issue.

In BVI you get crypto-friendly regulation, zero percent corporate taxation, some accounting benefits... While in Greece you can pay personal income tax. Dividends from Malta would also be subject to personal income tax in Greece.

I hope this helps.

Can you tell a bit more about those "techniques"?

 

[Roamer]

As far as I understand from research Greece adopts fairly standard EU CFC laws, including the following:

- You own more than 50% of the company
- The tax is less than 13%
- More than 30% of the income is from passive income

Is it a matter of having "one of" the three, or "all of" the three?

 

[wi0]

Is it a matter of having "one of" the three, or "all of" the three?

I believe they are asked in order and all must be satisfied to be classed a CFC. But interested to hear others take on this?

 

[lionheart]

I believe they are asked in order and all must be satisfied to be classed a CFC. But interested to hear others take on this?

I also think that all conditions must be met. Have you found a definite answer? (Greek here)