Question HK-CY setup / What do you think?

[D0naldDuck]

Hi guys,
It would be amazing if you would share your thoughts on that setup:

1. HK company receives B2C payment from EU customers (service business, so no VAT) through Stripe and paypal to EMI

2. HK Companys 100% shareholder is (natural person) CY resident (who manages the company from CY)

3. Since there are no CFC rules applicable to CY residents (or there are thresholds in case it’s a company ), shareholder can pay himself dividend from HK Company to CY tax free.

My main points are:
1. Will the tax free dividend payment from HK to CY resident work?

2. Is it right that the HK Ltd doesn’t have to pay VAT here? Why?

I don’t see any showstoppers. What do you guys think?

 

[Marzio]

What do you guys think?

Go back to the drawing board.

Managing a HK company from CY will make the company taxable as a CY company.

 

[Jerry1911]

Managing a HK company from CY will make the company taxable as a CY company.

They don't enforce it as far as I know? At least not if you're a non-dom

 

[Marzio]

They don't enforce it as far as I know? At least not if you're a non-dom

I would not bet on that but i understand different people have different degree of risk tolerance.

 

[Sols]

They don't enforce it as far as I know? At least not if you're a non-dom

That is correct. Appoint a (nominee) director in HK or somewhere outside of Cyprus and the tax authorities are very likely to not bother you.

However, it's not compliant with the law, and it's a risky strategy and can backfire when/if in the future Cyprus does start to go after tax dodgers.

Consider the new law coming into effect in January in Cyprus whereby they are closing the loophole of Cyprus non-resident companies. It's a small step but it's a signal that there is a desire to clean up a little bit.

 

[Marzio]

Appoint a (nominee) director in HK or somewhere outside of Cyprus and the tax authorities are very likely to not bother you.

By appointing a nominee director in HK how is likely that HK will see EU payments as HK sourced income?

 

[Sols]

By appointing a nominee director in HK how is likely that HK will see EU payments as HK sourced income?

It's probably not ideal, especially with HK changing to becoming more China compliant and less of a tax haven. The IRD has started making it more difficult to get exemption.

Whether income is HK sources is decided based on six principles. Having a local director in HK would risk triggering some of those. IRD : A Simple Guide on The Territorial Source Principle of Taxation

 

[Marzio]

Having a local director in HK would risk triggering some of those.

So this defies the whole point of this setup, OP will pay less taxes in CY