How dangerous is having Nominee Director for Cypriot company?

[avalanche]

Thinking of setting up Cypriot Ltd for developing software. It seems I'd have to use Nominee Director services to make company tax resident in Cyprus.

I'm going to be a real 100% UBO and the direct owner of shares though.

1. Am I able to sign agreements on behalf of company without signature of the Nominee?
2. Is there a chance that Nominee Director may double cross me and take over the company with intellectual property assigned to it? How to prevent it from happening?
3. Will Nominee Director have access to business bank accounts?
4. Would I be able to remove the Nominee Director without his consent?
5. Do I have the right to open EMI business accounts under my name without Nominee knowing about it?

Would really appreciate any help guys.

 

[Sols]

1. Only if the director agrees to issue a power of attorney for you. But if you do that too much, the company might lose tax residence status since effective control and management is with you, not with the directors.
2. They can't change the shareholders but they can take actions to screw you over in other ways, so make sure you only work with licensed professional directors provided through a reputable service provider.
3. Yes, they will be the signatories.
4. Yes. As the shareholder, you can fire directors.
5. No.

 

[JohnLocke]

licensed professional directors provided

That may be the most important part to understand and comply to.

 

[avalanche]

1. Only if the director agrees to issue a power of attorney for you. But if you do that too much, the company might lose tax residence status since effective control and management is with you, not with the directors.
2. They can't change the shareholders but they can take actions to screw you over in other ways, so make sure you only work with licensed professional directors provided through a reputable service provider.
3. Yes, they will be the signatories.
4. Yes. As the shareholder, you can fire directors.
5. No.

Thank you for the great info! What specific license I should look for?

 

[Sols]

Thank you for the great info! What specific license I should look for?

You want someone who is licensed as an ASP: Cyprus Securities and Exchange Commission | APPROVED ASP

They should be licensed for All activities or, at the very least, for The undertaking or provision of the service of managing companies [section 4(1)(b)(i)-(b)(vii) of the Law].

 

[avalanche]

You want someone who is licensed as an ASP: Cyprus Securities and Exchange Commission | APPROVED ASP

They should be licensed for All activities or, at the very least, for The undertaking or provision of the service of managing companies [section 4(1)(b)(i)-(b)(vii) of the Law].

Amazing info! Thank you Sols, I appreciate your time

 

[Mark Ross]

I agree with the answers given to you so far but, prior to those questions, you should figure out whether Cyprus is the right jurisdiction for you.
What is your objective? Tax minimisation or anonimity or what?

I am a EU tax resident, and I set up a CY LTD back in 2013 and I am now quite skeptical on Cyprus. The only situation in which I think Cyprus has a value is if you are a resident of MENA/ Former Soviet Union and you are looking for a jurisdiction where it is somewhat easy to get residence permit.

Otherwise:
- Tax-wise it is not great-not terrible (there are cheaper jurisdictions even within the EU)
- Bank-wise, I would never hold more than 100k in Cyprus. The banking system is hiding huge amounts of bad debts under the carpet, FBME has gone belly up, Bank of Cyprus is basically a Ministry disguised as a bank. Greek banks are generally big question marks...
- Cost-wise it is more expensive than others
- Professional-wise it is quite a disaster (consultants, banks etc. generally unprofessional)
- they communicate with all EU tax authorities, so if you are European, anonimity is non-existant

 

[avalanche]

I agree with the answers given to you so far but, prior to those questions, you should figure out whether Cyprus is the right jurisdiction for you.
What is your objective? Tax minimisation or anonimity or what?

I am a EU tax resident, and I set up a CY LTD back in 2013 and I am now quite skeptical on Cyprus. The only situation in which I think Cyprus has a value is if you are a resident of MENA/ Former Soviet Union and you are looking for a jurisdiction where it is somewhat easy to get residence permit.

Otherwise:
- Tax-wise it is not great-not terrible (there are cheaper jurisdictions even within the EU)
- Bank-wise, I would never hold more than 100k in Cyprus. The banking system is hiding huge amounts of bad debts under the carpet, FBME has gone belly up, Bank of Cyprus is basically a Ministry disguised as a bank. Greek banks are generally big question marks...
- Cost-wise it is more expensive than others
- Professional-wise it is quite a disaster (consultants, banks etc. generally unprofessional)
- they communicate with all EU tax authorities, so if you are European, anonimity is non-existant

I want to invest in my own software. I have personal funds and I want to put these funds in the company and pay to my remote employees residing in Russia without any withholding tax. I'm tearing my hair already looking for a jurisdiction that would allow me to open at least 2 EMI accounts and hopefully 1 bank account too so I can pay salaries of remote employees and have no withholding taxes. The development company will make no income on its own, only expenses, afterwards I want to transfer intellectual property to myself or another jurisdiction without paying taxes.

My local company in Armenia will have to pay 20-23% withholding tax on all services performed by non-residents which drives me crazy. I dont want to pay tax again on the money I was taxed on once

I'm currently looking at Cyprus or US LLC. Both are quite costly (4k EUR for setup min + 4k EUR annual maintenance, US LLC is $8k for proper tailored setup with a lawyer) and I really dont like to have a nominee in the scheme but I dont know what else to do.

While having this software developed I'm planning to use it in my local Armenian company for administration purposes (software simplifies the business processes of my local business)

I'm also looking at Belize, BVI or Seychelles but Im worried I might get in trouble with banks going bankrupt or stealing money or irresponsible service provider or any other problem lol. I also dont know how to set up banking there without shelling out $20k as deposit loll

The company itself would never hold more than $20k. It will be only transit point for my funds.

Tried thinking of UK Ltd but again I'm worried I might get ruined for paying salaries to my employees in Russia also might get taxed heavily during the transfer or use of IP

In case of Hong Kong, I dont know how to get a bank account without personal visit and I'm generally skeptical about this jursdiction

P.S I'm a tax resident of a non CRS & non CFC country so I dont care about publicity of records

 

[JustAnotherNomad]

Have you looked at Estonia or Lithuania? I’m not sure I’ve understood what you want to do, but I think that might work. Not sure about banking, but I think EMIs should work at least. And especially Estonia should be really low cost to run through e-residency. You wouldn’t even need a nominee directors, except for access to local banks maybe.

 

[avalanche]

Have you looked at Estonia or Lithuania? I’m not sure I’ve understood what you want to do, but I think that might work. Not sure about banking, but I think EMIs should work at least. And especially Estonia should be really low cost to run through e-residency. You wouldn’t even need a nominee directors, except for access to local banks maybe.

Will I be taxed on sending salaries to my remote employees in Russia?

Can I later transfer this software developed by this company to myself tax free? In UK for example I might get sudden tax if I decide to use this software in my other companies or transfer it to another my company.

Also I dont really have time to wait for 6-8 months for get my e-Residency haha

 

[Mark Ross]

As far as I understand, you are trying to find a jurisdiction which allows you to combine two objectives:
1. to minimise transaction fees related to the remuneration of your contractors based in Russia (who, I guess, are not registered as частный предприниматель in Russia)
2. to legally register the intellectual property of a software and (later on) to pay low taxes when you sell it to your Armenian company for a profit.

Is it correct?

 

[Mark Ross]

just saying, you are not paying "salaries" because they are not employed with work contracts.
You are paying "invoices" if they are registered and issue invoices or you pay "compensations" in some forms if they are not.
The different is not simply semantic as it has practical and fiscal consequences.

 

[avalanche]

As far as I understand, you are trying to find a jurisdiction which allows you to combine two objectives:
1. to minimise transaction fees related to the remuneration of your contractors based in Russia (who, I guess, are not registered as частный предприниматель in Russia)
2. to legally register the intellectual property of a software and (later on) to pay low taxes when you sell it to your Armenian company for a profit.

Is it correct?

1. They might be registered as individual entrepreneurs and receive payments legally. Some of them may be just natural persons.
2. No need to register software anywhere. But tax authority might check why company is making no income, only investments and expenses. Then they figure out that software is being used in the management process of an Armenian company for free. This is where I might get in trouble. So I need flexibility where I can easily transfer IP without any tax.

 

[avalanche]

just saying, you are not paying "salaries" because they are not employed with work contracts.
You are paying "invoices" if they are registered and issue invoices or you pay "compensations" in some forms if they are not.
The different is not simply semantic as it has practical and fiscal consequences.

The consultant from UK told me that tax authorities will classify it "employment" if Im dictating these people how many hours per day they should work and control their activity. It wont matter to them if I'm calling these people contractors or employees, they will look at actual situation and make their own definitions.

So I'm assuming I might get a similar treatment in other jurisdictions. Hence I'm looking for a jurisdiction without such BS.

 

[JustAnotherNomad]

Estonia does not tax salaries unless the employees are tax residents of Estonia.
About the IP, maybe you could avoid taxes by using a holding company? Also Estonia does not charge corporate income tax until dividends are paid out.

 

[avalanche]

Estonia does not tax salaries unless the employees are tax residents of Estonia.
About the IP, maybe you could avoid taxes by using a holding company? Also Estonia does not charge corporate income tax until dividends are paid out.

Its interesting thing for me I agree.. But the big issue is, I simply wouldnt be able to wait half a year till they deliver my e-residency. The goal of this development project is to deliver something in 6 months

 

[JustAnotherNomad]

You don’t need e-residency. You can just go there and do it the old-fashioned way, with a notary. It will just cost a bit more. You could also look into Lithuania. You’ll need to talk to a lawyer/accountant anyway to find out if it will fit your needs.

 

[avalanche]

You don’t need e-residency. You can just go there and do it the old-fashioned way, with a notary. It will just cost a bit more. You could also look into Lithuania. You’ll need to talk to a lawyer/accountant anyway to find out if it will fit your needs.

For some reason I feel like Cyprus is still way more lenient jurisdiction when it comes to taxation..

 

[cyprus123]

I agree with Cyprus being a solid jurisdiction for your needs. I also think that you find very professional services there compared with other jurisdictions. Banking system there is a different story, better to use EMIs in other EU countries.

In software business you could also have a look at virtual zone in Georgia as it is not far from Armenia and you pay legally no taxes on your corporate income.

 

[avalanche]

I agree with Cyprus being a solid jurisdiction for your needs. I also think that you find very professional services there compared with other jurisdictions. Banking system there is a different story, better to use EMIs in other EU countries.

In software business you could also have a look at virtual zone in Georgia as it is not far from Armenia and you pay legally no taxes on your corporate income.

Corporate income is not important for me. But Georgian entity will have to pay 10% on all services provided by non-residents which doesnt sound good to me when my activity is going to be 100% investment