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How to avoid creating Permanent Establishment in Europe?

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FixieHartmann

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Feb 16, 2021
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#1
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(this is based on US tax residency + Apartment in Spain)

Do you know of any country in or close to (max. 4-5h flight time) Europe where I could work full-time for a European company without running into the issue of creating a permanent establishment?

Of course it wouldn't hurt if the self-employment tax is reasonable and I'd definitely need to be close to an airport because I will need to fly to the HQ of the company about once a month (but I don't want to live in that country).

I am not a big fan of Dubai or the eastern European countries (e.g. Bulgaria) and I am not rich enough for Monaco.
Cherry on top would be if this country wouldn't have an exit tax, but this is not a must have.

I'd love to hear your ideas / suggestions!
 
#2
Is there a reason why you don't just want to set up a permanent home base in Malta or Cyprus?

You can quite easily achieve 5% corporate tax in Malta, even 0% is possible in some circumstances. Thereafter, you are taxed on a remittance basis, meaning only what you bring into Malta is taxed.

In Cyprus, you're looking at a total tax burden of 12.50% corporate tax on profits and then around 2.65% in social security contributions (capped at around 4,800 EUR/year). You can pocket everything. No further taxes.
 
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#3
Cyprus is indeed a good option as Sols mentions. With respect to whether a PE is created, this should depend on the type of activity you will be carrying in the country of residence. In essense if you are not conducting any sales in the country fo residence a PE is unlikely to be created. Also if you choose Cyprus as your country of residence there might be an opportunity to qualify for 0% tax on income generated from salaried services to your employer. If Cyprus could be in your plan, let me know and I can PM you to further the discussion.
 
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#4
Sols said:
Is there a reason why you don't just want to set up a permanent home base in Malta or Cyprus?

You can quite easily achieve 5% corporate tax in Malta, even 0% is possible in some circumstances. Thereafter, you are taxed on a remittance basis, meaning only what you bring into Malta is taxed.

In Cyprus, you're looking at a total tax burden of 12.50% corporate tax on profits and then around 2.65% in social security contributions (capped at around 4,800 EUR/year). You can pocket everything. No further taxes.
Click to expand...
Are you saying there are no employment taxes in Cyprus?
FixieHartmann said:
(this is based on US tax residency + Apartment in Spain)

Do you know of any country in or close to (max. 4-5h flight time) Europe where I could work full-time for a European company without running into the issue of creating a permanent establishment?

Of course it wouldn't hurt if the self-employment tax is reasonable and I'd definitely need to be close to an airport because I will need to fly to the HQ of the company about once a month (but I don't want to live in that country).

I am not a big fan of Dubai or the eastern European countries (e.g. Bulgaria) and I am not rich enough for Monaco.
Cherry on top would be if this country wouldn't have an exit tax, but this is not a must have.

I'd love to hear your ideas / suggestions!
Click to expand...
Georgia and Armenia could be interesting and low tax choices.
 
#5
Sols said:
Is there a reason why you don't just want to set up a permanent home base in Malta or Cyprus?

You can quite easily achieve 5% corporate tax in Malta, even 0% is possible in some circumstances. Thereafter, you are taxed on a remittance basis, meaning only what you bring into Malta is taxed.

In Cyprus, you're looking at a total tax burden of 12.50% corporate tax on profits and then around 2.65% in social security contributions (capped at around 4,800 EUR/year). You can pocket everything. No further taxes.
Click to expand...
Malta and Cyprus are definitely options that I consider, however for me it is not too much about the total tax rate (even though of course lower is better) but more about not causing any issues for my employer.

If PE risk can be avoided in Malta and Cyprus then they would be the obvious candidates.

CyprusLawyer101 said:
Cyprus is indeed a good option as Sols mentions. With respect to whether a PE is created, this should depend on the type of activity you will be carrying in the country of residence. In essense if you are not conducting any sales in the country fo residence a PE is unlikely to be created. Also if you choose Cyprus as your country of residence there might be an opportunity to qualify for 0% tax on income generated from salaried services to your employer. If Cyprus could be in your plan, let me know and I can PM you to further the discussion.
Click to expand...
Let’s discuss here so that everyone can benefit :)

Are you aware of any measures that can be done to further diminish the risk of creating a PE? I’d definitely don’t do sales, so that is not an issue but is there something else? Could we get a binding statement from the authorities that PE is not an issue?

How would 0% as employee work?

I also wouldn’t mind setting up a company in Cyprus if that makes everything easier.
 
#6
Don said:
Are you saying there are no employment taxes in Cyprus?
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No, I'm saying there are no payroll taxes if you are a non-domicile resident in Cyprus whose sole source of income is dividends.

FixieHartmann said:
Malta and Cyprus are definitely options that I consider, however for me it is not too much about the total tax rate (even though of course lower is better) but more about not causing any issues for my employer.
Click to expand...
Maybe I missed something in this or the previous thread, but what problem is there for your employer in case you have a PE in Cyprus/Malta?

If your employer terminates your current employment, you move to Cyprus/Malta, you form a new company there, and then the employer contracts your company as a consultant or some other type of B2B service provider, what risks do you perceive for yourself or the company you provide services to?
 
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#7
Sols said:
Maybe I missed something in this or the previous thread, but what problem is there for your employer in case you have a PE in Cyprus/Malta?

If your employer terminates your current employment, you move to Cyprus/Malta, you form a new company there, and then the employer contracts your company as a consultant or some other type of B2B service provider, what risks do you perceive for yourself or the company you provide services to?
Click to expand...
AFAICT if Malta or Cyprus would argue that me living there would create a PE that would result in the company of my employer becoming tax resident in the jurisdiction and having to file corporate tax returns etc. This is what I would like to avoid.

If this can be avoided by forming a new company that would be great.

However, either me or my Cyprus / Malta company will own substantial shares in the operating company (probably 25-45%), which - if my understanding is correct - definitely increases the risk of the tax authorities arguing for a PE because of the fact that a manager of the operating company lives full-time on the island (even if the person is paid through invoices from a local company).

I hope that clarifies it.
 
#8
Why not setup a company in Dubai, 0% corporate tax. You can live somewhere else for instant in Cyprus or where the personal income tax is low i.e. Switzerland.

Following the flag theory would not hurt your plans.
 
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#9
myhand said:
Why not setup a company in Dubai, 0% corporate tax. You can live somewhere else for instant in Cyprus or where the personal income tax is low i.e. Switzerland.

Following the flag theory would not hurt your plans.
Click to expand...
Well, if I set up a company without substance in Dubai and live in Cyprus then CFC rules will come into place and the company will become tax resident of Cyprus? Cyprus - Corporate - Group taxation

According to my understanding living in country a) but having a company in an offshore tax haven b) only works if you have a good amount of substance in country b).
 
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#10
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#12
You should be more clear. Do you have a job at McDonalds? you don't wrote anything about you income so you expect us to know what your income is.

So I will make it easy for you:

low income = stay home, mind your job at McD
high income = speak with professionals and mindwise people like you do here and contact some of them
 
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#14
myhand said:
You should be more clear. Do you have a job at McDonalds? you don't wrote anything about you income so you expect us to know what your income is.

So I will make it easy for you:

low income = stay home, mind your job at McD
high income = speak with professionals and mindwise people like you do here and contact some of them
Click to expand...
The income will likely be in the low 6 digits.

marzio said:
Have you scraped the whole US residency and US LLC part?

Now will you be an employee of a EU company?
Click to expand...
I am still working on my US residency but it'll take a while. I do have a US LLC but it is not in use. I am considering becoming co-founder of a EU tech startup.
 
#16
FixieHartmann said:
AFAICT if Malta or Cyprus would argue that me living there would create a PE that would result in the company of my employer becoming tax resident in the jurisdiction and having to file corporate tax returns etc. This is what I would like to avoid.

If this can be avoided by forming a new company that would be great.

However, either me or my Cyprus / Malta company will own substantial shares in the operating company (probably 25-45%), which - if my understanding is correct - definitely increases the risk of the tax authorities arguing for a PE because of the fact that a manager of the operating company lives full-time on the island (even if the person is paid through invoices from a local company).

I hope that clarifies it.
Click to expand...
I understand the risk now. However, if we're talking about Malta or Cyprus, it's not really a meaningful risk. If the company has a base of operations somewhere else (in EU or not) and is tax resident there, Malta or Cyprus are both extremely unlikely to seek to tax that company. They will be content with just your own company.

Tax residence in Cyprus is quite simple. If the company is tax resident somewhere else, it's not tax resident in Cyprus. Speak with @CyprusLawyer101 since he's already in the thread.

Malta is less clear in its definition but I don't see it being a meaningful risk there either.
 
#17
FixieHartmann said:
Malta and Cyprus are definitely options that I consider, however for me it is not too much about the total tax rate (even though of course lower is better) but more about not causing any issues for my employer.

If PE risk can be avoided in Malta and Cyprus then they would be the obvious candidates.


Let’s discuss here so that everyone can benefit :)

Are you aware of any measures that can be done to further diminish the risk of creating a PE? I’d definitely don’t do sales, so that is not an issue but is there something else? Could we get a binding statement from the authorities that PE is not an issue?

How would 0% as employee work?

I also wouldn’t mind setting up a company in Cyprus if that makes everything easier.
Click to expand...
Yes, there are measures that can be undertakrn, however initially your personal circumstances must be assessed i.e. where is your employer based, what is the operation, what part of that operation you are working on, the existence or not of a tax treaty between Cyprus and the country of employer etc.
 
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#19
Yeah but if he give up his American citizenship and renounce it somewhere else it may still work.

There is so much information missing from him that it's impossible to give any true answer to his case. All will be speculation and, yeah, simple discussions.
 
#20
myhand said:
Yeah but if he give up his American citizenship and renounce it somewhere else it may still work.

There is so much information missing from him that it's impossible to give any true answer to his case. All will be speculation and, yeah, simple discussions.
Click to expand...
What else would you like to know?

As stated earlier, I am working on my US residency / Green Card, so (obviously) I am not American.
 
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