How will Greece challenge the tax residency of my Cyprus company?

[FriendlyFace]

Hi, folks - hope you're well.

I live in Greece, and have just registered a Cyprus company.

I'm trying to do a *realistic* risk-benefit analysis of my options.

I have some questions:

1) Does anyone know how often a country (Greece for example), starts investigating the tax residency of a company? Does it happen 10% of the time? 50%? 90%?

2) Let's say I declare the dividents I have taken from my company to the Greek tax department. I also need to provide extra evidence that I have already paid 12,5% corporate tax in Cyprus. Does this happen online? Or do I need to physically appear in an office?

3) If they decide to challenge, what's the "nature" of the challenge? Do they give me the Spanish inquisition? Or do they just ask for some documents which I send them?

4) Let's say for year one they don't challenge the tax residency of my company. Is that decision final (for that specific year)? Or they may change their minds after a few years and ask me for more money from past years?

5) Assuming they don't accept the Cyprus tax residency of my company. What happens then?

a) I pay them the full 15% in dividents that Greek law mentions, without taking into consideration the Cyprus-Greece double-tax treaty, or the fact I will have already paid 12,5% corporate tax in Cyprus.

b) They fine me.

c) They decide to tax the company as if it was actually operating in Greece (easily 50+% "real" tax on net income).

d) Something else.

6) What if my Cyprus company doesn't distribute dividends for, say, 5 years, while I live in Greece? Then, on year 5, I move to Cyprus, create really strong substance, and then distribute all the profits from the last 5-6 years as dividends. Will this work? Or not?

Sorry for the many dumb questions.

Thanks in advance.

 

[Tax Cow]

Your questions are not necessarily dumb, but they are wildly speculative. Nobody can foresee the priorities, strategy and investigation efficiency of the Greek tax office 1 year from now, much less 5 years from now.

I'll give you some practical guidance.

Only for the reason that both states are in the EU, you're exposing yourself to reckless tax risk. Cross-border information exchange between EU member states works, not in name only. I want to point out that you're taking your dump in a toilet box covered by glass walls. Forget your 5 year plans, it's too risky. Two years max for sloppy illegal hide and seek setups like this, and do not take dividends at any point before you're registered as non-resident in Greece.

If you're caught pants down, you pay for previous tax years, plus interest, plus penalties - as you correctly assumed. By year 5, you're in criminal tax evasion territory where some prison time could be due. It's not a risk I suggest taking if you intend to live in Greece for many years to come.

 

[Tax Cow]

Lastly, I could not resist a little roast, mind you (nothing personal)? You're the typical Spaniard who incorporated in Gibraltar or the Catalan who incorporated in Andorra. The Colombian who incorporated in Panama. I could go on for days.

I can't believe people still think it's a good idea to cheat on their partner by banging a hooker who works in their home neighborhood. Walk a little further if you want to reduce the odds of detection!

The taxmen are well aware of the popular nearby watering holes and they can start another investigation from muscle memory.

 

[FriendlyFace]

Haha - the roast on your part is more than justified. I was actually expecting much worse answers!

Thanks for the reply!

I understand your points, but here's the thing:

I live in Greece and have family in Cyprus. Cyprus was the only country I could think of that has a somewhat ok tax regime AND that would give me reasonable chances to build real substance in the future (I travel there pretty often).

do not take dividends at any point before you're registered as non-resident in Greece.

Sage advice. So, if I become non-tax-resident in Greece, and become tax-resident of Cyprus, I'm in the clear? In that scenario, no dividends would ever be presented to the Greek government.

BUT, what if I become Greek tax resident in the future again? If the Greek authorities find funds in my bank account, will they have any grounds to mess with it - assuming they have accepted my Greek non-tax-residency before?

Thanks!

 

[Tax Cow]

...
I live in Greece and have family in Cyprus.
...

This is quite big.

By "family", do you mean kids and/or wife? You might be able to dispute your tax residency in Greece and only pay tax in Cyprus by proving your "center of life" is in Cyprus, even if you live most days of the year in Greece.

 

[Sols]

Greece has a long history of doing an absolutely terrible job at collecting taxes. That's a big part of what caused the recent financial turmoil. Greece is now under pressure from EU to to a better job at collecting taxes. This may affect your situation.

With automatic sharing of information under CRS and just good old fashioned EU directives, Greece doesn't have to actively investigate. They just need someone to match the report they get from Cyprus with their own records. It's hard to say if they do that, yet.

If your company is deemed tax resident in Greece (which everything points to being the case), you will have to pay full corporate income tax in Greece, unless you can somehow pay 12.50% in Cyprus and use that as tax credit to only pay the difference in Greece. Either way, you'll most likely end up paying the full Greek corporate income tax. Plus any social security and other taxes/fees. The company effectively becomes a Greek company.

Dividends would then also be taxed in Greece, as would any other income you have taken out of the company (i.e. salary).

You might also get a fine. There have been cases of jail time for tax fraud, but that's rare for smaller amounts.

Cyprus is great for running an online business and save on taxes, especially if you are a non-domiciled resident. But do it correctly. Why don't you just go speak with a good lawyer about this? If your business is doing so well you are doing international tax avoidance (or, as it is now, tax evasion), you can afford a few hundred euro in fees to a good law firm.

 

[FriendlyFace]

Thanks for the replies, folks!

This is quite big.

By "family", do you mean kids and/or wife? You might be able to dispute your tax residency in Greece and only pay tax in Cyprus by proving your "center of life" is in Cyprus, even if you live most days of the year in Greece.

I have cousins in Cyprus.

I have parents, siblings and nephews in Greece.

I don't have wife or kids yet.

If your company is deemed tax resident in Greece (which everything points to being the case), you will have to pay full corporate income tax in Greece, unless you can somehow pay 12.50% in Cyprus and use that as tax credit to only pay the difference in Greece.

I will absolutely be paying the 12,5% Cyprus corporate tax, paying VAT, and having my books audited.

Cyprus is great for running an online business and save on taxes, especially if you are a non-domiciled resident. But do it correctly. Why don't you just go speak with a good lawyer about this? If your business is doing so well you are doing international tax avoidance (or, as it is now, tax evasion), you can afford a few hundred euro in fees to a good law firm.

I have asked many different accountants, lawyers and "experts" - in Greece, Cyprus and internationally. Honestly, most of them understand small parts of the situation. I'm still trying to put together the pieces and get a better understanding.

I'll keep looking for experts to learn from.

I have no desire to do tax evasion. But I want my business to be financially viable. With the current Greek tax system, I don't know how to make this work.

Thanks for the replies again.

 

[Tax Cow]

I have cousins in Cyprus.

I have parents, siblings and nephews in Greece.

I don't have wife or kids yet.

Not good enough then. What is your business; do you necessarily have to live in Greece? Maybe you can live in FYR Macedonia and commute to Greece? Alternatively, work remotely if there's a digital/online element to what you do.

 

[FriendlyFace]

Thanks for the reply.

Not good enough then. What is your business; do you necessarily have to live in Greece?

I work 100% online.

Which might be another important point. What if Greek authorities say "why do you have a Cyprus company when you can be working from home from anywhere (including Greece)"?

Maybe you can live in FYR Macedonia and commute to Greece? Alternatively, work remotely if there's a digital/online element to what you do.

Do you mean something like:

- Live in Cyprus 2 months of the year.

- Live in FYR Macedonia 5 months of the year.

- Live in Greece 5 months of the year.

Someone may still be able to be tax-resident in Cyprus if they live there 2 months of the year, as long as they don't live over 6 months in any other country. But the above scenario would likely be too much trouble.

I feel you are trying to communicate a different idea with me, which I haven't understood.

I'm trying to find a solution as clean as possible.

Thanks again.

 

[Tax Cow]

If you work 100% online, cherry-pick a 0% tax jurisdiction or a territorial tax country as your PoEM (Place of Effective Management) - the place from where you work and manage your company. Also Cyprus is an option, if the rates are good enough for you. I don't understand why we discuss high risk solutions involving Greece, especially considering the nasty rates they would impose on you.

Let's say you pick Cyprus as your PoEM. Bolster your choice by living 183+ days of every tax year in Cyprus. Don't impregnate any women in Greece.

1. Register as non-resident in Greece and move to Cyprus. You can still visit Greece for a few months of the year, but double-check their residency rules to be on the safe side.
2. Assuming the client is a company that has a EU VAT no., invoice them from your Cypriot company @ 0% VAT. The client will reverse charge for your service at local rate.
3. Aside from VAT that your client has to worry about, other taxes (CIT, PIT, Social Security) are due in Cyprus. You declare nothing on corporate or personal level in Greece.

A typical intra-EU business affair where nothing crosses the line of legality.

 

[FriendlyFace]

If you work 100% online, cherry-pick a 0% tax jurisdiction or a territorial tax country as your PoEM (Place of Effective Management) - the place from where you work and manage your company. Also Cyprus is an option, if the rates are good enough for you. I don't understand why we discuss high risk solutions involving Greece, especially considering the nasty rates they would impose on you.

Let's say you pick Cyprus as your PoEM. Bolster your choice by living 183+ days of every tax year in Cyprus. Don't impregnate any women in Greece.

1. Register as non-resident in Greece and move to Cyprus. You can still visit Greece for a few months of the year, but double-check their residency rules to be on the safe side.
2. Assuming the client is a company that has a EU VAT no., invoice them from your Cypriot company @ 0% VAT. The client will reverse charge for your service at local rate.
3. Aside from VAT that your client has to worry about, other taxes (CIT, PIT, Social Security) are due in Cyprus. You declare nothing on corporate or personal level in Greece.

A typical intra-EU business affair where nothing crosses the line of legality.

Thank you, sir!