Invoicing through a CFC in the UK?

[PrestoR3]

I'm a software developer working 100% remotely. Currently, I'm living in Malta but I'm thinking about moving to Cyprus.

All my clients are currently in the UK. I found that, for some reason, some UK companies are not enthusiastic about working with Cypriot companies (although they didn't have a problem with Malta...). Also, I move frequently and I don't want to have to invoice them every time from different companies and having to explain where I currently reside.

Therefore I have an idea to set-up and invoice my customers via Ltd in the UK. After that my UK Ltd will get an invoice from the entity where the work is actually done (be it Cypr / Malta / me as a sole trader living somewhere else).

I will be the sole director of UK Ltd. I realize the CFC rules might apply.. but, the idea here is that in the end, the gross profit of UK Ltd will be 0 (the income will be = cost). So no corporate tax will be due anyway in the UK Ltd and all the taxes will be paid by a Cypriot company.

I wanted to get your opinion if there anything that potentially might not work (tax-wise or anything else I should consider)?
To be absolutely clear... I'm not looking in this case for any tax optimization here. I want to pay all the taxes that are due in the country where the work is done. I only want to have a "facade" in a more renowned jurisdiction than Cyprus. I want it to be 100% legal and transparent to authorities.

 

[CaptK]

Use aUK holding company and a Maltese trading company that way you can rebate 30% of the tax back from the UK holding company. That means you only pay 5% tax.

 

[PrestoR3]

Thank you @CaptK ! That's what I currently have in Malta.... However, I want to genuinely move out from Malta to Cyprus.
Also, I don't want to keep my company in Malta anymore for a few reasons:
- 8k EUR for accountancy (where I have only a few transactions a month)
- complexity of the whole tax system based on refunds
- the grey area of how those refunds should be taxed in the UK
- the grey area of remitting money from the UK holding back to malta as savings (meaning you can't use it here for some period of time)

I have 100k income and I found that in practice that the threshold to make Malta double-structure worth is closer to 200k.
I will be more than happy to pay 12.5% in Cyprus with simpler (and cheaper) accountancy where I can enjoy my dividends immediately in the country where I reside.

 

[James Turner]

@PrestoR3 I don't see any issues with this, except that the UK company is unlikely to be able to bank in the UK. In principal this works in my opinion.

 

[PrestoR3]

Many thanks @James Turner. I already have a dormant company in the UK with TransferWise business account. That should do. Especially that I'll not keep any funds in that account, but immediately pass it through to Cyprus

 

[MrYellow]

Just take a EMI and you have local UK bank account. Simple. So it’s very likely for your UK company to get a in bank account.

 

[fshore]

I'm a software developer working 100% remotely. Currently, I'm living in Malta but I'm thinking about moving to Cyprus.

All my clients are currently in the UK. I found that, for some reason, some UK companies are not enthusiastic about working with Cypriot companies (although they didn't have a problem with Malta...). Also, I move frequently and I don't want to have to invoice them every time from different companies and having to explain where I currently reside.

Therefore I have an idea to set-up and invoice my customers via Ltd in the UK. After that my UK Ltd will get an invoice from the entity where the work is actually done (be it Cypr / Malta / me as a sole trader living somewhere else).

I will be the sole director of UK Ltd. I realize the CFC rules might apply.. but, the idea here is that in the end, the gross profit of UK Ltd will be 0 (the income will be = cost). So no corporate tax will be due anyway in the UK Ltd and all the taxes will be paid by a Cypriot company.

I wanted to get your opinion if there anything that potentially might not work (tax-wise or anything else I should consider)?
To be absolutely clear... I'm not looking in this case for any tax optimization here. I want to pay all the taxes that are due in the country where the work is done. I only want to have a "facade" in a more renowned jurisdiction than Cyprus. I want it to be 100% legal and transparent to authorities.

The UK ltd probably won't be a CFC, but it might technically be tax resident where you are performing the duties (where you work from). This seems to not be enforced strongly in Cyprus, but might change.

You'd need to trade at arms length, and maybe produce related party documentation.
As you trade at arms length the profit probably will not be 0, so you need to pay some tax in the UK.
Unless you take a salary which can reduce or remove the profit in the UK.
And you might not be able to invoice the UK ltd as a sole prop at all, as there are rules saying directors of UK ltd can't invoice the company for their work.

 

[PrestoR3]

Thanks @fshore. You made a few interesting points there. I decided not to implement it for now, but it's good to know if there are any obstacles