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Is taxed profit of a company considered personal income or gain on capital?

glengoolie

glengoolie

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Mar 30, 2021
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#1
Since Cyprus has the best policies when it comes to taxing capital gains, I am curios to know if taking out taxed profits from a Cyprus' company, as Cyprus' tax resident under their 2-month program, and company owner, is considered personal income to be taxed or as "dividend" that is excluded from taxation?
 
#4
Sols said:
If you pay yourself dividends, it is not subject to personal income tax. As a non-domiciled resident, you would not pay tax on dividends.
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Where I am from we have two types of companies - limited liability, which can have one or more owners, who can act as directors, and equity type of entity which issues stocks to shareholders. The second one is reserved only for massive companies, the LLC is de facto standard and that is where I am coming from. So from your answer, do I understand correctly that Cyprian companies are all based on shares, hence there is no profit withdrawal like with LLC but only profit redistribution via shares?
 
#5
glengoolie said:
Where I am from we have two types of companies - limited liability, which can have one or more owners, who can act as directors, and equity type of entity which issues stocks to shareholders. The second one is reserved only for massive companies, the LLC is de facto standard and that is where I am coming from. So from your answer, do I understand correctly that Cyprian companies are all based on shares, hence there is no profit withdrawal like with LLC by only profit redistribution via shares?
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There is no US-style LLC under Cypriot law. All companies are stock companies with shareholders, from which shareholders can be paid dividends.

There are partnerships, but I'm not sure that would be relevant in your case. Profits from partnerships would be considered personal income. Partnerships are very rarely used.
 
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#6
As indicated by Sols above the is no US style company in Cyprus. There are a number of types of entities, for example, limited by shares, limited by guarantee, public, partnerships. However, from the information above it appears that the most suitable for you would be a standard limited by shares company. In this case you will be paying yourself dividends. As a non dom dividend payment is exempted from SDC/tax, you would only pay 2.65% on the dividend for the national health system.
 
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#7
I just read that SDC is applied to some income types earned by Cyprus tax resident companies(ie. companies with local director). So I personally might be exempt from SDC on dividends from my Cyprian company but if I am tax resident in Cyprus and I am also a director, in order to be able to get the 2 months tax residency, the company is considered a tax resident of Cyprus and will be subject to the SDC on its income:

Dividend income: 17%
Interest income: 30%
Interest received by an individual from Government Savings Certificates, Government Bonds and Corporate Bonds: 3%
Interest earned by an approved provident fund: 3%
Interest earned by the Social Insurance Fund: 3%
Rental income less 25%: 3%

source: deloitte
 
#8
glengoolie said:
I just read that SDC is applied to some income types earned by Cyprus tax resident companies(ie. companies with local director). So I personally might be exempt from SDC on dividends from my Cyprian company but if I am tax resident in Cyprus and I am also a director, in order to be able to get the 2 months tax residency, the company is considered a tax resident of Cyprus and will be subject to the SDC on its income:

Dividend income: 17%
Interest income: 30%
Interest received by an individual from Government Savings Certificates, Government Bonds and Corporate Bonds: 3%
Interest earned by an approved provident fund: 3%
Interest earned by the Social Insurance Fund: 3%
Rental income less 25%: 3%

source: deloitte
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Your understanding is not correct. A Cyprus tax resident will be paying 17% on dividend income, however, you will be considered as non-dom, even if you relocate in Cyprus the regime is that you are deemed to be a non-dom for 17 years, therefore, divided payments are exempted from SDC. The same applies to interest income, rental income etc.
 
#9
My point was that If I would setup up a company in Cyprus, with the goal being investing in equities and maybe real estate outside of Cyprus, AND I would be tax resident in Cyprus, then the company is considered tax resident of Cyprus as well, because it is managed from Cyprus, by me, tax resident of Cyprus. And when a company is tax resident of Cyprus, the SDC applies on it(not me).

I went a bit off topic here. I understand now, thanks to you, that I would pay no tax on dividends from my own Cyprian company. I am now shifting the discussion into how the Company would actually earn money and I am saying that the type of income matters and has SDC applied to it.
 
#10
As indicated, your understanding is not correct.

A Cyprus resident company will pay corp tax of 12.5%. Dividend payment to the shareholder is liable to SDC, if the shareholder is non dom (you would be considered as non dom) then the payment will be exempt.
 
#11
Cyprus company will pay 12.5% corproate income tax but only on taxable income. Income such as capital gains is taxed at 0% so the company will pay 0% tax. But since it is Cyprus tax resident company, it will pay 17% SDC on income from dividends, for example.
 
#12
glengoolie said:
Cyprus company will pay 12.5% corproate income tax but only on taxable income. Income such as capital gains is taxed at 0% so the company will pay 0% tax. But since it is Cyprus tax resident company, it will pay 17% SDC on income from dividends, for example.
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I suggest you get an advice from a tax advisor as your understanding is not correct and you have confused some concepts.

As you will be the shareholder, and you will be considered as a non dom then dividend payment is SDC exempt.
 
#13
again, you are looking at the dividends i will pay to myself as the "owner" of the company. that is not what i am talking about. i am talking about how the company will actually be making money and how that money will be taxed based on the type of the income. read again what i wrote.

i am referring to the deloitte document here https://www2.deloitte.com/content/dam/Deloitte/cy/Documents/tax/CY_Tax-Facts-2020EN_Noexp.pdf

based on your nickname, you know what you are talking about. but what you are saying contradicts the information in the linked document. so i cannot take your word over it if there is no consensus here.
 
#15
yes, of course. this is what i am referring to.

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#16
This is if the payment is made to a company, in this case the Cyprus company pays you as a shareholder, you are considered as a non-dom (even if you actually relocate to Cyprus you are considered as such for 17 years) therefore the dividend payment is exempt from SDC!!
 
#19
The SDC is payable on the dividend payment, you are paying a non dom individual so it will be SDC exempt. I am sure more people will confirm, in any event get advice from a professional Cyprus advisor as you have confused the concept of SDC.
 
#20
We're all on the same page regarding dividends from a company to a person.

@glengoolie is asking whether capital gains received by the Cypriot company is subject to corporate income tax in Cyprus. For example, Glengoolie Limited invests in something and makes a profit from the investment. The profits are received by the company. Are those profits taxable under corporate income tax?

My understanding is that it depends on the source and type of dividend or capital gain received. I've seen examples where no tax was applied, and I can't think of any where tax did apply but that's not a blanket guarantee.

For example, you have the EU parent-subsidiary directive under which dividends from a subsidiary to a parent wouldn't be taxed normally. But we're talking about a wide range of possible income streams here, so it would be best to discuss the specifics with a tax adviser/lawyer that looks at all these possibilities.
 
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