Non-resident company - VAT and audits

[dylani]

I'm in the process of setting up a non-resident Cyprus company.
I am a resident in a European country outside EU, with no CFC rules, and a rather relaxed government. I plan to sell B2C services to UK that will have a place of supply outside UK, and thus not be subject to UK VAT. I want to avoid having to charge VAT on sales. My company currently has no real "home", and will have a revenue of 1-2M EUR.


Based on this I have two questions:
1) If no VAT is charged on transactions, is this something that is likely to be flagged in the audit?
2) Is this risk abated by renting an office and getting physical employee(s) on the ground in a country without VAT?

 

[Sols]

Based on this I have two questions:
1) If no VAT is charged on transactions, is this something that is likely to be flagged in the audit?

No, as long as the accounting is done correctly and explains the absence of VAT, that shouldn't be a problem.

 

[CyprusLawyer101]

I'm in the process of setting up a non-resident Cyprus company.
I am a resident in a European country outside EU, with no CFC rules, and a rather relaxed government. I plan to sell B2C services to UK that will have a place of supply outside UK, and thus not be subject to UK VAT. I want to avoid having to charge VAT on sales. My company currently has no real "home", and will have a revenue of 1-2M EUR.


Based on this I have two questions:
1) If no VAT is charged on transactions, is this something that is likely to be flagged in the audit?
2) Is this risk abated by renting an office and getting physical employee(s) on the ground in a country without VAT?

Where would the Director be based? You should examine tax residency risk in the country of residence of the Director.
Additionally there is a recent legislation that came out a couple of months ago which amends the non tax resident CY company to deem the company as Cyprus tax resident based solely on the place of incorporation. Does the person setting this up for you taking the new amendments into consideration? It is still possible to structure a non tax resident company but requires careful planning.

 

[dylani]

Thank you both for your input!
@CyprusLawyer101 this is interesting - I was not aware of this development. I am the director, however this shouldn't matter much as I intend to take out the full profits as bonus each year and pay personal income tax on it, so corporate tax shouldn't be applicable.

 

[CyprusLawyer101]

Thank you both for your input!
@CyprusLawyer101 this is interesting - I was not aware of this development. I am the director, however this shouldn't matter much as I intend to take out the full profits as bonus each year and pay personal income tax on it, so corporate tax shouldn't be applicable.

You are welcome!
Which jurisdiction would not charge VAT where you could set up real substance?
Also where would be your place of supply of your services?

 

[ShillGates]

b2c from cyprus to uk = uk vat applicable

although who checks.......

 

[dylani]

b2c from cyprus to uk = uk vat applicable

although who checks.......

It should be applicable in the seller's country unless it falls under the exceptions (electronically provided/consulting/...) which I will not

You are welcome!
Which jurisdiction would not charge VAT where you could set up real substance?
Also where would be your place of supply of your services?

I'd be looking somewhere in the caribbean. Not sure where exactly. It'd be a bit of a stretch, but I'd aim to make that the place of supply.

 

[CyprusLawyer101]

It should be applicable in the seller's country unless it falls under the exceptions (ctronically provided/consulting/...) which I will not

I'd be looking somewhere in the caribbean. Not sure where exactly. It'd be a bit of a stretch, but I'd aim to make that the place of supply.

What type of service is this?

 

[ShillGates]

I think you will find as you say B2C that vat is due in country of customer as that is were the supply is according to the rules. You do not chose place of supply, this is governed by rules.

Otherwise europe business would all exit and move to some tropical island near Mr Everson....

As of July 2021, the state-by-state EU Distance Selling Thresholds have been abolished. Instead you must VAT register from your first sale and charge the local rate of VAT where the customer is located.

 

[dylani]

"The supply of services between businesses (B2B services) is in principle taxed at the customer's place of establishment, while services supplied to private individuals (B2C services) are taxed at the supplier's place of establishment." - Where to tax?
This is indeed different for electronically provided services and a couple other categories. I can't specify exactly what services here, but for me it is neither distance selling nor electronically supplied services. I may be totally off, but my understanding is that then (subject to not fitting in other exceptions), I can be outside the scope of EU VAT.

 

[CyprusLawyer101]

"The supply of services between businesses (B2B services) is in principle taxed at the customer's place of establishment, while services supplied to private individuals (B2C services) are taxed at the supplier's place of establishment." - Where to tax?
This is indeed different for electronically provided services and a couple other categories. I can't specify exactly what services here, but for me it is neither distance selling nor electronically supplied services. I may be totally off, but my understanding is that then (subject to not fitting in other exceptions), I can be outside the scope of EU VAT.

In the absence of knowing the service, I cannot imagine how this would be possible.

 

[NicolasMaduro]

"The supply of services between businesses (B2B services) is in principle taxed at the customer's place of establishment, while services supplied to private individuals (B2C services) are taxed at the supplier's place of establishment." - Where to tax?
This is indeed different for electronically provided services and a couple other categories. I can't specify exactly what services here, but for me it is neither distance selling nor electronically supplied services. I may be totally off, but my understanding is that then (subject to not fitting in other exceptions), I can be outside the scope of EU VAT.

Sounds unlikely. And if you are not paying VAT in the UK, then at least you are paying in Cyprus.

 

[ShillGates]

https://europa.eu/youreurope/business/taxation/vat/cross-border-vat/index_en.htm#
go there

 

[CyprusBusiness]

"The supply of services between businesses (B2B services) is in principle taxed at the customer's place of establishment, while services supplied to private individuals (B2C services) are taxed at the supplier's place of establishment." - Where to tax?
This is indeed different for electronically provided services and a couple other categories. I can't specify exactly what services here, but for me it is neither distance selling nor electronically supplied services. I may be totally off, but my understanding is that then (subject to not fitting in other exceptions), I can be outside the scope of EU VAT.

Please follow the link below from ministry of finance to obtain the correct understanding about place of supply and applicable vat rate for B2C transactions: https://www.mof.gov.cy/mof/tax/taxdep.nsf/All/66CB997EFF0DA0EEC225824E0045B028?OpenDocument

In addition, please be aware of a new amendmend in the income tax law which was published on the Cyprus official gazette and would be applicable on 31 December 2022. The new amendmend imposes a new tax residency test for non tax resident Cyprus companies like yours (which I assume will also not be tax resident tin the offshore country you reside). In essense your Cyprus company by 31 december 2022 will be considered tax resident of Cyprus. This is an amendmend to the current rules to eliminate the possibility of a company not being tax resident nowhere.

Hope this helps.

 

[East]

Hi dylani,
Did you manage to work it out? I'm in the same situation and also considering a Cyprus non-resident. The Cyprus non resident would be a tax resident in my country. I'm just not entirely sure where the place of supply would be (B2C, not automated service).

 

[JohnLocke]

Hi dylani,
Did you manage to work it out? I'm in the same situation and also considering a Cyprus non-resident. The Cyprus non resident would be a tax resident in my country. I'm just not entirely sure where the place of supply would be (B2C, not automated service).

I would recommend you to get in touch with for instant @CyprusLawyer101 @CyprusBusiness or @CyprusLaw all of them are very active here and willing to help as per the best of their knowledge.

 

[CyprusLawyer101]

I would recommend you to get in touch with for instant @CyprusLawyer101 @CyprusBusiness or @CyprusLaw all of them are very active here and willing to help as per the best of their knowledge.

@James Spader thank you for the reccoomendation.
@East if you wish to discuss your requirements, kindly let me know and I can PM you.