Optimisation with a BG Company as a CY Tax Resident with non-EU Corporate Clients

[faelure]

Hello all - new here - wondering if anyone can confirm a few tax optimisation type questions just in case anyone has navigated a similar situation.

1. I have registered a Bulgarian company with VAT and opened a bank account - currently just sitting there until I find a use for it.
2. I am tax resident in Cyprus.
3. I have a possible client incorporated in a non-EU country - it's IT security consultancy work - this is triggering my urge to start using the Bulgarian company as the provider rather than me as an individual.

Trying to wrangle the best way of moving funds around while optimising any social insurance and tax - findings so far;
1. Clearly VAT is not a factor when invoicing my client
2. Invoiced money arrives in Bulgarian company's bank account
3. Now what?

And so;
1. As far as I understand it, it would be beneficial for me to expense away as much as I reasonably can.
2. The remaining 'profit' would be taxed at the BG corporate tax rate of 10%.
3. Then should I want to turn this into dividends I'd be looking at a further 5%.
4. And to receive it in my personal bank account in Cyprus I'd be looking at an additional 17% for this 'Special Defence Contribution'.

The only hitch to that so far appears to be the 17% Special Defence Contribution really. Cumulatively it erodes much of the benefit of working this way.

To be clear - I don't mind having and maintaining an inactive Bulgarian company - I have a desire to actually kick off a business or two in Sofia and so it already serves as a good mental stepping stone for me in actually motivating to go the distance.

My questions;
a) Is this already the most optimal way to handle this? (i.e.: should I consider looping in a CY company - I see that I might be able to qualify for an SDC of 0% if it's pushed through this way - and therefore I wouldn't be taxed any further once funds have hit the Cyprus company - and then I guess I could pay that amount as dividends to myself).

b) Does anyone have any experience with company expenses in Bulgaria? I know there are some clear limitations - as someone who permanently works from a home office I would want to try and expense rent, utilities, groceries, technology purchases, subscriptions etc. as far as possible. What is achievable here?

c) Is there a totally different and far more optimal way around all this? (I am sure the answer is yes - illuminate me!)

Would love to hear your experiences - and discuss further - happy to help anyone who might be at an earlier stage in this process than me too (is that even possible? ).

Thanks!

 

[Marzio]

And to receive it in my personal bank account in Cyprus I'd be looking at an additional 17% for this 'Special Defence Contribution

aren't non-dom's excluded from SDC?

 

[faelure]

aren't non-dom's excluded from SDC?

Yeah - if you're not tax resident you're good. I am unfortunately tax resident though.

 

[John Andrews]

See if you can reduce profits in the Bulgarian company by claiming expenses, then forward the dividends to a Cyprus holding and repeat.

 

[faelure]

See if you can reduce profits in the Bulgarian company by claiming expenses, then forward the dividends to a Cyprus holding and repeat.

Sounds like you're agreeing with what I proposed except with the modification of having a CY Ltd to avoid the SDC 17% (i.e.: expense away -> dividend profits to CY company -> dividend again to CY tax resident individual)?

 

[faelure]

Further thought - Bulgaria appears to be more lenient in terms of expenses (i.e.: some less 'reasonable' expenses charged at the 10% CIT rate) - so that would appear to be the only not to just go full CY company route.

 

[Sols]

Yeah - if you're not tax resident you're good. I am unfortunately tax resident though.

If you're a non-domiciled resident (which it sounds like you would), SDC normally wouldn't apply.

Speak with a tax adviser.

Sounds messy to include a Bulgarian company instead of just forming a local company in Cyprus.

 

[faelure]

If you're a non-domiciled resident (which it sounds like you would), SDC normally wouldn't apply.

Speak with a tax adviser.

Sounds messy to include a Bulgarian company instead of just forming a local company in Cyprus.

Yeah I'm starting to see that path emerge - but it costs nothing to start a BG company nor anything to keep it inactive (besides an online declaration of inactivity once per year - no fee).

I have ties to Sofia so was thinking of maybe opening a business there at some stage anyway - a themed bar maybe - some sort of chain/franchise they don't have over there yet - or (yet another) IT outsourcing outfit.

A CY company would be much more stringent in terms of expenses - but I guess you do escape dividends tax - corporate tax only marginally higher - though maintenance far more expensive in terms of local accountants/lawyers fees and the annual company levy (though not a lot of money) is just objectionable.

I find myself concerned of the optics though - a director of a company with no employees paying themselves dividends and no salary with a sole client - that nullifies personal income tax and social insurance entirely does it not?