Part 2: Would this set-up trigger tax residency (in Southern European country)?

[Enrique123]

Hi everyone,

Thanks for your responses on the previous thread I created - I didn’t expect this to generated such a heated debate.

I have re-read this thread to try to arrive at some conclusions:

1- The Cyprus Non-Dom program grants you tax residency provided you a) spend 60 days in Cyprus and no more than 183 days in any other and b) you are not a tax resident anywhere else

2- Spain will try to fight for your tax residency - if they succeed, the Non-Dom is void.

3 - Hacienda considers you a fiscal resident if you meet any of these rules: +183 days, centre of economic interest (direct or indirect), wife/kids residing in Spain

4 - In my particular case, the tricky part is “centre of economic interest”

5 - If I can prove that my centre of economic interest (direct or indirect) is not Spain then I should not be considered a tax resident in Spain

6 - If I am not considered a tax resident in Spain and I meet the Non-Dom criteria, I am considered a tax resident in Cyprus

7 - It is only at this point where the Double Taxation Agreement would come into place

8 - Article 4 of the DTT states that “Having a permanent home available to him” is the first criteria, and implies that only if this condition is not met will there be a need to go to the next levels (ie centre of vital interests/habitual abode/national).

----

Please let me know your thoughts on the above conclusion.

If it is correct, the question then becomes how do you define “centre of economic interest” (point 5):

Does generating 51% of your global income outside of Spain (directly & indirectly), and meeting the 183 days & family rules exempt you from being considered a Spanish tax resident?

All of this aside, I think it makes sense to consider a better structure (most likely outside of the EU).

Thanks!

 

[fshore]

7 - It is only at this point where the Double Taxation Agreement would come into place

Th DTA would not come into play. As you've concluded already you can't be a tax resident of Cyprus if you're a tax resident in Spain. The DTA is only relevant if you are tax resident of both countries.

 

[Enrique123]

Hi - exactly so.

What I was pointing out was that if Spain considers me to be a tax resident, then the Non-Dom is void (and hence points 6-8 do not apply).

If this is correct, the doubt is regarding what is considered the "centre of economic interest".

If I obtain (and prove) that over 50% of my income is derived from activities completely unrelated to Spain, then Im guessing Spain is not my "centre of economic interest".

 

[Sols]

1- The Cyprus Non-Dom program grants you tax residency provided you a) spend 60 days in Cyprus and no more than 183 days in any other and b) you are not a tax resident anywhere else

They are different things and different concepts.

Every single human being on this planet who wasn't born Cypriot and who hasn't lived in Cyprus for 17 years is non-domicile. It is unrelated to tax residence.

The 60-day program is something else. It relates tax residence. Cyprus is happy to consider you tax resident if you live in Cyprus for 60 days per year and neither is nor intend to become tax resident in another jurisdiction simultaneously.

2- Spain will try to fight for your tax residency - if they succeed, the Non-Dom is void.

No, that's not what it means. A Spanish court cannot decide that you are domiciled under Cypriot law. Only Cypriot courts can do that. It's Cypriot domestic law.

However, staying in Cyprus only 60 days per year is risky if you are a Spanish citizen and have ties to Spain. The Spanish authorities could consider you tax resident in Spain. That is unrelated to your status as a non-domicile, which is determined by your ancestry and length of stay in Cyprus.

4 - In my particular case, the tricky part is “centre of economic interest”

5 - If I can prove that my centre of economic interest (direct or indirect) is not Spain then I should not be considered a tax resident in Spain

You might need to prove both that Spain isn't and that another jurisdiction is your center of economic interest. The absence of ties to Spain isn't always enough, if the tax authority decides to go after you.

If it is correct, the question then becomes how do you define “centre of economic interest” (point 5):

Does generating 51% of your global income outside of Spain (directly & indirectly), and meeting the 183 days & family rules exempt you from being considered a Spanish tax resident?

The definitions are intentionally vague but enforcement is generally (but not always) reasonable. There are no fixed limits that apply in every case, because if there were, people would abuse that.

It may come down to very small details, like where decisions are made, where the income is generated from, majority economic substance, and so on.

If 49% of your income is Spanish, and if the remaining 51% is split across multiple jurisdictions, the largest contributor is Spanish. Spain could thereby be considered your center of economic interest.

Or if 49% of your income is Spanish but of the other 51%, some percentage comes from business with clients resident in Spain (i.e. you own a Cypriot company that trades primarily with Spanish clients), then Spain could once again be considered your economic center.

Speak with a good, reputable Spanish tax adviser and give them full insight into your plans if you want total clarity.

 

[CyprusLaw]

Hi everyone,

Thanks for your responses on the previous thread I created - I didn’t expect this to generated such a heated debate.

I have re-read this thread to try to arrive at some conclusions:

1- The Cyprus Non-Dom program grants you tax residency provided you a) spend 60 days in Cyprus and no more than 183 days in any other and b) you are not a tax resident anywhere else

2- Spain will try to fight for your tax residency - if they succeed, the Non-Dom is void.

3 - Hacienda considers you a fiscal resident if you meet any of these rules: +183 days, centre of economic interest (direct or indirect), wife/kids residing in Spain

4 - In my particular case, the tricky part is “centre of economic interest”

5 - If I can prove that my centre of economic interest (direct or indirect) is not Spain then I should not be considered a tax resident in Spain

6 - If I am not considered a tax resident in Spain and I meet the Non-Dom criteria, I am considered a tax resident in Cyprus

7 - It is only at this point where the Double Taxation Agreement would come into place

8 - Article 4 of the DTT states that “Having a permanent home available to him” is the first criteria, and implies that only if this condition is not met will there be a need to go to the next levels (ie centre of vital interests/habitual abode/national).

----

Please let me know your thoughts on the above conclusion.

If it is correct, the question then becomes how do you define “centre of economic interest” (point 5):

Does generating 51% of your global income outside of Spain (directly & indirectly), and meeting the 183 days & family rules exempt you from being considered a Spanish tax resident?

All of this aside, I think it makes sense to consider a better structure (most likely outside of the EU).

Thanks!

As Sols has very correctly commented above the non-dom and the tax residence are two very distinct concepts.

Even if you move to Cyprus now you will have the non-dom status for 17 years. The non-dom status offers some incentives, such as no tax/sdc on dividends, however this is unrelated to the tax residency.

 

[Marzio]

DTA would not come into play.

This is the bottom line.

Move to another country that has a DTA that will protect you: Tax Agency:Double taxation agreements signed by Spain

 

[lostguy]

This is the bottom line.

Move to another country that has a DTA that will protect you: Tax Agency:Double taxation agreements signed by Spain

really one of the best comments in the thread. You rather do that or setup something without KYC!

 

[Enrique123]

Thanks @marzio @lostguy - any suggestions of options which offer this protection (and don't require you to stay 183 days)?

 

[Marzio]

In your case i’d say Dominican Republic. This country has some little known tricks up his sleeves that you should research.

 

[Enrique123]

Thanks @marzio - this was recommended by someone else in this thread as well. Aside from Dominican Republic any other alternatives?

 

[Marzio]

If you like SE Asian vibes you could also live tax free in Malaysia but depending on your situation it will be required a cash investment and a minimum 15 days stay every year. Your #1 option imho is Dominican Republic.

 

[Enrique123]

Thanks ever so much @marzio!

 

[Marzio]

You are welcome

 

[RealDude]

In your case i’d say Dominican Republic. This country has some little known tricks up his sleeves that you should research.

do you have a few keywords ready?

 

[Marzio]

do you have a few keywords ready?

?

 

[RealDude]

?

search keywords

 

[Marzio]

Just digit "dominican republic" in the OTC search bar and you'll find some of the answers you are looking for. Also the good old @JohnnyDoe spoke about DR in another thread so maybe he could jump in and share his experience with us if he feels to. I bet he is a Punta Cana aficionado

 

[Enrique123]

Im struggling to find some info on the Dominican Republic program / advantages / content in general either through YouTube, Search or even this forum.

If you do have any sources of info grateful if you could share. Thanks!

 

[Marzio]

"Dominican Republic has a territorial tax system, meaning that if you live there, you would only be subject to pay taxes if you had local income. You can earn what you like outside the country and you don't even have to declare it, yet alone pay any taxes. This applies to both individuals and companies."

UK resident with clients in the US. What the best setup for a dual citizen?

I'm a tax resident in Spain now, unfortunately. I have left 2 months ago to the DR which is my "home" at the moment but I am not staying here later than December 2020. So that makes Spain my tax residency, right? I was paying my taxes in Spain but have left 2 months ago. I am now in the DR...

www.offshorecorptalk.com

 

[JohnnyDoe]

Just digit "dominican republic" in the OTC search bar and you'll find some of the answers you are looking for. Also the good old @JohnnyDoe spoke about DR in another thread so maybe he could jump in and share his experience with us if he feels to. I bet he is a Punta Cana aficionado

There are a few rules that must be followed if you make some real money, but apart from that @marzio is right.
Don’t forget that there are also free zones, in case you need to conduct a physical business… or to establish residence of a foreign company…