Question about holding company in Cyprus

[ziomeczq]

Hi everyone,

Been looking around the forum and now wanted to ask question about restructuring my organization with plan to establish holding company in Cyprus to lower the tax pressure and enjoy the sun

Let me share some insights:
* Currently I 100% shares in holding company and from there the holding owns 50% of work company ( the one that generates profits). As well I am the director of the holding company.
* Estimated yearly profit in the working company will be approx 500k

My plan is to be in Cyprus to tick off the rule of 60 days - and for the rest work remotely with keeping in mind the 183 days rule ( I work in cloud consulting/security space - so totally remote ).
Now based on all of the information I was thinking of the following actions to take:
* Get to Cyprus , rent a place & rent a business virtual address and open a holding company - being 100% shareholder and director , get all the tax IDs etc , health insurance etc.
* Sell ownership in HoldCoA (NL ) to NewHoldCo ( Cyprus )
* Change the director HoldCoA (NL) so its not me anymore
* After that is done pay dividend from WorkCo to HoldCoA (NL) but not distribute it in 2024 ( as foreign shareholder needs to own the company for a 1yr otherwise WHT would apply )
* In 2025 when no longer a resident in NL and the 1yr freeze period passed - pay out dividend to NewHoldCo ( Cyprus ) and enjoy very little tax.

Now based on all of that could someone share with me insights on:
1) Is this structure well formed and can hold up?
2) Can I still invoice work towards the WorkCo (NL) from NewHoldCo ( Cyprus ) or would it be at-arms-reach ?
3) Are there any other constraints that I am looking at here?

 

[CyprusLawyer101]

Everything is rather straightforward.
Your only issue which could be a major one is the change of ownership from yourself to CY hold co. Exit taxes should also arise. Get professional advice.

 

[JustAnotherNomad]

How did you create the sketch?

 

[ziomeczq]

@JustAnotherNomad excalidraw

 

[GPT]

Everything is rather straightforward.
Your only issue which could be a major one is the change of ownership from yourself to CY hold co. Exit taxes should also arise. Get professional advice.

Exit taxes WILL arise.

A fair market price has to be paid by the CY Holding to acquire the shares (all sorts of options are open) and that will bring a tax bill.

My plan is to be in Cyprus to tick off the rule of 60 days - and for the rest work remotely with keeping in mind the 183 days rule ( I work in cloud consulting/security space - so totally remote ).

Time to look into how days are counted. Not all countries are equal when it comes to travel days for instance. If I remember correctly Cyprus counts arrival or departure days as inclusive. Another tip is to first buy a one way ticket to CY and then work with return tickets. I dont know where you have to be when you travel to NL, Dusseldorf (not Weeze) is a very good (perhaps even better) alternative to Schiphol.
Keep an agenda and receipts and prepare yourself to proof it in the coming years to the Dutch Tax Authorities (you wouldnt be the first one).

Feel free to DM me. Ive done what you plan to do for a decade.

 

[CyprusLawyer101]

@GPT thanks for confirming. What is your involvement in this? Are you a consultant?
Btw, there could be planning available to reduce the taxes.

 

[Don]

@JustAnotherNomad excalidraw

Nice sketch indeed.
I like to use Miro for the same.

 

[GPT]

@GPT thanks for confirming. What is your involvement in this? Are you a consultant?
Btw, there could be planning available to reduce the taxes.

Ive advised (U)HNWI in the past. Now im (semi/mostly) retired and am here to give back to people that value my contributions. The only thing I still actively consult in are special cases in the offshore/relocation domain and only then, when I find it challenging and worthwhile enough.

Tax planning wise; you are right, there could be some options for planning. It depends mostly on the activities of the OpCo and also on how the CY activity is set up. Presence and substance are really important nowadays to make things fly for the Dutch Tax Authorities. I dont have enough information to elaborate on that based on the story shared and that is why I didn't mention it.

 

[GPT]

1) Is this structure well formed and can hold up?
2) Can I still invoice work towards the WorkCo (NL) from NewHoldCo ( Cyprus ) or would it be at-arms-reach ?
3) Are there any other constraints that I am looking at here?

1) Yes
2) To a certain extent. You can't shift all of the profits by invoicing the WorkCo empty. If you use CY Holding for receiving dividends and say monthly management invoices for services provided by you to the WorkCo, you wont risk a lot for as long as everything is within reason. BEPS applies.
3) Many, as mentioned above. PM me.

 

[Don]

Now based on all of that could someone share with me insights on:
1) Is this structure well formed and can hold up?

How do you plan to finance the purchase of the shares?

2) Can I still invoice work towards the WorkCo (NL) from NewHoldCo ( Cyprus ) or would it be at-arms-reach ?

Such fees are only deductible in case they are at arm's length.

3) Are there any other constraints that I am looking at here?

It might be simpler to redomicile the company, while keeping the PE in Netherlands (as you are not moving assets out of Netherlands there should not be any tax triggered).

A limited liability company that is governed by the laws of an EU Member State, may ‘migrate’ (meaning a conversion or transfer of its corporate seat) to another EU Member State whereby the national laws which govern the relevant company will additionally be changed, and such company may be converted into a legal form governed by the laws of the EU Member State to which it migrates.

In Netherlands no (withholding) tax is withheld on transfers of profits from the branch to the head office abroad.

You can pick a head office jurisdiction that doesn't tax the profits from a foreign PE and imposes no withholding taxes (Cyprus is great, but you can also consider Malta or Estonia, which might be more flexible for personal tax residence, so you can cash out without additional taxes besides those paid in NL)

The constraint with Cyprus's 60-day rule is that if another country claims your tax residency, you will not be a tax resident in Cyprus under the 60-day rule.

You have your main income sourced from Netherlands so your center of vital interest seems to be in Netherlands so chances are you could be considered tax resident in Netherlands, so you should be quite careful.

Note that in Cyprus, dividends still get "taxed" with social contributions (2.65%)

 

[ziomeczq]

Thanks for the input @Don

How do you plan to finance the purchase of the shares?

I will bootstrap the CY company with enough initial capital to purchase WorkCo while I work out with tax professionals/lawyers the WorkCo and HoldingCo valuations and approach, which would enable me to make the best of the possibilities.


I am also looking at scenarios like CY company buying WorkCo and not buying the holding - as this org chart is not a set stone.

Such fees are only deductible in case they are at arm's length.

It might be simpler to redomicile the company, while keeping the PE in Netherlands (as you are not moving assets out of Netherlands there should not be any tax triggered).

A limited liability company that is governed by the laws of an EU Member State, may ‘migrate’ (meaning a conversion or transfer of its corporate seat) to another EU Member State whereby the national laws which govern the relevant company will additionally be changed, and such company may be converted into a legal form governed by the laws of the EU Member State to which it migrates.

In Netherlands no (withholding) tax is withheld on transfers of profits from the branch to the head office abroad.

You can pick a head office jurisdiction that doesn't tax the profits from a foreign PE and imposes no withholding taxes (Cyprus is great, but you can also consider Malta or Estonia, which might be more flexible for personal tax residence, so you can cash out without additional taxes besides those paid in NL)

The constraint with Cyprus's 60-day rule is that if another country claims your tax residency, you will not be a tax resident in Cyprus under the 60-day rule.

You have your main income sourced from Netherlands so your center of vital interest seems to be in Netherlands so chances are you could be considered tax resident in Netherlands, so you should be quite careful.

Note that in Cyprus, dividends still get "taxed" with social contributions (2.65%)

Migrating my company is not an option that I would be taking into consideration.

I don't have a problem with 60 day rule - as my plan would be to
* make my source of income to be the CY company
* Be there even more than 60 days ( so even the 183 is no problem - or even moving permanently in 2025 )
* I am working here with local professionals in order to make sure that I will not be considered Dutch tax resident in 2025

I am happy to pay the 2,65% for the social contributions

1) Yes
2) To a certain extent. You can't shift all of the profits by invoicing the WorkCo empty. If you use CY Holding for receiving dividends and say monthly management invoices for services provided by you to the WorkCo, you wont risk a lot for as long as everything is within reason. BEPS applies.
3) Many, as mentioned above. PM me.

ad.2) The company will not be "vacuumed" from profits. The only profits paid out on monthly or quarterly basis will be the management services invoices. Further to that only dividident payout on yearly basis ( one fact to remember is that the CY company needs to be 1yr holder of ownership to make sure no dividend WHT is applied to dividend )

 

[sergeylim88]

what kind of taxes will cyprus holding pay?
12.5% profit tax only?

 

[CyprusLawyer101]

what kind of taxes will cyprus holding pay?
12.5% profit tax only?

No taxes on dividends recieved at Cyprus level would apply.

 

[sergeylim88]

so dividends do not go into profit mass and then charged with profit tax?

 

[CyprusLawyer101]

so dividends do not go into profit mass and then charged with profit tax?

No.

 

[CyberZero]

Don't forget that the whole 183 days is not a real rule for a lot of countries, for example in the case of your neighboring country it's only used as a last check if all the other checks that give the vital point of interest don't give a definitive answer.

 

[CyprusLawyer101]

To add on suggested planning, invoking EU merger directive could enhance the possibilities for a tax neutral re-organization.

 

[GPT]

Don't forget that the whole 183 days is not a real rule for a lot of countries, for example in the case of your neighboring country it's only used as a last check if all the other checks that give the vital point of interest don't give a definitive answer.

It is in the Netherlands, and that will count for the topic he started. They are very strict even on the days in NL.