Question Software developer from Austria to operate from Cyprus for low tax

[soberman]

Hello!

There seems to be a change of rules for the companies registered in Cyprus starting from December 2022, thus, it makes it a bit unclear for me, so I would hugely appreciate your help and advice.

I want to move my tax residency to Cyprus. I am a software developer from Austria, working as self-employed and mainly contracting for companies in the UK.
Now I would have to register a company in Cyprus as a non-dom and be sure to spend 60 days per annum there. I would be the director and a shareholder. I would need to rent an office (?) and will hire a company to do accounting for me.
This should give a corporate taxe at the rate of 12.5%, the rest of which I am going to distribute to me as dividends afterward under a 0% tax rate if I understand the scheme correctly. Does my personal bank location matter in this case? Austria or Cyprus?
Please correct me I am wrong somewhere.

Now another question is whether this scheme still holds true or are there any changes coming up to this by the end of the year?
Moreover, in case I won't move out of Austria, will only my dividends be taxed at a rate that sets the Austrian government, or company income as well per Austrian rate too?

Does this mean that to have these sweet low tax rates I would have to move to Cyprus for at least 60 days per annum and then make sure I don't spend more than 183 days in Austria so that I don't get tax residency of Austria once again?
And if I eventually decide to stay all the time at Cyprus, does that mean that after 17 years or so, is my tax rate going to be greater? Considering that I am still going to be working as a software developer through my LTD in Cyprus and pay myself dividends.

Thank you in advance.

 

[Jerry1911]

Does my personal bank location matter in this case? Austria or Cyprus?

No, it doesn't matter.

Now another question is whether this scheme still holds true or are there any changes coming up to this by the end of the year?

As far as I know, no, only non-resident companies are going away.

 

[soberman]

Thank you for you answer.

only non-resident companies are going away.

What does that mean in my case? In the scheme I have described?

 

[Jerry1911]

Moreover, in case I won't move out of Austria, will only my dividends be taxed at a rate that sets the Austrian government, or company income as well per Austrian rate too?

The Cypriot company will be tax resident in Austria in that case.

What does that mean in my case? In the scheme I have described?

Nothing, makes no difference.

 

[soberman]

Could I have your opinion on the rest of the questions please?

 

[Sols]

There seems to be a change of rules for the companies registered in Cyprus starting from December 2022, thus, it makes it a bit unclear for me, so I would hugely appreciate your help and advice.

The probably most important change is that Cyprus is doing away with non-resident companies. Companies are now tax resident in Cyprus by default, unless they can prove tax residence somewhere else. This doesn't have any impact on people who form companies in Cyprus while living there.

I would need to rent an office (?)

No need to rent an office. Living in Cyprus is enough.

This should give a corporate taxe at the rate of 12.5%, the rest of which I am going to distribute to me as dividends afterward under a 0% tax rate if I understand the scheme correctly.

The company pays 12.50%. You can take out dividends on the profits. The dividends are not subject to any taxation, but you are liable for social security contribution (Gesy) which is around 2.6% and is capped at 4,800 EUR/year, so if you take out more than 180,000 EUR/year, there is no further Gesy.

Note that paying this does not give you access to the social healthcare system. For that, most people either take out a private health insurance or pay themselves a small salary in addition to dividends, so that they pay social security contributions as an employer and employee.

Does my personal bank location matter in this case? Austria or Cyprus?

Does not matter.

Do yourself a favor and keep your Austrian bank account if you can. Chances are it's a much better banking service than any bank in Cyprus can offer.

Now another question is whether this scheme still holds true or are there any changes coming up to this by the end of the year?

No changes that affect your proposed setup.

Moreover, in case I won't move out of Austria, will only my dividends be taxed at a rate that sets the Austrian government, or company income as well per Austrian rate too?

If you don't move, the company is Austrian for tax purposes and has to comply with Austrian tax code.

Does this mean that to have these sweet low tax rates I would have to move to Cyprus for at least 60 days per annum and then make sure I don't spend more than 183 days in Austria so that I don't get tax residency of Austria once again?

You have to spend 60 days per year in Cyprus and not be tax resident anywhere else. IIRC, Austria's definition of tax residence is similar to Germany's which includes the concept of abode. If you have an abode available to you in Austria and don't spend the majority of your time in a single other jurisdiction, Austria may consider you tax resident.

Check this with an Austrian tax adviser to be sure.

And if I eventually decide to stay all the time at Cyprus, does that mean that after 17 years or so, is my tax rate going to be greater?

Yes, you then have to start paying SDC (Special Defense Contribution, i.e. Capital Gains Tax) which is 17%.

 

[soberman]

Thank you for your answer @Sols.

Yes, you then have to start paying SDC (Special Defense Contribution, i.e. Capital Gains Tax) which is 17%.

Is that an additional one to 12.5% or did you mean 17% in total?

 

[Sols]

Is that an additional one to 12.5% or did you mean 17% in total?

It's additional. So after 17 years, your company would pay 12.50% and then you personally pay 2.60% for Gesy and 17% for SDC.

 

[soberman]

@Sols Just to clarify whether I understood it correctly or not - SDC tax only after 17 years of doing business there, even if I live in Cyprus all the time during those 17 years?
Thank you.

 

[Sols]

@Sols Just to clarify whether I understood it correctly or not - SDC tax only after 17 years of doing business there, even if I live in Cyprus all the time during those 17 years?

Correct.

 

[soberman]

Thank you for your answers.

Would it be legal to rent an apartment in Cyprus for an indefinite term (since I don't need an office there), then rent an apartment for an indefinite time in Austria and, say Slovakia? So that I would be able to live 2 months in Cyprus, then 5 months in Austria, and 5 months in Slovakia to not exceed 180 days in any of those countries and be taxed in Cyprus only? Basically having 3 rent contracts all the time.

 

[Sols]

Would it be legal to rent an apartment in Cyprus for an indefinite term (since I don't need an office there), then rent an apartment for an indefinite time in Austria and, say Slovakia? So that I would be able to live 2 months in Cyprus, then 5 months in Austria, and 5 months in Slovakia to not exceed 180 days in any of those countries and be taxed in Cyprus only? Basically having 3 rent contracts all the time.

Slovakia has clauses in their definition of tax residence that can make you tax resident simply by having a place to live there, if they perceive that you intend to stay there full-time (meaning either 183 days or it being the place where you spend the most of your time).

If you rent an apartment in Austria as an Austrian citizen and live there five months per year, there is a not insignificant risk that Austria will simply consider you tax resident. Sure, you might be under the 183 days standard check but you are a citizen, which is used as a tie-breaking condition.

If either Slovakia or Austria consider you tax resident, your 60-day tax residence in Cyprus is not valid. However, that isn't being actively monitored.

 

[Mr Gus]

Thank you for your answers.

Would it be legal to rent an apartment in Cyprus for an indefinite term (since I don't need an office there), then rent an apartment for an indefinite time in Austria and, say Slovakia? So that I would be able to live 2 months in Cyprus, then 5 months in Austria, and 5 months in Slovakia to not exceed 180 days in any of those countries and be taxed in Cyprus only? Basically having 3 rent contracts all the time.

You are using the "183 day rule" the wrong way. It's not about where you reside less then 183 days but it's about where you reside more then 183 days.

If you have a permanent home in Cyprus and not in Austria and stay there 183 days or more you have tax treaty protection. What you could do is spend 183 days in Cyprus in the winter months and and spend the summer months in Austria. You can stay at your friends or family's place, Airbnb or short term rental.

You might be able to get away with 2 months in Cyprus if you have a permanent home there and not in the other two countries, but you will have no treaty protection which is a big risk.

 

[soberman]

Thank you for your insights.

It looks like the best approach is to have a permanent apartment renting in Cyprus and just live at the family's place in Austria, thus technically having only one renting contract to my name in Cyprus at all times. Nobody really checks if I actually live in Cyprus as long as I am paying the rent, electricity, and internet bills, no? I can then stay at my family's place in Austria without a problem.
Am I understanding it correctly?

And two more questions please:
1. Does this change the situation if I am getting married and my spouse is still going to live in Austria?
2. And what if I decide to buy a house in Austria, will that effectively render me tax liable in Austria? Which would mean that I am not allowed to be anywhere in the contract of buying a house?
I am trying to understand a non-dangerous course of action to keep the Cyprus tax benefits and not abandon my family in Austria if they don't want to move.

Thank you in advance.

 

[Sols]

It looks like the best approach is to have a permanent apartment renting in Cyprus and just live at the family's place in Austria, thus technically having only one renting contract to my name in Cyprus at all times. Nobody really checks if I actually live in Cyprus as long as I am paying the rent, electricity, and internet bills, no? I can then stay at my family's place in Austria without a problem.
Am I understanding it correctly?

Cyprus very rarely checks. Your problem isn't Cyprus. Your problem is Austria.

1. Does this change the situation if I am getting married and my spouse is still going to live in Austria?

Yes, the fire you are playing with turns from a campfire to a bonfire.

2. And what if I decide to buy a house in Austria, will that effectively render me tax liable in Austria? Which would mean that I am not allowed to be anywhere in the contract of buying a house?

Yes, since Austria follows definition of tax residence similar to Germany, there is a very high risk that you become tax resident in Austria by simply having an abode available there (and not being majority resident/tax resident somewhere else).

I am trying to understand a non-dangerous course of action to keep the Cyprus tax benefits and not abandon my family in Austria if they don't want to move.

You can't.

Look at it critically. You are an Austrian citizen with an Austrian abode (your own or provided by family), married to an Austrian resident (maybe even also Austrian citizen?), and spending a lot of time in Austria. Yet you want Finanzamt to accept that your primary place of economic interest and residence is Cyprus? — It works until it doesn't. When it doesn't, you might be spending time away from your family anyway for a few years while you serve your prison sentence.

You are taking risks and leaving trails that would make it very, very, very easy for the Austrian tax authority to drag you to court and slap you with so many fines, penalties, and back taxes you'll forget your own name. Prison time is usually reserved for very egregious cases, though, so it might not go that far. Although if you take steps to claim tax residence in Cyprus, de-register from Austria, and do other things to conceal your connections to Austria, that could probably be aggravating circumstances.

 

[Mr Gus]

Thank you for your insights.

It looks like the best approach is to have a permanent apartment renting in Cyprus and just live at the family's place in Austria, thus technically having only one renting contract to my name in Cyprus at all times. Nobody really checks if I actually live in Cyprus as long as I am paying the rent, electricity, and internet bills, no? I can then stay at my family's place in Austria without a problem.
Am I understanding it correctly?

And two more questions please:
1. Does this change the situation if I am getting married and my spouse is still going to live in Austria?
2. And what if I decide to buy a house in Austria, will that effectively render me tax liable in Austria? Which would mean that I am not allowed to be anywhere in the contract of buying a house?
I am trying to understand a non-dangerous course of action to keep the Cyprus tax benefits and not abandon my family in Austria if they don't want to move.

Thank you in advance.

Like I said before if you don't stay over 183 days in Cyprus you will have no treaty protection, which is very risky. Even more so if you have a spouse actually living in Austria.

Imo if you are not actually willing to move just stop bothering about paying a low tax rate, just do as much tax planning in your own country by using deductions, deferral etc..

I don't know how much you are making but I assume not high 6 digits or more a year... You are also forgetting all the expenses you will have actually moving, setting up companies, maintaining companies and all of the other small fees that will eventually cut deep in your profits if you add them all up. Also don't forget the time and energy that is wasted by travelling, finding a new place etc. All that time and energy would have way better invested in your business instead...

 

[soberman]

Alright, thank you for your advice guys. Might be indeed better to not risk it all in that situation.

 

[Marzio]

Gosh why are you complicating your life so much when you could setup a company in Liechtenstein, commute there every day and come back at home at the end of the working day?

Yes Austria has CFC rules but only on passive income meaning that if your company in Liechtenstein doesn't receive any passive income you are fine.

Taxation in Liechtenstain is 12.5% like Cyprus but i'm not 100% sure how wages or dividends are taxed for commuters. You should read double tax treaty between Austria and Liechteinstein.

At minimum you would immediately slash in half Austrian taxation.

 

[Sols]

Gosh why are you complicating your life so much when you could setup a company in Liechtenstein, commute there every day and come back at home at the end of the working day?

If this works, it would only lower the corporate tax burden. But the cost of setting up and maintaining a company in Liechtenstein with a local office is going to eat into those tax savings quite a bit.

Taxation in Liechtenstain is 12.5% like Cyprus but i'm not 100% sure how wages or dividends are taxed for commuters. You should read double tax treaty between Austria and Liechteinstein.

soberman would personally be tax resident in Austria, so there are no savings for him personally. Salary, dividends, and so on would be subject to Austrian tax. There might be additional taxes (payroll taxes) as an employer in Liechtenstein.

 

[Marzio]

it would only lower the corporate tax burden

If the alternative is to pay full 100% Austrian tax then why not?

here are no savings for him personally. Salary, dividends, and so on would be subject to Austrian tax.

From the little research i did i see that there's a no tax area in Austria till 11K and the DTA between Liecthenstein and Austra says that dividends are taxed at 15%.

Yes, the cost involved in a setting up a Liechtenstein company could be a high but if he is not one of those fools that wants to take out every penny from the company he could be comfortably living receiving a minimum salary + dividends taxed at 15% (instead of 27.5%).