Some questions about taxation

[RobertsonJunior]

Hi everyone,

I have a few questions about a situation I'm encountering and I'm not really sure how to handle this, here is the situation:

Let say I have a company in Cyprus, I'm employee of this company and sole director/shareholder, I rent an apartment yearly, I stay in Cyprus 2 months per year and don't overstay more than 6 months and additionally, I'm not considered tax resident in any other country, hence I benefit from the 60 days tax regime in Cyprus.

Doing freelancing with annual revenue between 100/150K euros, I work with only one client, which is not in Cyprus.

If I stay in another country, less than 6 months, will CFC rules apply at any point ? Given I take all business decision regarding the company while staying in the 2 months window in Cyprus (can the opposite be proved) ?

Another thing is about the client, given this is my only client. Would it be possible for the country where my client is located to ask me to pay taxes on this client revenue given I didn't overstay or done enough to be considered tax resident in that country ? If it's possible, what would happens if I don't put a foot in the client country ?

If I apply the 60 days rule strictly, what would be the probability that something happen about the 2 points above ? Did you ever encountered a case where a tax agency came after someone in a similar situation ? I would assume if this is correctly followed, would they even try to come after you given you didn't made any serious fault ?

Thank you in advance for your response.

 

[Sols]

You can become tax resident within six months. It's a shame the six-month myth has become so pervasive. Pick your locations with care.

However, at your income level and assuming you move around frequently enough, the risk of getting caught is low. That's not the same as the structure being compliant, though.

 

[Don]

When it comes to allocating taxing rights on wages between the 'residence country' (where the employee resides) and the 'work country' (where employment is physically carried out), countries have bilateral tax agreements in place, often based on the OECD Model Tax Convention (MTC)). In short, the MTC says the residence country has the taxing right on employment income, but the work country may also tax either if the employee carries out activities for more than 183 days in the work country, or if the salary is paid by a company, or by the local branch of a company,resident in the work country. If one of those conditions is fulfilled, the two jurisdictions tax the income attributable to the days worked in each state on a pro-rata basis. This arrangement, focused on physical presence, was set up with traditional frontier workers in mind (i.e. people working in one country, but returning every day to their home in another country) and cross border workers (e.g. posted workers, or workers residing temporarily in another country because of a training course or for business).

When we look into domestic laws (which is especially important in the absence of bilateral treaties), its common that employment needs to be registered, one would need a working permit, and the employment would be taxed locally when the stay exceeds e.g., 30 days.
Working on a tourist visa or the basis of visa free stay is in most cases technically illegal.


The '60-day rule' for Cyprus tax residency is satisfied for individuals who, cumulatively, in the relevant tax year:

1) do not reside in any other single state for a period exceeding 183 days in aggregate
2) are not considered tax resident by any other state
3) reside in Cyprus for at least 60 days, and
4) have other defined Cyprus ties.


Your structure is most vulnerable by the jurisdictions that don't have double tax treaty with Cyprus, as they would most likely consider you a tax resident.

Depending on the circumstances even the treaty countries could claim your residence and in such case 60 days rule will not help you again to avoid tax outside of Cyprus.

Good thing is that as per 60 days rule Cyprus will give up taxing rights and won't double tax your worldwide personal income.

 

[CyprusLaw]

Hi everyone,

I have a few questions about a situation I'm encountering and I'm not really sure how to handle this, here is the situation:

Let say I have a company in Cyprus, I'm employee of this company and sole director/shareholder, I rent an apartment yearly, I stay in Cyprus 2 months per year and don't overstay more than 6 months and additionally, I'm not considered tax resident in any other country, hence I benefit from the 60 days tax regime in Cyprus.

Doing freelancing with annual revenue between 100/150K euros, I work with only one client, which is not in Cyprus.

If I stay in another country, less than 6 months, will CFC rules apply at any point ? Given I take all business decision regarding the company while staying in the 2 months window in Cyprus (can the opposite be proved) ?

Another thing is about the client, given this is my only client. Would it be possible for the country where my client is located to ask me to pay taxes on this client revenue given I didn't overstay or done enough to be considered tax resident in that country ? If it's possible, what would happens if I don't put a foot in the client country ?

If I apply the 60 days rule strictly, what would be the probability that something happen about the 2 points above ? Did you ever encountered a case where a tax agency came after someone in a similar situation ? I would assume if this is correctly followed, would they even try to come after you given you didn't made any serious fault ?

Thank you in advance for your response.

Hi,

I agree with the points made by Sols above.

However, one thing it should be noted is that the 60-day rule applies for your personal tax residency, it does not suffice for covering the substance requirements for the tax residency of a company.

Noting that as of last year the Income Tax Law was amended to provide to remove the management and control test, providing that a company incorporated in Cyprus will be deemed as a Cyprus tax resident unless it is considered a tax resident in another jurisdiction. This however only applies for Cyprus, therefore spending most of the time in another jurisdiction and operating the company from another jurisdiction would leave the company's tax residency open to challenging.

 

[Mr Gus]

Do you still visit your home country often? Is your home country a western country with an aggresive tax authority?

If you want to play it safe stay 183 days+ in Cyprus and check if there is a tax treaty with countries you frequently visit.

Like others said with the if you meet the requirements for the 60 day rule ONLY Cyprus will see you as tax resident, other countries will not recognize this.