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Spanish Resident setting up a Cyprus Company

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tedb

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Nov 29, 2022
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#1
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Hi everyone.

Would love to get feedback on the setup I planned.

My wife and I are EU citizens, just moved to Spain (Andalucia) from another EU country. My wife works full-time and is eligible for the Beckham Law exemption. We have kids at school here – can't do nomad. We know Spain is not the best option in terms of tax but we already moved here (for lifestyle). If the business keeps growing we might consider moving somewhere more tax-friendly in the future.

I have an online business (under an Irish LLC) with about 200k euros annual profit. I must close the Irish entity before the end of the year and need to open a new entity somewhere else. I spoke to a couple of tax lawyers in Spain and in Ireland and so far it seems Cyprus might be a good option.

The planned setup:
Open a company in Cyprus with a nominated director, split shares 50/50 my wife and myself. Pay ourselves a mix of dividends (taxed at 19-26%) and salary with a personal effective tax rate of approximately 27% and corporate tax of 12.5%. This brings the combined effective tax rate (from company profits to my personal bank account) to about 36%.

Is it likely the Spanish tax office would assume this corporation is controlled from Spain and must pay taxes in Spain? Do I need to work on building substance?
Any other potential issues with this setup?

There's also a new Startup act and digital nomad visa coming out most likely in Jan 2023, which might also be an option (I will be talking to a local lawyer next week), which the main benefit for me is a 15% corporate tax rate during the first 4 years of operation, and seemingly the same dividend tax. So if I understand this new law correctly, it will allow for a combined effective tax rate of about 40% but will make the whole setup simpler.

Any thoughts, or feedback will be highly appreciated!
 
#2
tedb said:
There's also a new Startup act and digital nomad visa coming out most likely in Jan 2023, which might also be an option (I will be talking to a local lawyer next week), which the main benefit for me is a 15% corporate tax rate during the first 4 years of operation, and seemingly the same dividend tax. So if I understand this new law correctly, it will allow for a combined effective tax rate of about 40% but will make the whole setup simpler.
Click to expand...

This one.
 
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#5
tedb said:
Is it likely the Spanish tax office would assume this corporation is controlled from Spain and must pay taxes in Spain? Do I need to work on building substance?
Any other potential issues with this setup?
Click to expand...
If you control and operate the company from Spain, the Cypriot company becomes a Spanish company for tax purposes.

If you build a genuine substance in Cyprus (local director, local staff, whatever is reasonable for the business), then the company might quality as tax resident in Cyprus only and only your personal income (salary, dividends) are subject to Spanish tax. But make sure you set that up absolutely correctly. Spain is a tax first and ask questions later kind of jurisdiction.
 
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#8
My thoughts (I'm in a similar position and done a lot of research):

I think you need a specialist Spanish advisor to consult for the Spanish CFC rules.
I asked a couple of advisors in Spain as I would like to move there (property much cheaper and much closer to the sea than Algarve, Portugal where we live), but both told me don't do it. But maybe they aren't so experienced.
Perhaps the new Startup rules will change that.
And there's always the Canaries, better weather with lower tax, around 30% total!

Also why Cyprus, the bureaucracy is crazy, they even need audited accounts! There's Malta with 5%. You could
perhaps hire someone local as an employee, a part time graphics designer or something. And have a (shared) office for substance. And a nominee director?

But an Irish company is good, why do you have to close it?
 
#14
The Spanish tax advisor said I'm not eligible for the 15% corp tax (for the first year) as I don't satisfy this requirement:
- That the economic activity has not previously been carried out by other related persons or entities in accordance with the provisions of article 18 of the LIS and transferred, by any legal title, to the newly created entity.

freegeek said:
you live in Spain with your wife and your kids go to school so yes Spain wil see this as managed from Spain, I mean, to be honest, what did you think?
Click to expand...
I hoped there was a solution, maybe a nominated director is enough (or showing more substance) or some other way.
ITexpert7 said:
I assumed you would someone else as Director, friend/relative. Luckily we don't have this problem in the UK.
How much is the "Dividend withdrawal tax"?
Click to expand...

Dividend Withholding Tax (DWT) at 25% for the year in which the distribution is made. And I don't feel comfortable asking friends to be a director of a company, it would have tax implications for them.
 
#15
There are coming improvements in terms of the Beckham Law introduced by the startup law that was recently approved by the Spanish Parliament. They are planing the removal of the 25% ownership limitation of a company, it seems to be a great improvement on paper. Maybe an Option for you.

I think this regulation should be ready in a few months.
 
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