Tax planning strategy for consultant

[seedboxer]

Dear all,

I am looking for advise on how to reduce personal & corporate income taxes.
- I am a Dutch citizen living in Germany.
- Planning to start private consultancy company.
- Approx. K€125 annual revenues, from German (50%), Dutch (25%) and Belgian (25%) clients.
- Non-attached to any country and willing to relocate.

Limiting Conditions:
- Physical on-site client visits, 9 months out of year.
- Typical visits last 3 hours per client (2 or 3 times per week), afterwards follows analysis work and reporting which takes 20 hours (done remotely).
- I also still have 24 months of K€2.5 passive income payments from previous German employer: taking out all income all-at-once, would result in 60% instead of 30% tax hit.
- Due to above residual monthly payments between 01.2020 and 01.2022, I will be insured through German health care system.

Following options seem most favorable.
1. Cyprus:
- Rent a property year around.
- Form a local company.
- Reside 60 days in Cyprus.
- Stay less < 180 days in 3rd European jurisdictions.

2. Andorra
- Rent a property year around.
- Form a local company.
- Reside 90 days in Andorra.
- Stay less < 180 days in 3rd European jurisdictions.
- K€50 government bond deposit.

3. Luxembourg
- Rent a property year around.
- Form a Dutch BV / Cyprus company.
- Perform work from Luxembourg and send invoices from Dutch BV / Cyprus Ltd.
- Swallow 20% income taxes (still better than 35% in Germany).


Questions for forum experts:
1. Are these the best options?
2. Can experts confirm that these structures work.
3. Does private forum, provide any more info. that I miss here?
4. Do other jurisdictions make sense for forming a company, when living in Luxembourg? Say e.g. British Ltd.
5. Does Luxembourg government want to see all invoices sent or is final income statement from Cyprus sufficient?
Thank you.

 

[Sols]

It sounds like you will be spending a lot of your 125,000 EUR/year on companies and renting apartments — far more than you would by just settling down as a permanent resident in Malta or Cyprus and making use of the favorable tax regimes there.

In a typical scenario, you would end up paying 5% corporate tax in Malta and there are lots of creative ways to pay yourself income with very little applicable tax. in Cyprus, the typical scenario would be 12.50% corporate tax and no further taxation if you pay yourself dividends.

You can live very comfortable in Malta or Cyprus on 125,000 EUR/year before taxes.

Just make sure you work with a good tax adviser who helps you make all the right arrangements.

 

[AND2]

Are you sure your info on Andorra is up to date? Why 90 days? 50K deposit?

 

[seedboxer]

@AND2
I am not certain, I am sure someone more familiar with Andorra can comment.

@Sols
I cannot stay permanently in Cyprus, as I need to visit clients every week. Furthermore, the goal is to maximize savings so I can eventually purchase a decent sized (125m2) real estate in a low tax jurisdiction such as Andorra.

By the way, I suspect that real estate properties in Andorra are measured in a non-standard way as an 100m2 apartment looks very small... I am not certain whether the apartments are correctly measured or a different method is applied.

 

[seedboxer]

PS. I considered purchasing real estate in Cyprus, but reconsidered after witnessing recent tensions with the delusional Erdogan.

 

[Sols]

I misinterpreted your initial post. I understood it as you seeking to set up residences in multiple jurisdiction as some sort of convoluted permanent traveler/digital nomad. Glad that's not the case.

Re-reading your post, if you qualify under 60-day tax residence rules in Cyprus, being a "permanent resident" doesn't prohibit you from traveling to meet with clients. It's probably the easiest option in the EU right now. If you travel a lot, you might be able to reduce your overall corporate tax burden from 12.50% close to 0% if you operate (partly) under a foreign company. You'd need to show activity for your local Cypriot company as required for the 60-day rules, but that's something a tax adviser can help you sort out.

If you can commit to 183 days (or speak with a tax adviser to explore shortcuts), you can technically achieve even lower tax burden in Malta with a local company and foreign holding company.

 

[OTR365]

PS. I considered purchasing real estate in Cyprus, but reconsidered after witnessing recent tensions with the delusional Erdogan.

Cyprus doesn't have anyone to defend her militarily, but for the next few years Turkey has enough trouble with their nosediving economy and Syria. A gas war against tiny Cyprus would sever their relationship with the EU, NATO, the US and even Russia.

A bigger issue is that Cyprus citizenship by investment-program has heated up the real estate market. Limassol oceanfront is being filled with high-risers as we speak. The condos are mostly for the very wealthy, who actually can & will enjoy a better lifestyle elsewhere. But Cyprus is a small market and could certainly heat up even more, before they realize they screwed up again.

 

[seedboxer]

I misinterpreted your initial post. I understood it as you seeking to set up residences in multiple jurisdiction as some sort of convoluted permanent traveler/digital nomad. Glad that's not the case.

Re-reading your post, if you qualify under 60-day tax residence rules in Cyprus, being a "permanent resident" doesn't prohibit you from traveling to meet with clients. It's probably the easiest option in the EU right now. If you travel a lot, you might be able to reduce your overall corporate tax burden from 12.50% close to 0% if you operate (partly) under a foreign company. You'd need to show activity for your local Cypriot company as required for the 60-day rules, but that's something a tax adviser can help you sort out.

If you can commit to 183 days (or speak with a tax adviser to explore shortcuts), you can technically achieve even lower tax burden in Malta with a local company and foreign holding company.

Could you please expand on that last option a bit or direct me to online source that go deeper into this. Thank you.

 

[seedboxer]

If I chose for the Cyprus option, how would I keep a car in the mainland Europe?
And could I keep a lease agreement with a car company in Germany for example?

For residing less than 183 days in any 1 country, I was thinking of renting 5 months short stay houses in Germany and Belgium. Does anyone foresee any problems with this?

 

[seedboxer]

Cyprus doesn't have anyone to defend her militarily, but for the next few years Turkey has enough trouble with their nosediving economy and Syria. A gas war against tiny Cyprus would sever their relationship with the EU, NATO, the US and even Russia.

A bigger issue is that Cyprus citizenship by investment-program has heated up the real estate market. Limassol oceanfront is being filled with high-risers as we speak. The condos are mostly for the very wealthy, who actually can & will enjoy a better lifestyle elsewhere. But Cyprus is a small market and could certainly heat up even more, before they realize they screwed up again.

@OTR365 How do the locals find a rental property? What are the best websites or sources?

 

[OTR365]

As far as I know, Bazaraki is the best source. Their map view is quite handy.

(To add to my previous post: I am not saying some kind of military confrontation is impossible. Like you mentioned, the news are bad, so everything might happen. Setting aside the humanitarian tragedies, certainly it would be bad for Cyprus real estate and economy. Potentially also a huge buying opportunity. I doubt I'll get to the airport in time, though )

 

[Sols]

Could you please expand on that last option a bit or direct me to online source that go deeper into this. Thank you.

In Malta, the typical arrangement for non-dom residents is to set up a local company which is owned by a foreign company (UK is popular but practically any jurisdiction works). When it comes time to pay tax, the Maltese company first pays the full 35% corporate tax. Then, the parent company can claim it back nearly all of it, so you end up with an effective tax rate of 5%. There is a delay of a few weeks to a few months until you get the money back. It's a well-established process.

I don't think I can post links yet due to forum rules, but you should be able to find lots of information online. All major corporate service providers and tax advisers in Malta have articles about it.

This setup doesn't strictly speaking require you to be resident in Malta. But by living in Malta, you can then pay yourself from the parent company in different ways to lower your personal income tax scope. Having the Malta arrangement and live in a high-tax jurisdiction can get messy in the high-tax jurisdiction.

If I chose for the Cyprus option, how would I keep a car in the mainland Europe?
And could I keep a lease agreement with a car company in Germany for example?

Not sure I can really answer this specifically. All I know is a lot of people in Cyprus rent cars through their local companies. There are certain tax breaks available.

I guess your car in Germany needs to be kept with a friend/relative or some long-term parking?

Sixt has a big presence in Cyprus, if you're talking about leasing (renting) a car. Usually cheaper to go with a local company, though, especially for long-term.

For residing less than 183 days in any 1 country, I was thinking of renting 5 months short stay houses in Germany and Belgium. Does anyone foresee any problems with this?

While Germany on paper might have a simple six-month rule, they also look at whether you have a substantial connection to Germany or effectively resident there. It's very tricky to navigate. Finanzamt does not mess around.

From my understanding (limited experience), Belgium is a bit more forgiving but you're playing with fire.

@OTR365 How do the locals find a rental property? What are the best websites or sources?

Agreed with @OTR365 about Bazaraki but it's worth looking at individual real estate agents as well. You can't actually use Bazaraki without a Cypriot, Greek, or UK mobile number which can be a bit limiting.

 

[OTR365]

You can't actually use Bazaraki without a Cypriot, Greek, or UK mobile number which can be a bit limiting.

Phone numbers are visible even without registering. Calling or visiting the agent would be my preference anyway.

 

[Sols]

Phone numbers are visible even without registering. Calling or visiting the agent would be my preference anyway.

I had to check because I could've sworn it wasn't showing unless you were registered. Looks like it shows the phone number for agents/companies but the phone number is hidden if it's direct from owner/private person. So you can access most listings without a CY/GR/UK mobile number.

 

[seedboxer]

In Malta, the typical arrangement for non-dom residents is to set up a local company which is owned by a foreign company (UK is popular but practically any jurisdiction works). When it comes time to pay tax, the Maltese company first pays the full 35% corporate tax. Then, the parent company can claim it back nearly all of it, so you end up with an effective tax rate of 5%. There is a delay of a few weeks to a few months until you get the money back. It's a well-established process.

I don't think I can post links yet due to forum rules, but you should be able to find lots of information online. All major corporate service providers and tax advisers in Malta have articles about it.

This setup doesn't strictly speaking require you to be resident in Malta. But by living in Malta, you can then pay yourself from the parent company in different ways to lower your personal income tax scope. Having the Malta arrangement and live in a high-tax jurisdiction can get messy in the high-tax jurisdiction.

Malta:
Interesting, Malta is significantly closer to mainland Europe than Cyprus. Does the 183 days requirement still apply with this structure ? (deal killer for me).

Andorra:
Update after a call with a friendly Andorran lawyer about passive residence.
- Banking is no problem with my type of business.
- K€50 deposit.
- Company formation
- 90 days residence rule
- K€350 real estate investment

Cyprus:
- I will start looking for lawyers tonight and contact a few tomorrow to discuss details.
- How is the banking situation, what are the options?


Finally,
I also need a personal holding company, so I can enter into an existing company as shareholder.
I read that the Cyprus company cannot be a passive holding company, but only an active trading company.
Would I need to setup 2 companies and pay for 2 companies? Or is there any better way to do this?

 

[seedboxer]

Cyprus doesn't have anyone to defend her militarily, but for the next few years Turkey has enough trouble with their nosediving economy and Syria. A gas war against tiny Cyprus would sever their relationship with the EU, NATO, the US and even Russia.

A bigger issue is that Cyprus citizenship by investment-program has heated up the real estate market. Limassol oceanfront is being filled with high-risers as we speak. The condos are mostly for the very wealthy, who actually can & will enjoy a better lifestyle elsewhere. But Cyprus is a small market and could certainly heat up even more, before they realize they screwed up again.

Rationally you are right. But corrupt politicians whose position is under threat, behave irrationally.
In order to deflect public's attention from their own incompetence and their crooked henchmen, I would not be surprised if they decided to do something crazy.

The EU will never allow Turkey to enter the EU, so that relationship will get colder over time. Turkey's Islamic and ultra nationalistic culture just is not a good fit. And the USA is just 1 step away from putting sanctions on Turkey (the tariffs are just a signal). And lets not talk about Turkey's weak economic structure, high USD and Euro denominated debt burden and complete financial structure mismatch (both short and long term). I expect much more instability for Turkey the coming 10 years.

 

[Sols]

Malta:
Interesting, Malta is significantly closer to mainland Europe than Cyprus. Does the 183 days requirement still apply with this structure ? (deal killer for me).

Strictly speaking, no. You can set up a Malta operating company and foreign parent company without being resident in Malta. But you need to be tax resident somewhere. Being tax resident as a non-dom resident in Malta is advantageous.

You can combine the Malta setup with residence in Cyprus (or elsewhere), but be careful about the Malta company becoming tax resident outside of Malta as well. It's not an unheard of setup but it introduces headaches.

Cyprus:
- I will start looking for lawyers tonight and contact a few tomorrow to discuss details.
- How is the banking situation, what are the options?

For corporate bank account, easiest is to just go with whatever bank the corporate service provider has a good relationship with. Most work with Bank of Cyprus, and sometimes Hellenic Bank and Astrobank (formerly Piraeus). They're quite decent and most locals bank with them. RCB has a pretty good reputation but some are nervous by the close ties to Russia.

Aside from those banks, there are a lot of Lebanese and other Middle Eastern and some Russian/CIS banks present in Cyprus through branches. They are probably not a good fit.

Finally,
I also need a personal holding company, so I can enter into an existing company as shareholder.
I read that the Cyprus company cannot be a passive holding company, but only an active trading company.
Would I need to setup 2 companies and pay for 2 companies? Or is there any better way to do this?

I'm not aware of anything that would prevent you from owning the actively trading Cyprus company through a holding company, as long as you can show that you own/control the trading company through holding company. Just maybe don't make your 60-day residence be based on the holding company. The rule is meant to attract people who start a business.

But you don't need to use a holding company, unless it's something you've decided for yourself that you want. You can be a shareholder yourself.

 

[seedboxer]

While Germany on paper might have a simple six-month rule, they also look at whether you have a substantial connection to Germany or effectively resident there. It's very tricky to navigate. Finanzamt does not mess around.

From my understanding (limited experience), Belgium is a bit more forgiving but you're playing with fire.

Agreed with @OTR365 about Bazaraki but it's worth looking at individual real estate agents as well. You can't actually use Bazaraki without a Cypriot, Greek, or UK mobile number which can be a bit limiting.

This thread contains very good information, thumbs up!

Deutsches Finanzamt: Yes you are right, I am trying to break up with the German Finanzamt and this is like getting in bed with her again. I will plan around the situation and organize the visits differently. The Malta structure is interesting but how would the structure look like in practice.

1. Setup holding company in the Netherlands (where I also have to visit clients sometimes) or the UK.
2. Setup operational company in Malta and use this for invoicing.
3. Live in Cyprus for at least 61 days.
4. Live the remainder in Malta.

I assume I would still need a company in Cyprus in order qualify for the 60 days rules. With other words, now I need to maintain 3 companies. The Dutch Holding is relative cheap, approx. €600 per annum.

 

[AND2]

Andorra:
Update after a call with a friendly Andorran lawyer about passive residence.
- Banking is no problem with my type of business.
- K€50 deposit.
- Company formation
- 90 days residence rule
- K€350 real estate investment

Wait wait wait. I go to Andorra often and the only thing holding me back from relocation is a stubborn wife so I have done my homework:
- Banking is not a problem. Agreed
- Company formation: yes and with substance in Andorra. You will get inspection etc
- 90 days rule: This only applies to passive tax residents. You get that by making a 400K investment in the country and you're NOT allowed to work while in Andorra. Otherwise 180+ days and double taxation treaty apply
- 50K deposit + 350K investment: I guess he is driving you down the passive residence path 400K investment. But you're NOT allowed to work while in Andorra. Also the 400K can be in real state, cpy ownership or deposit in a government account if you don't want to tie yourself to real state initially

So how to get in Andorra afaik:
A. Passive tax resident
- 400K total. 90 days in Andorra and you're NOT allowed to work, just manage your foreign investments. IF some double taxation treaty applies you're screwed anyway
B. Cpy formation
- Get an SL/SA up & running with presence and substance and you generate foreign income. Cpy owner can reside in Andorra
C. Residence
- Complicated rules o income to relocate
D. Filthy rich or famous
- Special cases are given green light
E. Coupon on skilled workers
- There is an annual allowance on permits to 'workers'

Access through active residence (work or cpy formation/similar): Mudarse a Andorra – Residente fiscal activo : obtener el estatus
Passive residence: Residencia pasiva Andorra – Como obtenerla y vivir en el Principado

TLDR: Set up a cpy in Andorra, a real one. No 400K investment needed, relocate there, spend 180+ days and check double taxation treaties. Relax and ski at 10% in the heart of Europe at a short drive from Spain or France.

 

[Sols]

The Malta structure is interesting but how would the structure look like in practice.

1. Setup holding company in the Netherlands (where I also have to visit clients sometimes) or the UK.
2. Setup operational company in Malta and use this for invoicing.

So far so good. Ensure the holding company isn't subject to more tax than you're comfortable with. The proposed jurisdictions are probably fine, though.

3. Live in Cyprus for at least 61 days.
4. Live the remainder in Malta.

Why not live in only one of them? What benefit do you see by having dual residences?

You risk becoming tax resident in both CY and MT (under the CY 60-day rule and MT 183-day rule). Even if you're a non-dom resident, having dual residences introduces complexity, which doesn't seem necessary in your case.

I assume I would still need a company in Cyprus in order qualify for the 60 days rules. With other words, now I need to maintain 3 companies. The Dutch Holding is relative cheap, approx. €600 per annum.

The 60-day tax residence rule in Cyprus is conditional on forming and operating a local company. There is no requirement to have a holding company. At the most basic setup, you only need a single company, in Cyprus.