Tax planning strategy for consultant

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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.

Well that is interesting, she did not mention anything of such sort, even though I repeatedly mentioned that I would work from home.
The second deal breakers is the 180+ days restriction. Finally, I am pretty sure The Netherlands have double tax everybody and their grand mothers in the world. If I understand it correctly, see here, the DTT with the Netherlands is under discussion and pending.

That is really a pitty, because I do not see myself live long term in Malta or Cyprus but Andorra would have been nice. And saving K€400 for a nice property is very doable.

 

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B. Cpy formation
- Get an SL/SA up & running with presence and substance and you generate foreign income. Cpy owner can reside in Andorra

Wait, so I can setup a company and work from Andorra? Do I still have to reside 180+ or just 90 days? I assume, if I would rent an apartment, that would suffice correct?

 

[seedboxer]

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.

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.

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.

Update call with Malta broker / advisor:
- Form Malta trading company.
- Form Holding in 3rd 'on-shore' company, that is not in Malta
- Advisor suggested Cyprus as jurisdiction for holding company.
- Or alternatively even, a third person being shareholder to a Malta parent company.

I am not sure if the double tax treaty with the Netherlands will come into play in this structure here.

When comparing Malta versus Cyprus, I think Cyprus is much larger and there are probably much more things to do. As a result, I assume the real estate price will be better as well, allowing nicer views in my budget. But when considering I probably have to fly 30 times per year, this would result into hours 660 (60 * 11 hours) flight times for Cyprus versus 390 hours (60 * 6.5) for Malta. That's an additional 270 hours or 11.25 days more in an airplane. Having said all of this, none of this is probably deciding, I am planning to visit both islands this summer and see which is a better fit.

If anyone has first hand experience comparing the two, I would love to hear from them. Are there any large difference in costs, such setup , maintenance and banking costs?

 

[Sols]

Update call with Malta broker / advisor:
- Form Malta trading company.
- Form Holding in 3rd 'on-shore' company, that is not in Malta
- Advisor suggested Cyprus as jurisdiction for holding company.
- Or alternatively even, a third person being shareholder to a Malta parent company.

That's excellent advice. Glad you found someone who knows this well!

I am not sure if the double tax treaty with the Netherlands will come into play in this structure here.

That is a question to bring up with a Dutch tax adviser.

If we take UK holding as an example, the income from the Malta trading company's profit and tax rebate are not subject to corporate tax income in UK (as per latest advice I got from a tax adviser). I've seen the same apply to a few other EU jurisdiction holding companies, but I can't remember any recent examples with Dutch parents.

When comparing Malta versus Cyprus, I think Cyprus is much larger and there are probably much more things to do. As a result, I assume the real estate price will be better as well, allowing nicer views in my budget. But when considering I probably have to fly 30 times per year, this would result into hours 660 (60 * 11 hours) flight times for Cyprus versus 390 hours (60 * 6.5) for Malta. That's an additional 270 hours or 11.25 days more in an airplane. Having said all of this, none of this is probably deciding, I am planning to visit both islands this summer and see which is a better fit.

If anyone has first hand experience comparing the two, I would love to hear from them. Are there any large difference in costs, such setup , maintenance and banking costs?

I have spent a lot of time on both islands. Which one you like more is going to come down to personal preference. Malta is definitely a lot smaller than Cyprus. Some find this a plus; others find it getting on their nerves after a few years. There is more to see and do in Cyprus. Both have good connections to mainland Europe, especially if you connect via Frankfurt or Munich, so it's easy to get in and out. — I can go on for hours comparing the two but it's best to experience them first-hand.

There is no huge difference in cost for establishing and running a consulting/one-person company. Malta might be a little bit cheaper but nothing huge. In Malta, I am more comfortable with local law firms for corporate services, whereas in Cyprus, I have had significantly better experiences working with bigger international firms than local ones.

Banking in Malta is bit problematic. The two main banks, HSBC and BOV, make it very difficult for foreigners to open accounts. The other banks aren't much better either. Having lost three banks in recent years to money laundering/compliance scandals (Nemea Bank, Pilatus Bank, and most recently Satabank), the remaining banks are extremely cautious. A lot of expats coming to Malta (typically to work in igaming) end up keeping their bank accounts bank home, and/or go for something like Revolut.

Most companies end up banking with BOV or foreign banks. BOV is a fine bank, once you're in.

Banking in Cyprus isn't a smooth ride either, but there are more banks to choose from and with a good, safe business plan (which your business sounds like), it will probably be a less bumpy ride than Malta.

On a more human side, Malta is full of north European (Scandinavian, German, Dutch, and British) expats, whereas Cyprus has a more mixed expat community but way more people from Russia/CIS and Middle East. Malta has a well-established igaming sector. In Cyprus, the equivalent is the forex industry. Both attract highly skilled workers and have benefited the two nations greatly. I would consider Malta more nimble and modern than Cyprus, thanks to its smallness and the innovative environment created largely around the igaming sector. Cyprus is a little slower and more bureaucratic.

 

[AND2]

Wait, so I can setup a company and work from Andorra? Do I still have to reside 180+ or just 90 days? I assume, if I would rent an apartment, that would suffice correct?

Yes. You set up a cpy, work from Andorra for a salary (0% tax up to 30K, 10% 30k+), then take the rest as dividends (0% tax for dividends). You rent an apartment correct, so you can test the waters before buying real state. On the DTT with the Netherlands It _might_ be ok. You'll have to wait and read it.

DTT with Spain i.e. revolves around 2 main axis. Center of interest of life and economic:
- You have a <18 years old child in Spain? screwed, you pay Spanish taxes
- You have more economic interest (real state, cars, business, etc) in Spain than in Andorra? screwed
- You have no kids, or the kids+wife also relocate to Andorra, you own little or no property in Spain or more property in Andorra? You win.

You get the idea... If you relocate to trick the taxman they get you. If you truly relocate with family and business/income you are a free bird.

The 400K passive resident is interesting only bc then you become an _Andorran tax resident_ And CRS doesn't apply in Andorra to those. So with enough money you can buy Andorra's silence to not report you. You could still be considered tax resident in the other country, so you'd be tax resident in both at the same time! Meaning you go to Andorra to buy it's silence and hope your original country doesn't find out.

 

[seedboxer]

Yes. You set up a cpy, work from Andorra for a salary (0% tax up to 30K, 10% 30k+), then take the rest as dividends (0% tax for dividends). You rent an apartment correct, so you can test the waters before buying real state. On the DTT with the Netherlands It _might_ be ok. You'll have to wait and read it.

DTT with Spain i.e. revolves around 2 main axis. Center of interest of life and economic:
- You have a <18 years old child in Spain? screwed, you pay Spanish taxes
- You have more economic interest (real state, cars, business, etc) in Spain than in Andorra? screwed
- You have no kids, or the kids+wife also relocate to Andorra, you own little or no property in Spain or more property in Andorra? You win.

You get the idea... If you relocate to trick the taxman they get you. If you truly relocate with family and business/income you are a free bird.

The 400K passive resident is interesting only bc then you become an _Andorran tax resident_ And CRS doesn't apply in Andorra to those. So with enough money you can buy Andorra's silence to not report you. You could still be considered tax resident in the other country, so you'd be tax resident in both at the same time! Meaning you go to Andorra to buy it's silence and hope your original country doesn't find out.

Thank you for the message, had a good laugh about the you're screwed parts
In the link that you sent earlier, I read that the 183 days rule is not hard, meaning that you can leave if it is work related. Which of course would solve the problems.

- Can you recommend a lawyer that I can work with and what prices do I have to think about?
- How quickly can one become Andorran tax resident. Because if I could become tax resident before or shortly after leaving Germany, I could lower the tax rate on my residual income that I have saved so far.

 

[seedboxer]

If we take UK holding as an example, the income from the Malta trading company's profit and tax rebate are not subject to corporate tax income in UK (as per latest advice I got from a tax adviser). I've seen the same apply to a few other EU jurisdiction holding companies, but I can't remember any recent examples with Dutch parents.

There is no huge difference in cost for establishing and running a consulting/one-person company. Malta might be a little bit cheaper but nothing huge. In Malta, I am more comfortable with local law firms for corporate services, whereas in Cyprus, I have had significantly better experiences working with bigger international firms than local ones.

Thanks a lot for your reply!

• Can you recommend a good local party (lawyer and maybe an accountant) to connect to? I feel the prices I have been offered are a bit over the top.
• Do you know if the English holding Ltd can be a dormant entity in order to be able to benefit from the tax imputation system? I ask this because an active company publishes UBO's complete personal information in detail. I am not sure if I am comfortable with that.

 

[seedboxer]

By the way, regarding the banking:

I am not comfortable with the banking system in both Cyprus and Malta, to be frank I trust neither of them.

Most European banks (Deutsche Bank, Unicredit, UBS etc..) are de-facto all zombie entities, let alone the Maltese.

I prefer to bank with ING Bank & Rabobank in the Netherlands, Raffeisen in Germany or Credit Agricole in France.

I haven't checked the credit ratings, business models, cash flow resiliences and tier 1 capital ratios of the banks in Andorra.

 

[Sols]

Can you recommend a good local party (lawyer and maybe an accountant) to connect to? I feel the prices I have been offered are a bit over the top.

Over the years I've worked with many different ones. WH Partners, E-Management (HBM Group), NOUV Consulting, Vistra, Core Group, and a handful more. Prices vary a lot, from 2000 to 5000 just for incorporation. Running costs depend on whether you need VAT registration.

A smaller, boutique firm like NOUV and Core Group may not have the in-house expertise to give you personal and corporate tax advice, which is where the higher costs of other service providers tend to come from. ˆf all you need is incorporation and competitive pricing, they'll probably fit you well, though.

Do you know if the English holding Ltd can be a dormant entity in order to be able to benefit from the tax imputation system? I ask this because an active company publishes UBO's complete personal information in detail. I am not sure if I am comfortable with that.

It can't be dormant because it's not a dormant company by definition of receiving income or tax rebates from a subsidiary. You can avoid having your residential address on public record by using a service address, but the rest is unavoidable.

If you want complete privacy, UK is not a good fit. It's just a popular, cheap jurisdiction for setting up a tax free holding company.

I am not comfortable with the banking system in both Cyprus and Malta, to be frank I trust neither of them.

You are right to be unimpressed by the banking options in Cyprus and Malta. Fortunately, you don't need to bank locally. If you have a good relation with an existing bank and can leverage that to open an account for your new companies, go for it.

 

[seedboxer]

Which jurisdictions would you consider instead of the UK for a holding company for the Malta trading company?

You are right to be unimpressed by the banking options in Cyprus and Malta. Fortunately, you don't need to bank locally. If you have a good relation with an existing bank and can leverage that to open an account for your new companies, go for it.

 

[Sols]

Which jurisdictions would you consider instead of the UK for a holding company for the Malta trading company?

Some of the most popular I come across in Malta are BVI, Cyprus, Gibraltar, Isle of Man, UAE, and the occasional Belgium, Sweden, Luxembourg, and so on.

Seems like a lot of jurisdictions are suitable. Just look into how the profits and tax rebate from the Maltese subsidiary would be taxed, and how to take money out of the holding company.

 

[AND2]

Hi,

I think becoming an Andorran tax resident should be quick but I am not familiar with the matters as I haven't done it yet. I have a lawyer for the basic accounting stuff but he doesn't speak English and I wouldn't recommend it as he made some obvious mistake recently. You'll have to find yourself sorry :-( As a rule of the thumb I look for entities that have offices in Andorra and some other country like Spain or France. It highers probabilities they are already familiar with cross-border headaches. If you find a good one let me know btw

Also, in the nicest part of town they are starting some nice developments. High buildings with quality finishes, at least at face value, so buying state there in the near future might be an option.

 

[AND2]

Forgot to mention I regarding banks, I worked with Credit Andorra. Mainly bc I got introduced for free and they have offices in Panama which is interesting from a PIF asset protection point of view. Sthg I am reading/thinking about.

Again If you fins sthg interesting regarding banking in Andorra please post it.

 

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Ok sure, I will update the thread as soon as I get more information on both Malta and Andorra.

 

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By the way is there also a good website for finding rental real estate in Malta?

 

[Sols]

Frank Salta, Remax, and Dhalia are among the biggest real estate agents, including for rentals. There are many more if you just search around. Typical fee is half to a full month's rent plus VAT to the agent.

You can also try various Facebook groups for expats.

 

[seedboxer]

It can't be dormant because it's not a dormant company by definition of receiving income or tax rebates from a subsidiary. You can avoid having your residential address on public record by using a service address, but the rest is unavoidable.

If you want complete privacy, UK is not a good fit. It's just a popular, cheap jurisdiction for setting up a tax free holding company.

Update jurisdiction:
Because I want a reputable jurisdiction, I have given up on the privacy concern.
Due to my customers, holding must be either UK or NL. I am afraid the others are too exotic.

I have asked two advisors in Malta to check whether UK / NL apply dividend withholding tax.
So far no confirmation from either of the firms. Both are convening with their partners in Europe and will revert.
This is somewhat odd, as I would think this is a commonly used structure and jurisdiction.

 

[Sols]

That matches my recent experiences working with local boutique firms in Malta. Forgot to mention earlier, sorry. The multinationals are more familiar with using UK and mainland EU holding companies. The boutique firms will have mostly worked with pure offshore companies (BVI and such).

If not working with one of the international firms, I've found it easier to work with two different service providers: one in Malta and one for the holding company. It's a bit more coordination on your end but there's something to be said about the benefits using two different service providers and not have all eggs in one basket.

If you want to try one of the bigger service providers, I have had fond experiences with Vistra and HBM Group (also called E-Management in Malta).

 

[seedboxer]

That matches my recent experiences working with local boutique firms in Malta. Forgot to mention earlier, sorry. The multinationals are more familiar with using UK and mainland EU holding companies. The boutique firms will have mostly worked with pure offshore companies (BVI and such).

If not working with one of the international firms, I've found it easier to work with two different service providers: one in Malta and one for the holding company. It's a bit more coordination on your end but there's something to be said about the benefits using two different service providers and not have all eggs in one basket.

If you want to try one of the bigger service providers, I have had fond experiences with Vistra and HBM Group (also called E-Management in Malta).

No need to apologize mate, I am already sincerely grateful for all your help and effort put into this thread.
I had in fact contacted a British accountancy firm about this topic and I got a reply from them today. They have sent me two documents for further study. In his (accountant's) opinion, UK should not withhold any dividend taxes. I will call him later this week to discuss the details but I will post the details here as well.

 

[dxt3r]

Some of the most popular I come across in Malta are BVI, Cyprus, Gibraltar, Isle of Man, UAE, and the occasional Belgium, Sweden, Luxembourg, and so on.

Seems like a lot of jurisdictions are suitable. Just look into how the profits and tax rebate from the Maltese subsidiary would be taxed, and how to take money out of the holding company.

How does this strategy work, you pay full tax in Malta, then via DTT you inform paid taxes in the country where the holding company is, then go back to malta and ask for a tax refund, due to non-residency etc?

Will this work with a Mexican Holding Company? There is an existing DTT with malta.