UAE freezone company / Portugal NHR

[rb91134]

I own a digital info-product business. The current corporate structure involves a UAE freezone parent company, a couple of Cyprus based subsidiaries of the UAE company, and a separate US LLC.

I am thinking of relocating to Portugal and want to minimize potential tax liabilities in Portugal under the NHR regime.

The main danger obviously is that the Portuguese tax (wo)man will assume that the UAE co's place of effective management (POEM) is Portugal and therefore the UAE co's profits are taxable in Portugal.

The recommended solution on these forums as well as other websites seems to be to incorporate a Malta/Cyprus parent company, pay the low effective corporate taxes in Malta/Cyprus, and then obtain tax-free dividends in Portugal from the Malta/Cyprus company.

But I am struggling to understand what exactly is the benefit of a Malta/Cyprus parent company setup vs having a UAE parent company?

If the answer is that I can show some sort of economic substance in Malta/Cyprus to escape Portuguese POEM laws, then why can't I do the exact same thing for the UAE co as well and show economic substance in the UAE?

Or, if the answer is that Malta/Cyprus is in the EU, I am not sure how that's relevant under Portuguese law? Even though Portugal has black-listed the UAE, it also has a double-taxation treaty with the UAE. So I am not sure why the fact that Malta/Cyprus is in the EU makes any difference in this situation?

Can someone help me understand why the Malta/Cyprus parent company solution is better than the UAE parent company solution?

Thank you.

 

[Marzio]

UAE is on Portugal's blacklisted jurisdictions so PoEM would not be your main problem.

I don't think it would play well with NHR.

 

[rb91134]

Thanks, but as noted in my message, while the UAE is indeed black-listed, it also has a DTT with Portugal. So why exactly is the fact that the UAE is black-listed not play well with NHR?

Especially given that the Portuguese tax authorities have themselves agreed that dividends from a UAE co are not taxable under NHR because of the DTT - please Google "portugal uae nhr dividends" - and refer to the case from 2017.

So it seems to me that the issue is indeed POEM, not the fact that the UAE is black-listed, in which case we are back to the question I had asked originally.

 

[Marzio]

To get a 0% UAE company you need to have somebody working there for the company.

If you move to Portugal and don't replace your position with somebody there wll not be enough substance built in UAE

Also, great that Portugal allowed UAE dividends to be exempt under NHR but there are CFC rules in Portugal.

"CFC rules do not apply if the CFC is resident in another EU country or in an EEA member state (bound to administrative cooperation on tax matters), provided that there are valid economic reasons underlying the incorporation and running of such company and it carries out agricultural, commercial, industrial, or services activities."

You are worried about PoEM because you think that you can operate a 0% UAE company without at least one director and receive dividends tax free under NHR.

 

[rb91134]

So just to clarify, what you mean is that the only reason to favour a Cyprus/Malta setup over an UAE setup is that a Cyprus/Malta company is specifically excluded from Portuguese CFC laws because those are EU countries whereas a UAE co is not?

However, my understanding is that Portuguese CFC laws have an exception - if the foreign company's passive income is less than 25% of its overall income, then CFC rules won't apply. Please Google "portugal cfc exemptions" and look up the article from korepartners.com (sorry - it seems that I am not allowed to link directly to websites on this forum). The korepartners.com link is the first one that Google shows me.

My UAE company's passive income is less than 25% of its overall income. So based on this, it again seems that PoEM is the issue, not CFC, in which case, once again, there doesn't seem to be a difference between Malta/Cyprus vs UAE for me?

 

[Marzio]

You are exempt under rule #4 becuse your UAE company passive income is less than 25%, fine.

So this means that you have an active business.

The very first question that will ask PT tax administration will be "where are the employees"?

You can't have an active business without having somebody doing the work.

There must be at least an office and a director with a director wage that does something.

If the only one doing the work is you from PT well, good luck.

We both know and the tax administration knows too that there are zero valid economic reasons for operating from UAE other than non paying taxes.

 

[RealDude]

There must be at least an office and a director with a director wage that does something.

What is the minimum wage for directors?

 

[rb91134]

Marzio - if you read my original post, my question was not "How do I prevent POEM laws being applicable to the UAE co" but "Why is a Malta/Cyprus co better than an UAE co".

You said initially that CFC laws were the issue, and that CFC laws make Malta/Cyprus better, but as I believe I demonstrated, that's not the case for an active business.

Clearly, as I had stipulated all along, the POEM laws are the main problem here. But my question wasn't about that - my question was that the POEM laws would be equally applicable to a Malta/Cyprus co so as well, so why exactly does everyone recommend a Malta/Cyprus co instead of a UAE co.

Whatever I need to do in the UAE co to avoid the POEM laws being applicable to the UAE co (like having a full-time director in the UAE co with a salary etc.) - I'll need to do the exact same things in the Malta/Cyprus co to prevent the POEM laws being applicable to the Malta/Cyprus co - so why exactly is a Malta/Cyprus co preferable to a UAE co?

 

[Marzio]

why exactly is a Malta/Cyprus co preferable to a UAE

Is it you that said this from the beginnng but i never said so infact i think that UAE is way better than those jurisdictions simply because they have to obey to EU regulations so in the long term you will have less and less options to optimize your taxes.

You are reading that Malta/Cyprus are better probably because their CIT is high enough that will not trigger CFC rules in Portugal.

And yes there are some structures like the maltese resident non domiciled company that will allow you to pay 0% CIT if you don't remit money in Malta, it will not trigger CFC rules because Malta's CIT is 35% but you will still need somebody to control and manage the company from Malta.

You will not escape building substance outside Portugal.

 

[A1988]

Is it you that said this from the beginnng but i never said so infact i think that UAE is way better than those jurisdictions simply because they have to obey to EU regulations so in the long term you will have less and less options to optimize your taxes.

You are reading that Malta/Cyprus are better probably because their CIT is high enough that will not trigger CFC rules in Portugal.

And yes there are some structures like the maltese resident non domiciled company that will allow you to pay 0% CIT if you don't remit money in Malta, it will not trigger CFC rules because Malta's CIT is 35% but you will still need somebody to control and manage the company from Malta.

You will not escape building substance outside Portugal.

Great point, I am in a similar position. What if I take dividends from my operating company in malta which is fully owned by my holding company in cyprus and that holding company pays me dividend in portugal? or what if I dont keep any bank account in portugal and keep an account in malta or cyprus and use that? Will I still have issues with tax authorities in portugal? What do you think?

 

[Marzio]

What do you think?

You should create a different thread describing your problem because right now you only asked me what i think about a potential solution but there could be an easier / more efficient solution that you are unaware and it's impossibile to formulate one without knowing more details about your situation.

 

[tolstoy]

So just to clarify, what you mean is that the only reason to favour a Cyprus/Malta setup over an UAE setup is that a Cyprus/Malta company is specifically excluded from Portuguese CFC laws because those are EU countries whereas a UAE co is not?

However, my understanding is that Portuguese CFC laws have an exception - if the foreign company's passive income is less than 25% of its overall income, then CFC rules won't apply. Please Google "portugal cfc exemptions" and look up the article from korepartners.com (sorry - it seems that I am not allowed to link directly to websites on this forum). The korepartners.com link is the first one that Google shows me.

My UAE company's passive income is less than 25% of its overall income. So based on this, it again seems that PoEM is the issue, not CFC, in which case, once again, there doesn't seem to be a difference between Malta/Cyprus vs UAE for me?

Can supply resource for working in UAE for getting through that POEM hurdle.

 

[A1988]

You should create a different thread describing your problem because right now you only asked me what i think about a potential solution but there could be an easier / more efficient solution that you are unaware and it's impossibile to formulate one without knowing more details about your situation.

I will do that. Thanks

 

[bandanna]

@rb91134 I wonder which solution you opted at?

I'm in a similar boat, there're a ton of advantages in UAE, whereas in Malta I'd struggle getting anything but an EMI (+5% on 6/7th refund mechanism which is delayed af). But if UAE would really risk dividends distribution, then Malta it is.

Thanks!

 

[rb91134]

I am sticking with the UAE for now, but we've actually tentatively decided on a different plan outlined in this post: Schengen visit / tax residency This plan seems to be fairly low-risk (not zero risk though) based on my research. However, I plan on consulting with a Portuguese law firm later this year to make sure the plan is viable.

 

[369]

I would add these points to your decission

1.EU wealth Registry
2.One time wealth payment
3.EU travel restrictions based on passports
4.EU transforming into a communist block

 

[bandanna]

Thanks for your reply @rb91134 , and good luck!

 

[Don]

I would add these points to your decission

1.EU wealth Registry
2.One time wealth payment
3.EU travel restrictions based on passports
4.EU transforming into a communist block

I do agree, but can you share some references to these statements?

The Independent Commission for the Reform of International Corporate Taxation (ICRICT) has led work on proposals for a global asset register so staying out of the EU might only be a temporary solution.
https://www.icrict.com/it-is-time-for-a-global-asset-registry-to-tackle-hidden-wealth

 

[369]

I do agree, but can you share some references to these statements?

The Independent Commission for the Reform of International Corporate Taxation (ICRICT) has led work on proposals for a global asset register so staying out of the EU might only be a temporary solution.
https://www.icrict.com/it-is-time-for-a-global-asset-registry-to-tackle-hidden-wealth

EU wealth registry is done deal via EU parlament.
Germany officaly already having mutiple talks about one time wealth tax.Sometimes the number 50% floats arround of total wealth.
Knowing we have a banking crisis coming and that it will cost billions to inject to safe at the beginning the banks will make that high inflation will accure again way higher than the first one.
Today officaly in germany 30% are struggling to buy enough food.After the banking crisis it will be arround 90% and governments will need money.
Since germany will be bankrupt it means its the end of the current EU and european countries needs to find financing themself.
Knowing the EU structur they are communist.
I always laughed loud how people can't see it.I mean even the ex EU president Barroso was from KPP (Communist Party Portugal).They are not even hiding it.Greens are communists too implementing plan business into germany.
About EU travel restrictions that was an insider info however watching what is currenbtly happening you can already see the demand of the ruling class to limit international flights.What a coincidence
The big walls build on EU's border are surly to keep immigrants out /irony .
EU is changing quickly and you can clearly see its getting into plan business and communistic structures.
I saw in my youth time how communists work when visiting these countries and i can tell you they hate wealthy people who they can't dictate their agenda.

 

[txnotnx]

I am sticking with the UAE for now, but we've actually tentatively decided on a different plan outlined in this post: Schengen visit / tax residency This plan seems to be fairly low-risk (not zero risk though) based on my research. However, I plan on consulting with a Portuguese law firm later this year to make sure the plan is viable.

@rb91134 have you went through with your plan? if so, how did it go? I am considering a similar solution and would really appreciate any insights