UAE freezone company / Portugal NHR

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rb91134

New member
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.
 

rb91134

New member
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

Mentor Group Gold
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

New member
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

Mentor Group Gold
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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.
 

rb91134

New member
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

Mentor Group Gold
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.
 
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