US LLC - CYPRUS NON-DOM best structure for digital nomads?

[Dopax]

Hello all, first of all, thanks a lot @CyprusBusiness @Sols @CyprusLaw @CyprusLawyer101 @Marzio and all the other who gave a really good advice on Cyprus taxes in the forum.

I own a US LLC (online business – which taxes 0% in the US), I just landed in Cyprus with the intension of being a non-dom resident here in order to lower my taxes (I travel most of the time). My original idea was to receive dividends from the US LLC, and to pay only the 2.65% NHS contribution. After talking to some lawyers here, they tend to say that the US LLC can’t distribute dividends and that all the profits will be considered as personal income. Which seemed a bit weird from my experience as some other countries regard a US LLC as an opaque entity. From what I’ve understood in the forum, this issue has not come up in the courts yet nor has the tax authority issued any guidance on the subject. It seems that people get by with calling income from an LLC dividends.

I would love if someone had more experience with this structure and can shade some light on my next questions:

1) Getting US LLC profits and treating them as dividends would be risky? Would you call it gray zone or totally black zone?
2) To get the non-dom status (or in general): Is there any up-side of forming a Cyprus LTD instead of the “self-employed” status?

If the US LLC – CY NON-DOM structure is not compliant at all, what would you suggest to a person in my position? I would love to keep the main operations on the US LLC for best banking and the ease of doing business.

3) Would it be possible to transfer the profits from the US LLC to the CY LTD and pay the corporate tax (12.5%) on the profits, and take the dividends from there (2.65%)?
4) Will it trigger CFC?
5) What would be the best way in your experience?
6) Do you think UAE/HK companies could be better than CY LTD for my case?


Thanks a lot for your help!

 

[Sols]

I own a US LLC (online business – which taxes 0% in the US), I just landed in Cyprus with the intension of being a non-dom resident here in order to lower my taxes (I travel most of the time). My original idea was to receive dividends from the US LLC, and to pay only the 2.65% NHS contribution. After talking to some lawyers here, they tend to say that the US LLC can’t distribute dividends and that all the profits will be considered as personal income. Which seemed a bit weird from my experience as some other countries regard a US LLC as an opaque entity. From what I’ve understood in the forum, this issue has not come up in the courts yet nor has the tax authority issued any guidance on the subject. It seems that people get by with calling income from an LLC dividends.

This is all correct. But keep in mind that the 2.65% GHS contribution is capped. Once you earn beyond 180,000 EUR/year, no further contribution is required.

1) Getting US LLC profits and treating them as dividends would be risky? Would you call it gray zone or totally black zone?

You just put it as dividends on your tax return and chances are the tax authority won't question it.

2) To get the non-dom status (or in general): Is there any up-side of forming a Cyprus LTD instead of the “self-employed” status?

As a foreigner coming to Cyprus, you are non-domicile for 17 years. Regardless of whether you form a company or not. You just apply for the status, provide some supporting documents, and then they give you a certificate of exemption.

In your case, you wouldn't be self-employed since you're declaring the US LLC income as dividends. If you register as self-employed, you're expected to have some personal income to declare. Some people do that to get access to GHS/Gesy (public healthcare), but you can just get a private insurance unless you have some health concerns that make public healthcare preferable.

3) Would it be possible to transfer the profits from the US LLC to the CY LTD and pay the corporate tax (12.5%) on the profits, and take the dividends from there (2.65%)?

That might even be zero-taxed if you can book it as dividend income for the CY LTD. Otherwise, yes, it would work as you propose. You basically have the same problem as if receiving the income from the US LLC personally.

4) Will it trigger CFC?

On paper, yes, the risk might exist. In reality, it's not very likely. The tax authority in Cyprus is not spending much if any effort going after anyone, especially not foreigners.

6) Do you think UAE/HK companies could be better than CY LTD for my case?

Income from a UAE or HK corporation would more clearly be dividends.

No advantage as far as Cyprus is concerned. It would be a pure commercial decision, for example if you have clients in Asia that prefer working with Hong Kong companies for some reason.

 

[Dopax]

This is all correct. But keep in mind that the 2.65% GHS contribution is capped. Once you earn beyond 180,000 EUR/year, no further contribution is required.


You just put it as dividends on your tax return and chances are the tax authority won't question it.


As a foreigner coming to Cyprus, you are non-domicile for 17 years. Regardless of whether you form a company or not. You just apply for the status, provide some supporting documents, and then they give you a certificate of exemption.

In your case, you wouldn't be self-employed since you're declaring the US LLC income as dividends. If you register as self-employed, you're expected to have some personal income to declare. Some people do that to get access to GHS/Gesy (public healthcare), but you can just get a private insurance unless you have some health concerns that make public healthcare preferable.


That might even be zero-taxed if you can book it as dividend income for the CY LTD. Otherwise, yes, it would work as you propose. You basically have the same problem as if receiving the income from the US LLC personally.


On paper, yes, the risk might exist. In reality, it's not very likely. The tax authority in Cyprus is not spending much if any effort going after anyone, especially not foreigners.


Income from a UAE or HK corporation would more clearly be dividends.

No advantage as far as Cyprus is concerned. It would be a pure commercial decision, for example if you have clients in Asia that prefer working with Hong Kong companies for some reason.

Thanks @Sols I really appreciate your time and effort responding to my questions! Very informative as always. Are you a service provider in cyprus?

 

[Sols]

Are you a service provider in cyprus?

No, I'm not. There are a few Cypriot lawyers around the forum, though, such as @CyprusLaw, @CyprusLawyer101, and @CyprusBusiness (as always, do your own due diligence). And there are many, many good, reputable service providers on the market. What you're asking for isn't unusual or complicated, so it should be a pretty straight-forward setup.

 

[CyprusLaw]

Hello all, first of all, thanks a lot @CyprusBusiness @Sols @CyprusLaw @CyprusLawyer101 @Marzio and all the other who gave a really good advice on Cyprus taxes in the forum.

I own a US LLC (online business – which taxes 0% in the US), I just landed in Cyprus with the intension of being a non-dom resident here in order to lower my taxes (I travel most of the time). My original idea was to receive dividends from the US LLC, and to pay only the 2.65% NHS contribution. After talking to some lawyers here, they tend to say that the US LLC can’t distribute dividends and that all the profits will be considered as personal income. Which seemed a bit weird from my experience as some other countries regard a US LLC as an opaque entity. From what I’ve understood in the forum, this issue has not come up in the courts yet nor has the tax authority issued any guidance on the subject. It seems that people get by with calling income from an LLC dividends.

I would love if someone had more experience with this structure and can shade some light on my next questions:

1) Getting US LLC profits and treating them as dividends would be risky? Would you call it gray zone or totally black zone?
2) To get the non-dom status (or in general): Is there any up-side of forming a Cyprus LTD instead of the “self-employed” status?

If the US LLC – CY NON-DOM structure is not compliant at all, what would you suggest to a person in my position? I would love to keep the main operations on the US LLC for best banking and the ease of doing business.

3) Would it be possible to transfer the profits from the US LLC to the CY LTD and pay the corporate tax (12.5%) on the profits, and take the dividends from there (2.65%)?
4) Will it trigger CFC?
5) What would be the best way in your experience?
6) Do you think UAE/HK companies could be better than CY LTD for my case?


Thanks a lot for your help!

Hi, we actually have an consultation from the Tax Authorities confirming this. Income from an LLC is not dividends from a Cyprus perspective, while C-Corp on the other hand can distribute dividends.

Happy to PM you to discuss your structure.

 

[Rome]

Aren't dividends and profit distributions two different things?

@Sols

 

[Sols]

The world is full of exceptions, but as a general rule: all dividends are profit distributions but not all profit distributions are dividends.

 

[ecommerceoffshore]

Hi, we actually have an consultation from the Tax Authorities confirming this. Income from an LLC is not dividends from a Cyprus perspective, while C-Corp on the other hand can distribute dividends.

Happy to PM you to discuss your structure.

@CyprusLaw could you just have the LLC 100% owned by an 0 tax offshore shell corp, say in Panama, and then have that corp pay the Cypriot non dom dividends? If so, are there any countries which are preferable to make sure its easy enough to do with banking, and doesnt raise any eyebrows?

This is all correct. But keep in mind that the 2.65% GHS contribution is capped. Once you earn beyond 180,000 EUR/year, no further contribution is required.


You just put it as dividends on your tax return and chances are the tax authority won't question it.


As a foreigner coming to Cyprus, you are non-domicile for 17 years. Regardless of whether you form a company or not. You just apply for the status, provide some supporting documents, and then they give you a certificate of exemption.

In your case, you wouldn't be self-employed since you're declaring the US LLC income as dividends. If you register as self-employed, you're expected to have some personal income to declare. Some people do that to get access to GHS/Gesy (public healthcare), but you can just get a private insurance unless you have some health concerns that make public healthcare preferable.


That might even be zero-taxed if you can book it as dividend income for the CY LTD. Otherwise, yes, it would work as you propose. You basically have the same problem as if receiving the income from the US LLC personally.


On paper, yes, the risk might exist. In reality, it's not very likely. The tax authority in Cyprus is not spending much if any effort going after anyone, especially not foreigners.


Income from a UAE or HK corporation would more clearly be dividends.

No advantage as far as Cyprus is concerned. It would be a pure commercial decision, for example if you have clients in Asia that prefer working with Hong Kong companies for some reason.

@Dopax could you just have the LLC 100% owned by an 0 tax offshore shell corp, say in Panama, and then have that corp pay the Cypriot non dom dividends? If so, are there any countries which are preferable to make sure its easy enough to do with banking, and doesnt raise any eyebrows?

 

[ecommerceoffshore]

@cyprus123 @CyprusBusiness @CyprusLaw @CyprusLawyer101 @CyprusNonDom why not just have a 0% or territorial country corporation own the US LLC, then the US LLC pays this corp, which then distributes to you dividends? If so, does anyone have recommended countries to do this where the tax is zero, there are few "gray areas" and banking / wires are relatively simple? I am considering Panama but it is somewhat unclear whether they withhold foreign dividends (5%?), and whether US LLC e-commerce income is necessarily considered from abroad, given this definition from KPMG:

Taxable income is defined as income produced, from any source, within the Panamanian territory, regardless of the place where the income is received. Deviating from the territoriality principle, Panamanian tax laws also consider as taxable income any income that, even when derived from acts or services rendered abroad, benefits individuals or legal entities residing in Panama and relates to the generation and continuance of their Panamanian-source income.