USA LLC and Cyprus non-dom. What taxes?

[iarmst]

Hi there, I am currently tax resident in Spain, working as a software engineer (clients in the UK), and set up legitimately as an 'autonomo' in Spain (self-employed). The taxes stack up at about 35% so not great. I do a lot of travelling and some years I'm lucky to get more than 6 or 7 months in Spain; so looking at more tax efficient planning.

From the experts on here, would my current train of thought work. As I understand it?
1. Incorporate a USA LLC (in Florida) as a USA non-resident or citizen
2. Set up a Transferwise account linked to the USA company for receipt of monies (on invoices submitted to my UK clients)
3. Pay (distribute) money every so often from the USA company
4. Stay less than 183 days in Spain so I am non-resident for tax purposes. Actually be tax resident nowhere EXCEPT Cyprus
5. Rent a place in Cyprus for 12 months, go stay there 2-3 months a year and be non-domiciled
6. Travel the rest of the time

My understanding is that I am taxable on salary received while 'in Cyprus' for those 2-3 months. If I am away from the island for more than 90 days per year (I will be) then that salary is not taxable?

Does this stack up? I don't mind paying taxes but not @ 35% to somewhere where I will spend less than 6 months. No wife in Spain, no kids, no car, just a holiday home.

Thank you! Ian

 

[qwerty84]

Your main issues will be (i) non-doms are not considered tax residents of Cyprus under most OECD modelled tax treaties, so other countries can claim tax residency (including Spain, based on having your economic center there) and you wont be protected by a treaty and (ii) place of effective management of the LLC; LLC is non-transparent for tax purposes in most EU member states, so if you are in Spain 5 months, Spain could claim tax residency of the LLC.

 

[uplana]

Discussed a lot of times here already. You may need to create a company with substance and then speak with a tax legal advisor to get proper help. Otherwise go the gray area way which you can read a lot about inside the mentor group gold.

 

[whirlgirl]

from my understanding. income will fully taxable because usa llc is a personal entity - cyprus will then claim your income because its not a profit distribution as it is when you are tax exempted in cyprus as a nondom. the llc helps if your perpetual traveller but not as a cyprus non dom. so if you go to panama, dubai or other jurisdictions and travel a lot it might be a useful solution.

 

[iarmst]

Thanks for the replies. I'm a little confused over the 'rule' so to speak of working overseas. "

• Income from employment carried out outside Cyprus is exempted from Cyprus income tax, provided that the employment exercised outside Cyprus exceeds 90 days per tax year.

If I am outside of Cyprus working for half the year (more or less) is that not exempted? Or is the USA LLC not seen as a company, more a personal 'account'.

 

[Sols]

It's not clear whether income from an LLC is considered personal income or dividends in Cyprus. You can roll the dice, hope for the best, and pretend it's dividends and hope no one cares.

It's probably better to form a proper corporation with corporate income tax (even if it's zero) and pay yourself actual dividends.

Neither of those two structures would be entirely compliant with Cypriot law. So far, foreigners are left alone by the tax authority and there are so far no signs of that changing. But the risk is always there.

Or just form a local company, pay the 12.50% CIT, and sleep peacefully at night.

If I am outside of Cyprus working for half the year (more or less) is that not exempted? Or is the USA LLC not seen as a company, more a personal 'account'.

You need to understand the difference between personal income like salary (which is what income from an LLC is would be under US law) and dividends (which is what companies pay to shareholders from the profits in the company), and how they are treated in Cyprus.

Salary is subject to personal income tax, but can be exempted in some cases if the work is performed outside of Cyprus.

Dividends are subject to capital gains tax, which for a non-dom resident is 0% for 17 years.

 

[whirlgirl]

in addition to Sols it´s also helpful on the long run to receive a salary of the cyprus company - there are cases i read of where they just had distributed dividends -which lead to conflict in later stages - up to 19k salary is tax free , but there are social securities to pay - even with 12,5% and that partly payment it´s a good thing to do in comparision to spain i guess - for 0 tax you have to leave the EU (just my 5 cents)

 

[iarmst]

Thanks @Sols . I believe the LLC is seen as being a distribution channel (not dividends) so is all salary, and would be taxed as personal income. The question is fine, pay the required Cypriot taxes on that personal income when in Cyprus (for 60 - 90 days per year); be exempted any Cypriot tax on the rest of the year as work is performed outside of Cyprus. But as another poster noted, that might get messy if I am 5 months in Spain and 4 months in the UK or wherever. They might try to take a chunk.

 

[Sols]

Thanks @Sols . I believe the LLC is seen as being a distribution channel (not dividends) so is all salary, and would be taxed as personal income.

Then you believe something that, as far as I know, hasn't been tested by Cypriot courts. That is what's causing the uncertainty.

You can certainly declare it as salary, and chances are that no one will question it.

The question is fine, pay the required Cypriot taxes on that personal income when in Cyprus (for 60 - 90 days per year); be exempted any Cypriot tax on the rest of the year as work is performed outside of Cyprus. But as another poster noted, that might get messy if I am 5 months in Spain and 4 months in the UK or wherever. They might try to take a chunk.

Most people in your situation operate under local companies (and pay the 12.50% CIT) or other under foreign companies (and pay 0% tax, hoping never to be caught).

 

[fshore]

4. Stay less than 183 days in Spain so I am non-resident for tax purposes. Actually be tax resident nowhere EXCEPT Cyprus

Did you check Spanish tax residency laws? It's not only 183 days. If you have no other tax residency they will include days outside of Spain (as you're only temporary absent). So you have to make sure you're actually tax resident in Cyprus.

 

[CyprusLaw]

As people have suggested above the safest solution would be to set up a Cyprus company and carry out your work through the company. You will be paying 12.% tax (which is far lower than the income tax bands) and as a non dom any dividends paid to you by the Cyprus company will be SDC exempt for 17 years.

 

[iarmst]

Thanks @CyprusLaw . I'm in agreement with that. Everything else seems a little risky so the Cyprus company set up seems the way to go for me. Thank you all for the helpful replies.

 

[CyprusLaw]

As people have suggested above the safest solution would be to set up a Cyprus company and carry out your work through the company. You will be paying 12.% tax (which is far lower than the income tax bands) and as a non dom any dividends paid to you by the Cyprus company will be SDC exempt for 17 years.

Generally you should discuss with a Cyprus lawyer in order to assist you with your structuring.

 

[JustAnotherNomad]

Lots and lots of wrong assumptions here.

3. A LLC that is regarded as a pass-through entity cannot distribute dividends. Cyprus might take a different stance, as @Sols pointed out. But it's risky, since that would be a so-called hybrid mismatch, which tax authorities all over the world are fighting.
4. You will likely be considered tax resident in Spain, even if you spend less than 183 days there, as @fshore pointed out.
5. Even Cyprus will only consider you tax resident if you spend at least 60 days there AND you are not considered tax resident in any other country (see above).

It is possible that you can fly under the radar and neither Spain nor Cyprus will detect this, but it's not a good/legal setup.

 

[gnud]

Wherever you run the LLC from you'll need to declare it and tax it as if it's a local company. This is the law just about anywhere, the reality may be different but can you rely on authorities not doing their job?

How long will that last? They can start processing the data at any point and apply penalties retroactively.

 

[Marzio]

Your main issues will be (i) non-doms are not considered tax residents of Cyprus under most OECD modelled tax treaties, so other countries can claim tax residency

Holy f**k, why nobody talks about this? If under most OECD modelled tax treaties you are not considered tax resident of a country if you choose the non-dom option or even territorial taxation countries, how do you overcome this? Germany, Spain, France and all the usual high tax countries all follow those OECD guidelines so all the advice for Germans to move to Cyprus are all worthless because even if you stay 365 days in Cyprus but you chose to be taxed as a non-dom you'll still be considered a German tax resident.

 

[CyprusLaw]

Wherever you run the LLC from you'll need to declare it and tax it as if it's a local company. This is the law just about anywhere, the reality may be different but can you rely on authorities not doing their job?

How long will that last? They can start processing the data at any point and apply penalties retroactively.

This is not the case and you seem to be misinterpreting the concept of non-dom. Cyprus has implemented the following concept, an individual has has not been living in Cyprus and relocates to Cyprus and becomes a Cyprus tax resident maintains his benefits, for 17 years, as if he was non-domiciled in Cyprus. He is still required to satisfy the 60-day or 183-day rules to become a Cy tax resident

 

[ElBotellon]

the cypriot law is tricky when it requires the person to not be considered tax resident in any other country. The implication that it suggests is that in case a person is resident both in cyprus (60days rules) and in the other country (based on internal legislation), then cyprus can revoke the tax residence certificate issued according to the 60 days rules - so not defend the tax residence of the individual based on internal legislation and/or based on the eventual DTA in place).


That condition of no residence in any other country is very tricky and seems to say something like: if nobody complaints I (Cyprus) am keen to collect your taxes; should you get in trouble then I (Cyprus) am not keen to get involved in any dispute about the right to tax you, nullifying the benefits of cyprus residency.

What to do you think about my interpretation above?

 

[Marzio]

What to do you think about my interpretation above?

I would say it’s fairly correct.

 

[gnud]

This is not the case and you seem to be misinterpreting the concept of non-dom. Cyprus has implemented the following concept, an individual has has not been living in Cyprus and relocates to Cyprus and becomes a Cyprus tax resident maintains his benefits, for 17 years, as if he was non-domiciled in Cyprus. He is still required to satisfy the 60-day or 183-day rules to become a Cy tax resident

It's about the company, not the person. An LLC is typically considered a full company outside of the US, taxable with a CIT, not a personal income tax.
This all is specified in the DTT between the country and the US.