USA LLC and Cyprus non-dom. What taxes?

[D0naldDuck]

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.

Could you, or someone else, elaborate why non-doms arent considered tax residents? I think this would probably blow up the setups of thousands of people^^

 

[gnud]

Could you, or someone else, elaborate why non-doms arent considered tax residents? I think this would probably blow up the setups of thousands of people^^

You're not a tax resident as a non-dom in a way that if the business activity, based on which you're receiving the capital gains, was occurring outside of Cyprus and you don't transmit them to Cyprus, they're not taxable in Cyprus. But if the capital gains are arising from Cyprus and you're a resident of Cyprus, they are taxable.

If you're domiciled in Cyprus (aka being born there etc), all capital gains are taxable there.

So as a non-dom you're exonerated from taxes on certain type of capital gains, even though you're otherwise a tax resident there.

 

[Sols]

Could you, or someone else, elaborate why non-doms arent considered tax residents? I think this would probably blow up the setups of thousands of people^^

Non-doms are tax resident. They are just exempt from Special Defense Contribution, which is Cyprus' equivalent to Capital Gains Tax.

I have not found seen any examples out there that match the statement by @qwerty84. The wording in the OECD model tax treaties use the word domicile in a different meaning that the one applied in Cypriot law. Under an OECD model agreement, someone who is non-domicile is effectively the same as non-resident. It's a different concept than the vague sense of "belonging" that's used with non-domicile status regimes found in for example Cyprus.

Maybe there are examples of people using the 60-day residence program for tax residence and struggling to convince a tax authority back home that they are no longer tax resident there. Such edge cases aren't representative of the system in general.

 

[gnud]

btw the same non-dom regime you can find also for example in Malta

So you have already 2 countries within the EU that you can use to optimize your taxes this way.

 

[fortunespeculator]

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.

So he can stay in Dubai for 183 days after buying a house for 750k aed get the resident visa and pay zero tax?

 

[Fulton Abraham Sanchez]

For the LLC US side you will pay no tax but will need to file a report for the IRS for the money paid from the LLC to you.

 

[qwerty84]

I'll explain a little better. You are

Non-doms are tax resident. They are just exempt from Special Defense Contribution, which is Cyprus' equivalent to Capital Gains Tax.

I have not found seen any examples out there that match the statement by @qwerty84. The wording in the OECD model tax treaties use the word domicile in a different meaning that the one applied in Cypriot law. Under an OECD model agreement, someone who is non-domicile is effectively the same as non-resident. It's a different concept than the vague sense of "belonging" that's used with non-domicile status regimes found in for example Cyprus.

Maybe there are examples of people using the 60-day residence program for tax residence and struggling to convince a tax authority back home that they are no longer tax resident there. Such edge cases aren't representative of the system in general.

I'll explain in some more detail. You may be a tax resident under domestic tax laws, but not a tax resident for purposes of the application of the tax treaty because you are only subject to tax from local sources. For example, in the UK - Cyprus tax treaty, this is in article 4 (the residence clause), paragraph 1: "This term, however, does not include any person who is liable to tax in that State in respect only of income or capital gains from sources in that State."
What this means is that you are not protected by the tax treaty, because you are not considered a resident of Cyprus for purposes of the tax treaty. No protection means that other countries can claim residency under their domestic tax laws and levy tax on your income, despite Cyprus considering you a tax resident under domestic law. Now, that does not mean that if you stay in Cyprus the whole year that the other country will levy tax. You will still need to be considered a tax resident under the domestic laws of that particular country, which is typically not the case if you're not there the entire year. But, if you're there 5 months per year, and 2 months in Cyprus, then depending on the criteria for residency in the domestic law, you could very well be considered a tax resident. The tax treaty won't help you then.
In other words, all these structures relying on only 2 months in Cyprus are worth nothing, legally at least.

And all these structures that have a non-Cyprus tax haven company (or a transparent LLC) paying dividends to a non-dom Cyprus tax resident do not work either. Cyprus will consider these companies tax residents of Cyprus and tax them, because their management (you) is in Cyprus. Get a proper tax advisor folks; don't structure in a certain way because you read about it on a board.

 

[lostguy]

you could simply setup the company with a non resident nominee service to avoid to get taxed there. However while non dom companies in cyprus are taxed now too (changed since this thread was created) there is not much to say to the non dome corps.

 

[Sols]

I'll explain in some more detail. You may be a tax resident under domestic tax laws, but not a tax resident for purposes of the application of the tax treaty because you are only subject to tax from local sources. For example, in the UK - Cyprus tax treaty, this is in article 4 (the residence clause), paragraph 1: "This term, however, does not include any person who is liable to tax in that State in respect only of income or capital gains from sources in that State."
What this means is that you are not protected by the tax treaty, because you are not considered a resident of Cyprus for purposes of the tax treaty. No protection means that other countries can claim residency under their domestic tax laws and levy tax on your income, despite Cyprus considering you a tax resident under domestic law. Now, that does not mean that if you stay in Cyprus the whole year that the other country will levy tax. You will still need to be considered a tax resident under the domestic laws of that particular country, which is typically not the case if you're not there the entire year. But, if you're there 5 months per year, and 2 months in Cyprus, then depending on the criteria for residency in the domestic law, you could very well be considered a tax resident. The tax treaty won't help you then.
In other words, all these structures relying on only 2 months in Cyprus are worth nothing, legally at least.

It sounds like you are conflating the 60-day tax residence program with the non-domicile exemption.

Any person who is not Cypriot and who has not lived in Cyprus for a period of 17 years is non-domicile. A specific tax non-domicile exemption certificate can be obtained by anyone who has a Cypriot TIN (TIC). With this exemption, they are exempt from paying SDC/CGT in Cyprus. , This is unrelated to the 60-day tax residence program.

You can live in Cyprus for 17 years, not leave the island a single time, and remain non-domicile. You can stay 60 days per year and be considered tax resident in and to Cyprus , and have the non-domicile exemption. But that does indeed not guarantee you aren't tax resident somewhere else. It's just two different things.

And all these structures that have a non-Cyprus tax haven company (or a transparent LLC) paying dividends to a non-dom Cyprus tax resident do not work either. Cyprus will consider these companies tax residents of Cyprus and tax them, because their management (you) is in Cyprus. Get a proper tax advisor folks; don't structure in a certain way because you read about it on a board.

That is theoretically correct and it's absolutely what people should plan for. But the reality is that tax authorities in Cyprus aren't going after foreigners with foreign companies. So it's incorrect to state that Cyprus "will [...] tax them". They can do it and one day may, but it is not a guarantee at this point.

 

[qwerty84]

you could simply setup the company with a non resident nominee service to avoid to get taxed there. However while non dom companies in cyprus are taxed now too (changed since this thread was created) there is not much to say to the non dome corps.

You could not "simply" down that. You should look into the OECD meaning of "place of effective management". It certainly does NOT include nominee services....

 

[lostguy]

You could not "simply" down that. You should look into the OECD meaning of "place of effective management". It certainly does NOT include nominee services....

who the f... is looking into OECD - you may realize no one here is playing by the OECD rules, you may be on the wrong forum!

 

[qwerty84]

who the f... is looking into OECD - you may realize no one here is playing by the OECD rules, you may be on the wrong forum!

Are you serious? OECD is the leading authority for international tax rules and all of Cyprus' tax treaties are modelled after the OECD model and will be interpreted by the tax authorities in line with their guidance. Yeah, nothing to see. By the way, I'm a certified tax advisor.

 

[ferchina]

I'll explain a little better. You are

I'll explain in some more detail. You may be a tax resident under domestic tax laws, but not a tax resident for purposes of the application of the tax treaty because you are only subject to tax from local sources. For example, in the UK - Cyprus tax treaty, this is in article 4 (the residence clause), paragraph 1: "This term, however, does not include any person who is liable to tax in that State in respect only of income or capital gains from sources in that State."
What this means is that you are not protected by the tax treaty, because you are not considered a resident of Cyprus for purposes of the tax treaty. No protection means that other countries can claim residency under their domestic tax laws and levy tax on your income, despite Cyprus considering you a tax resident under domestic law. Now, that does not mean that if you stay in Cyprus the whole year that the other country will levy tax. You will still need to be considered a tax resident under the domestic laws of that particular country, which is typically not the case if you're not there the entire year. But, if you're there 5 months per year, and 2 months in Cyprus, then depending on the criteria for residency in the domestic law, you could very well be considered a tax resident. The tax treaty won't help you then.
In other words, all these structures relying on only 2 months in Cyprus are worth nothing, legally at least.

And all these structures that have a non-Cyprus tax haven company (or a transparent LLC) paying dividends to a non-dom Cyprus tax resident do not work either. Cyprus will consider these companies tax residents of Cyprus and tax them, because their management (you) is in Cyprus. Get a proper tax advisor folks; don't structure in a certain way because you read about it on a board.

So what is the point of being a non-dom in Cyprus under the 60-day rule if most European countries have that section that does not cover "non-dom" in the tax residence treaty?

for people who travel and want to have a country that gives us the tax residence certificate with only 2 or 3 months of living there and the rest of the time traveling?

Currently I am a non-dom under 60 days, I have a local Cypriot company with a director with his respective salary and an apartment in Cyprus rented for 1 year and I do not have an apartment under my name in my home country of residence.

 

[qwerty84]

So what is the point of being a non-dom in Cyprus under the 60-day rule if most European countries have that section that does not cover "non-dom" in the tax residence treaty?

for people who travel and want to have a country that gives us the tax residence certificate with only 2 or 3 months of living there and the rest of the time traveling?

Currently I am a non-dom under 60 days, I have a local Cypriot company with a director with his respective salary and an apartment in Cyprus rented for 1 year and I do not have an apartment under my name in my home country of residence.

You don't have tax treaty protection, but that does not mean that other EU member states will just tax you. You will need to satisfy the criteria for tax residency under their domestic laws, which is usually either x number of days physically present or having your economic center of life in that country (which is determined based on facts and circumstances). It helps that you have a permanent home in Cyprus, even though you are only there 60 days. If tax authorities in a certain country (like your country of citizenship) take the position that are a tax resident, you can still appeal and go to court and argue that you are not. If you had tax treaty protection however, you would've just been able to apply the criteria in the tax treaty to your situation and the tax authority wouldn't be able to do much because the criteria are less subjective vis-a-vis the "economic center" facts and circumstances type of tests under domestic law. You may very well get away with it, but if you reside in another country more than 60 days or still have a lot of ties with your country of citizenship, legally you're running a risk. Tax residence certificates are usually granted by countries in order to show another country that you have treaty protection. For Cyprus non-doms, it doesn't do that, it only shows other authorities that Cyprus is of the view that you're a tax resident.

 

[ilpablo]

Hey guys, why is Cyprus always mentioned here, despite all these issues, instead of Malta for example?

AFAK you can get a residence in Malta quite easily and pay almost zero taxes on your personal income.

The issue about Malta tho is the cost of the company structure (but tbh in Cyprus it's not much cheaper).

 

[CyprusLaw]

Hey guys, why is Cyprus always mentioned here, despite all these issues, instead of Malta for example?

AFAK you can get a residence in Malta quite easily and pay almost zero taxes on your personal income.

The issue about Malta tho is the cost of the company structure (but tbh in Cyprus it's not much cheaper).

Malta was removed from the FATF grey list just recently. Maltese entities will always be considered as questionable and there will be difficulties with banking etc.

Also the services sector is more developed in Cyprus and therefore it is a safer jurisdiction to do business in.

 

[fortunespeculator]

Are you serious? OECD is the leading authority for international tax rules and all of Cyprus' tax treaties are modelled after the OECD model and will be interpreted by the tax authorities in line with their guidance. Yeah, nothing to see. By the way, I'm a certified tax advisor.

qwerty84 look at his name he is lost already

 

[Koedam]

I'll explain in some more detail. You may be a tax resident under domestic tax laws, but not a tax resident for purposes of the application of the tax treaty because you are only subject to tax from local sources. For example, in the UK - Cyprus tax treaty, this is in article 4 (the residence clause), paragraph 1: "This term, however, does not include any person who is liable to tax in that State in respect only of income or capital gains from sources in that State."
What this means is that you are not protected by the tax treaty, because you are not considered a resident of Cyprus for purposes of the tax treaty.

Non-Doms in Cyprus are being taxed on their worldwide income. Not only from sources in that state. So non-doms do have tax-treaty protection, isn't it?

If you look at page 3 of the Cypriotic Tax Guide 2023 it describes that you are only being taxed on local sources if you are don't fulfill the non-dom requirements.

https://www.mof.gov.cy/mof/tax/taxd...ile/Guide for tax return 2023.pdf?OpenElement