Will Cyprus ND make a non-Cyprus company tax liable in Cyprus?

[pastet89]

Not exactly related to Cyprus company itself but I figured this is the best way to post this.

I am sick and tired of trying to deal with shady banana republics.

For this reason I now consider incorporating in Gibraltar (for crypto trading on own account, without license). At least it has better reputation. But the agent told me they can't provide a Gibraltar ND and a Cyprus' one.

So I need to know: if I have my tax residency in Bulgaria, own the Gibraltar company with a Gibraltar address, but it has a Cyprus ND, will this make any of us (the company, me, or the ND) tax liable in Cyprus? Also, can I take it as a general concept and apply to other jurisdictions apart from Gibraltar as well (does it matter if the company jurisdiction have a DTA with Cyprus or not)?

Of course I would seek legal advice to confirm that. But it seems there are many people around highly experienced with Cyprus. So if anyone from you confirm it won't work this way there is no need even to research further.

Many thanks in advance

 

[CyprusLawyer101]

In theory could create room for challenge by Cypriot authorities, in practice there is no risk.

 

[pastet89]

In theory could create room for challenge by Cypriot authorities, in practice there is no risk.

Thanks!

Could you share more about the "theory" please?

Is there a legal base for the tax office to claim it and if yes, what?

 

[CyprusLawyer101]

Thanks!

Could you share more about the "theory" please?

Is there a legal base for the tax office to claim it and if yes, what?

Tax residency based on Management and control

 

[pastet89]

Tax residency based on Management and controlt

So this is PE and not CFC, right? As CFC applies to company owners and the Cyprus person is not an owner.

If it is PE, please correct me if I am wrong but it should be a concern only if there is a DTA with the corresponding jurisdiction. At least in my country it's this way.

 

[CyprusLawyer101]

So this is PE and not CFC, right? As CFC applies to company owners and the Cyprus person is not an owner.

If it is PE, please correct me if I am wrong but it should be a concern only if there is a DTA with the corresponding jurisdiction. At least in my country it's this way.

Its not CFC nor PE. There might be a PE risk but that is purely circumstantial. Its management and control risk based on the practice of the tax office to render companies having locals as directors to fulfill the management and control test. But this in practice should not apply in the instance you are making reference to.

 

[pastet89]

OK, but is it that:

- They can run the management and control test and if they run it they will have the right to make me tax liable, but I hope they won't do it.

OR

- In theory they can run it, but in practice even if they run it for my case, as we are talking about Nominee and not a really effective Director, it won't pass the test (so I don't need to hide anything)?

 

[CyprusLawyer101]

OK, but is it that:

- They can run the management and control test and if they run it they will have the right to make me tax liable, but I hope they won't do it.

OR

- In theory they can run it, but in practice even if they run it for my case, as we are talking about Nominee and not a really effective Director, it won't pass the test (so I don't need to hide anything)?

You cannot foresee what their decision would be IF they check it, but if they do more chances are it falls within your 2nd option above.

 

[algotrader]

Another question is whether corporate cryptotrading profits are cosidered taxable by Cyprus tax authorities. While forex profits are taxable at 12.5% it is not clear to me whether this also applies to ETNs (exchange traded notes), ETFs, Futures or CFDs on Crypto (or currencies).
But according to the following article it probably applies:

Cyprus income tax view, which is not yet written anywhere - but verbally confirmed on numerous occasions, is that all financial instruments tied up to cryptocurrencies are not considered securities and as a result they are taxed as normal trading income.

The income tax office has explicitly stated in numerous occasions that the definition of securities excludes cryptocurrencies and that the cryptocurrencies are not expected to be included in a revised list.

Consequently, all transactions affecting Cryptos if a trading activity takes place should be included in the tax computations and taxed under corporation tax. It can be argued that CFDs, Futures etc of bundled packages where Cryptos and other securities are grouped together and result to returns by investment banks and firms can be treated as securities; it is our view that the approach to be adopted in this case is to apportion the income attributed to cryptocurrencies and tax is accordingly whilst exclude the % of income which is generated by non-taxable activities.

Cyprus Crypto Tax For Companies And Individuals - Sales Taxes: VAT, GST - Cyprus

One of the biggest advantages of Cryptocurrencies is that they are decentralised which is important for tax purposes as it implies that the tax treatment of the profit...

www.mondaq.com

 

[pastet89]

You cannot foresee what their decision would be IF they check it, but if they do more chances are it falls within your 2nd option above.

Thank you sir. Blessings!

 

[shizui04421]

Not exactly related to Cyprus company itself but I figured this is the best way to post this.

I am sick and tired of trying to deal with shady banana republics.

For this reason I now consider incorporating in Gibraltar (for crypto trading on own account, without license). At least it has better reputation. But the agent told me they can't provide a Gibraltar ND and a Cyprus' one.

So I need to know: if I have my tax residency in Bulgaria, own the Gibraltar company with a Gibraltar address, but it has a Cyprus ND, will this make any of us (the company, me, or the ND) tax liable in Cyprus? Also, can I take it as a general concept and apply to other jurisdictions apart from Gibraltar as well (does it matter if the company jurisdiction have a DTA with Cyprus or not)?

Of course I would seek legal advice to confirm that. But it seems there are many people around highly experienced with Cyprus. So if anyone from you confirm it won't work this way there is no need even to research further.

Many thanks in advance

i have been waiting 4 months to open an LLC on giblatar

 

[pastet89]

i have been waiting 4 months to open an LLC on giblatar

@shizui04421
That sounds terrible! May I ask the reason and which agent are you using?

 

[shizui04421]

@shizui04421
That sounds terrible! May I ask the reason and which agent are you using?

no sorry, i dont want to give bad reputation, they are helping me tho, now we moved to hong kong, they said that in 2023 lot of stuffs changed and now making giblatar llc is much harder

 

[pastet89]

You cannot foresee what their decision would be IF they check it, but if they do more chances are it falls within your 2nd option above.

Speaking about risks, I just found this on PWC (I find it quite reliable actually for all the info there overall):

Cyprus - Corporate - Taxes on corporate income

Detailed description of taxes on corporate income in Cyprus

taxsummaries.pwc.com

A non-Cyprus tax resident company is taxed on income accrued or derived from business activity that is carried out through a PE in Cyprus and on certain other income arising from sources in Cyprus.

Isn't this true? If yes, provided the company has no business happening on Cyprus territory and no Cyprus sourced income, it should be tax-free, shouldn't it?

 

[JustAnotherNomad]

He was talking about this - the first sentence.

Cyprus - Corporate - Corporate residence

Detailed description of corporate residence rules in Cyprus

taxsummaries.pwc.com

 

[pastet89]

He was talking about this - the first sentence.

Cyprus - Corporate - Corporate residence

Detailed description of corporate residence rules in Cyprus

taxsummaries.pwc.com

The honorable gentleman said there is a risk because of Tax Residency due to Management and control.

I don't deny the fact there will be a tax residency based on this.

But my initial question was about tax liability, which seems, if PWC is correct, even if tax residency is there, to be no risk unless there is Cyprus-based income.

Please correct me if I am wrong sir.

 

[JustAnotherNomad]

You just have to combine the first two sentences of the two links:

A company is tax resident of Cyprus if it is managed and controlled in Cyprus.

All companies that are tax residents of Cyprus are taxed on their income accrued or derived from all sources in Cyprus and abroad.

 

[pastet89]

You just have to combine the first two sentences of the two links:

Yes, but the second sentence from the second link clarifies that the non-Cyprus income for non-Cyprus resident companies would be tax liable only if earned through PE in Cyprus:

A non-Cyprus tax resident company is taxed on income accrued or derived from business activity that is carried out through a PE in Cyprus and on certain other income arising from sources in Cyprus.

Therefore =>

a non-Cyprus company managed from Cyprus:
1) Is tax resident
2) Is taxable on "income arising from sources in Cyprus"
3) is taxable on worldwide income ONLY " from business activity that is carried out through a PE in Cyprus"

Therefore =>

A non-Cyprus company with a Cyprus director, which has no business activity in Cyprus (for example, crypto trading carried on abroad), and no Cyprus sourced income, will have no tax liability in Cyprus.

 

[I'mRobot]

no sorry, i dont want to give bad reputation, they are helping me tho, now we moved to hong kong, they said that in 2023 lot of stuffs changed and now making giblatar llc is much harder

They are helping you too while they take 4 month for a simple task to register a Gibraltar company? Is the failure on your end?

 

[JustAnotherNomad]

A non-Cyprus tax resident company is taxed on income accrued or derived from business activity that is carried out through a PE in Cyprus and on certain other income arising from sources in Cyprus.

Highlighted it for you.

You're lucky I'm bored.

It works like this (in theory - in practice they probably don't care in Cyprus):

1. Is the company managed and controlled in Cyprus (no matter where it was registered)? If yes, the company is tax resident in Cyprus.
2. Is the company incorporated in Cyprus and not tax resident in any other country (under that country's rules)? If yes, the company is tax resident in Cyprus.
3. If the answer to both 1. and 2. is "no" (i.e. the company is not managed and controlled from Cyprus and, if it's a CY company, some other country claims it as tax resident under that country's rules): The company is not tax resident in Cyprus.

4. If the company is tax resident in Cyprus (either 1 or 2 answered with "yes"), then all income that the company has is taxed in Cyprus - unless a tax treaty says otherwise.
5. If the company is not tax resident in Cyprus (both 1 and 2 answered with "no"), then only the income that is earned through a PE in Cyprus is taxed in Cyprus.


What does this mean (in theory - the practice can be different in Cyprus):

Company A is registered in the Seychelles.
But its owner and director lives in Cyprus all year. He rents an office in Cyprus in the company's name where he meets clients and does all the work for the company.
He also has an employee in Japan (there is no tax treaty with Japan). The person is employed directly by the Seychelles company and there is an office in Japan that is rented in the company's name where the employee meets clients and works.
This company is clearly managed and controlled in Cyprus and it will be taxed just as if the company was registered in Cyprus.
All company profits, including the profits generated by the employee in Japan, are taxed in Cyprus. On top of that, the profits generated in Japan are probably also taxed in Japan under the Japanese rules (there would likely be double taxation), but that's not our focus here.

Company B is registered in Japan.
Its owner lives in Japan all year. He rents an office in Japan in the company's name where he meets clients and does all the work for the company.
He also has an employee in Cyprus (there is no tax treaty with Cyprus). The person is employed directly by the Japanese company and there is an office in Cyprus that is rented in the company's name where the employee meets clients and works.
This company is clearly not registered in Cyprus and also not managed and controlled from Cyprus - the employee in Cyprus is just an employee, he doesn't manage the company.
There is a permanent establishment (office) in Cyprus. For this reason, Cyprus can tax all profits that the "CY office" makes for the company. However, since the company isn't tax resident in Cyprus (since it's not managed or controlled from Cyprus), the income generated in Japan or any other country is not taxed in Cyprus.
Japan might still also tax the company profits generated in Cyprus (not sure about the Japanese rules), then there could be double taxation. But again, not our focus here.

I hope it's clearer now.