Withholding tax because there is no double tax treaty (US source income)

[AGOwen]

Hi Guys,

I want to get your opinion!

Citizen: Hungarian
Residence: Malta

Income: I have a few websites that profit from Amazon affiliation + Mediavine ads + booking affiliation. (now 50-60k yearly)

Currently, I am self-employed in Malta however I need to pay a lot of TAX because I am doing the actual activity so there is no workaround that proves the income is coming from outside Malta etc...
No big costs that I can deduct either...

As a solution: I registered myself in UAE as a freelancer and I wanted to move there. Right before canceling my self-employment just noticed the UAE and US have no double tax treaty(the main source of income US) . This means they will hold back 30% of my commission just because of the location. (need to fill W8-BEN) Obviously, if that is the case it's not worth to do it anymore.

Do you suggest any alternatives for UAE? (if I set up a US LLC and get dividends could work? I think withholding tax there as well..)

Another possibility that I was thinking: leave UAE and just canceling it then just moving to Cyprus, set up an LLC applying for non-dom getting the money as a dividend.

Any recommendation most welcome.

Thank you!

 

[Marzio]

Any item in this list is subject to 30% US WHT

Fixed, Determinable, Annual, Periodical (FDAP) Income | Internal Revenue Service

This section defines FDAP income and discusses its tax treatment.

www.irs.gov

As you correctly highlghted moving to UAE will incur in a 30% WHT so it's a not a good choice.

Moving to Cyprus it's a good idea: no US WHT, 12.5% CIT and you could pay yourself a salary up to 19K tax free.

 

[JustAnotherNomad]

(if I set up a US LLC and get dividends could work? I think withholding tax there as well..)

No, and if you'd even risk US tax on top of the withholding tax.

But why can't you set up something similar like the Cyprus structure in Malta? Set up a company in Malta etc.?

Any item in this list is subject to 30% US WHT

Interest paid on bank account balances isn't anymore.

 

[Marzio]

why can't you set up a company in Malta?

Malta has a 10% US WHT on some items of income (for example royalties).

If he doesn't receive royalties he could use a resident, non domiciled company

Interest paid on bank account balances isn't anymore.

Good to know!

 

[Don]

Malta has a 10% US WHT on some items of income (for example royalties).

If he doesn't receive royalties he could use a resident, non domiciled company



Good to know!

What do you think is best jurisdiction for resident non-domiciled company formation, and why?

 

[Marzio]

I'd say UK for the ease, speed, cost of company formation, prestige and banking options immediately followed by Cyprus.

 

[AGOwen]

@Marzio Thanks for your answer.

@JustAnotherNomad thanks for your answer. Could you please clarify what you mean?

According to my information if I register a company I need to pay 35% Tax here in Malta. To get the 5% benefit I need to set up another company example in Cyprus. 2 company costs, audit fees etc will be too much imo

As a person, I will still need to pay high taxes on my salary. Non-taxable income only 9100EUR.

Am I missing something?

 

[Marzio]

Am I missing something?

Yes, you didn't read the link i posted about resident non domiciled company.

 

[AGOwen]

Hi @Marzio,

I did, but tbh not really clear what is written there.

So if I am currently resident in Malta (7 years) and I give back my self-employed status. Then I create a company that would be non-dom because I am not Maltese? Sorry if I ask stupid things, but when I was talking to an accountant he was just asking where the work is done and who does it... Then he told me either Self Employed or a Normal Company setup possible or 1 company here 1 in Cyprus and with this setup, I can reduce 35% => 5% (actually not reduce I can claim it back in the following year)

 

[Marzio]

Then I create a company that would be non-dom because I am not Maltese?

A company which is incorporated outside Malta but has its control and management in Malta will be considered resident but not domiciled in Malta.

Companies which are resident but not domiciled in Malta are subject to tax in Malta on all income and chargeable gains arising in Malta, and on income arising outside Malta which is remitted back to Malta.

No tax is payable on foreign income which is not received in Malta and on capital gains arising outside Malta to a company which is not ordinarily resident and domiciled in Malta, even if remitted to Malta.

By managing an offshore company from Malta that company will be considered resident in Malta because of management and control but not domiciled because wasn't incorporated in Malta and since your income is 100% foreign income you will pay taxes only on the income remitted to Malta.

 

[JustAnotherNomad]

That's actually very interesting. So does this mean you could even incorporate a company in a high-tax country (say, Spain) and then make it tax resident in Malta under the treaty and pay tax only on income that is remitted to Malta? But how do they define "income arising outside Malta"? Is it enough for the client to be located outside Malta? What if you have local staff in Malta working for foreign clients?
If you have staff working outside of Malta, probably you would have a PE in that other country and then the income would be taxable there instead?

 

[Marzio]

But how do they define "income arising outside Malta"?

@CyprusLawyer101 has experience in this setup with a CY non resident LTD, ask him.

 

[JustAnotherNomad]

@CyprusLawyer101 Can you give some details here?

 

[JimBeam]

A company which is incorporated outside Malta but has its control and management in Malta will be considered resident but not domiciled in Malta.

Companies which are resident but not domiciled in Malta are subject to tax in Malta on all income and chargeable gains arising in Malta, and on income arising outside Malta which is remitted back to Malta.

No tax is payable on foreign income which is not received in Malta and on capital gains arising outside Malta to a company which is not ordinarily resident and domiciled in Malta, even if remitted to Malta.

By managing an offshore company from Malta that company will be considered resident in Malta because of management and control but not domiciled because wasn't incorporated in Malta and since your income is 100% foreign income you will pay taxes only on the income remitted to Malta.

Can I get a link to this?
It's quite interesting!

 

[Marzio]

Resident, non-domiciled companies - Corrieri Cilia

The scope of taxation in Malta depends on the person’s residence and domicile. In the Income Tax Act, a ‘person’ is defined as an individual and a body of

corriericilia.com

 

[Radko]

Just for the record, when you becom a non-dom in Cyprus you'll pay taxes on the money remitted, is that simple.
And the U.S. will withhold 15% as specified by the double tax treaty.
Malta is also 15%.