Would this set-up trigger tax residency (in Southern European country)?

[Enrique123]

Hey there

I currently relocated to Cyprus under the Non-Dom program, but wanted to assure that I don't trigger tax residency in my home country in southern Europe.

An overview:

* Ive planned so that I spend more than 60 days in Cyprus and significantly less than 183 days in my home country
* I own a property in my home country but have rented it out (and am delcaring the rent and paying tax)
* I dont rent any other place in my home country
* I use any credit/debit card in my home country
* I am not married and don't have any children
* I am a 50% shareholder of a company in my home country (not involved in the management)
* I have a credit card from this company which I use regularly for flight/hotel bookings (but not locally in my home country)
* I travel regularly and book airbnbs to justify stays in Asia and Europe (spending no more than 183 days in any)

I have tried to do as much research as possible, and unless I am missing something this set-up should ensure that I am not considered a tax resident in my home country.

Does anyone have any thoughts?

Thanks!

 

[AndyAresa]

without knowing the name of your home country it is difficult to share any meaningful thoughts

 

[Enrique123]

Hey AndyAresa - My home country is Spain

 

[ferchina]

Im Spanish and I have the same set up like you in Cyprus

 

[Martin Everson]

An overview:

* Ive planned so that I spend more than 60 days in Cyprus and significantly less than 183 days in my home country
* I own a property in my home country but have rented it out (and am delcaring the rent and paying tax)
* I dont rent any other place in my home country
* I use any credit/debit card in my home country
* I am not married and don't have any children
* I am a 50% shareholder of a company in my home country (not involved in the management)
* I have a credit card from this company which I use regularly for flight/hotel bookings (but not locally in my home country)
* I travel regularly and book airbnbs to justify stays in Asia and Europe (spending no more than 183 days in any)

I would say your not tax resident but the card related to a business you own in Spain where you are a 50% UBO of it could be an issue. If all your income is coming from that Spanish company activity then Spain could still be considered the center of your economic activities. I have no idea where you are using that card and I hope it is not mostly in Spain?

Article 9 section b) is what you need to be worried about (google translation below )

---- quote start

Article 9. Taxpayers who have their habitual residence in Spanish territory.​

1. It will be understood that the taxpayer has his habitual residence in Spanish territory when any of the following circumstances occur:

a) Staying more than 183 days, during the calendar year, in Spanish territory. To determine this period of permanence in Spanish territory, sporadic absences will be computed, unless the taxpayer proves his fiscal residence in another country. In the case of countries or territories considered as a tax haven, the Tax Administration may require proof of permanence in it for 183 days in the calendar year.

To determine the period of permanence referred to in the previous paragraph, temporary stays in Spain that are a consequence of the obligations contracted in cultural or humanitarian collaboration agreements, free of charge, with the Spanish Public Administrations will not be counted.

b) That the main nucleus or the base of its economic activities or interests reside in Spain, directly or indirectly.

It will be presumed, unless there is evidence to the contrary, that the taxpayer has his habitual residence in Spanish territory when, in accordance with the above criteria, the spouse who is not legally separated and the minor children who depend on him habitually reside in Spain.

2. Foreign nationals who have their habitual residence in Spain will not be considered taxpayers, by way of reciprocity, when this circumstance is a consequence of any of the assumptions established in section 1 of article 10 of this Law and the application of specific rules derived from international treaties to which Spain is a party.

---- quote end.

I would get professional tax advice here. As Spanish tax man is aggressive and anti avoidance rules exist.

 

[Enrique123]

I would say your not tax resident but the card related to a business you own in Spain where you are a 50% UBO of it could be an issue. If all your income is coming from that Spanish company activity then Spain could still be considered the center of your economic activities. I have no idea where you are using that card and I hope it is not mostly in Spain?

Article 9 section b) is what you need to be worried about (google translation below )

---- quote start

Article 9. Taxpayers who have their habitual residence in Spanish territory.​

1. It will be understood that the taxpayer has his habitual residence in Spanish territory when any of the following circumstances occur:

a) Staying more than 183 days, during the calendar year, in Spanish territory. To determine this period of permanence in Spanish territory, sporadic absences will be computed, unless the taxpayer proves his fiscal residence in another country. In the case of countries or territories considered as a tax haven, the Tax Administration may require proof of permanence in it for 183 days in the calendar year.

To determine the period of permanence referred to in the previous paragraph, temporary stays in Spain that are a consequence of the obligations contracted in cultural or humanitarian collaboration agreements, free of charge, with the Spanish Public Administrations will not be counted.

b) That the main nucleus or the base of its economic activities or interests reside in Spain, directly or indirectly.

It will be presumed, unless there is evidence to the contrary, that the taxpayer has his habitual residence in Spanish territory when, in accordance with the above criteria, the spouse who is not legally separated and the minor children who depend on him habitually reside in Spain.

2. Foreign nationals who have their habitual residence in Spain will not be considered taxpayers, by way of reciprocity, when this circumstance is a consequence of any of the assumptions established in section 1 of article 10 of this Law and the application of specific rules derived from international treaties to which Spain is a party.

---- quote end.

I would get professional tax advice here. As Spanish tax man is aggressive and anti avoidance rules exist.

Hey there!

Thanks for the reply

Article 9 is clear and aside from the vague "base of economic interests". In this regard it may be beneficial for me to obtain income from other sources other than the company in my home country.

The card related to the business is used mainly to book flights, but not to pay for anything in-person. If this is still a problem I have no problem in cancelling the card altogether

 

[JohnnyDoe]

You would have to convince a court that they are not supposed to take your money. You will not succeed: as a CY non dom, Spain will consider you not resident in CY, and absent any other residence that you can prove you will be considered resident in Spain, even just because of your Spanish citizenship.
You might be lucky though and never attract attention. But luck is not a good strategy.

 

[Enrique123]

You would have to convince a court that they are not supposed to take your money. You will not succeed: as a CY non dom, Spain will consider you not resident in CY, and absent any other residence that you can prove you will be considered resident in Spain, even just because of your Spanish citizenship.
You might be lucky though and never attract attention. But luck is not a good strategy.

Thanks for the response!

Why would I not succeed if:
1- I have tax residency in CY (and have done necessary paperwork to cancel my tax residency in Spain)
2- I don't have a property at my disposal in Spain (and spend significantly less than 183 days in the country, and have flights/bookings to prove stays in other countries)
3- I dont have a wife/kids

In the very worst case: how would the ESP/CY tax treaty help?

 

[JohnnyDoe]

Thanks for the response!

Why would I not succeed if:
1- I have tax residency in CY (and have done necessary paperwork to cancel my tax residency in Spain)
2- I don't have a property at my disposal in Spain (and spend significantly less than 183 days in the country, and have flights/bookings to prove stays in other countries)
3- I dont have a wife/kids

In the very worst case: how would the ESP/CY tax treaty help?

You are not domiciled in Cyprus. Civil law jurisdictions use a different concept of domicile than common law ones, so, in short, being non-dom for Spain means you are not resident in Cyprus, and therefore you are considered resident in Spain. Having a Spanish passport is sufficient for that.
The tax treaty would not help.
You would need to become domiciled in Cyprus.
A non-dom is supposed to have no intention to permanently reside in the country, and this non intention is proof that you did not cut your ties with Spain.

 

[Enrique123]

You are not domiciled in Cyprus. Civil law jurisdictions use a different concept of domicile than common law ones, so, in short, being non-dom for Spain means you are not resident in Cyprus, and therefore you are considered resident in Spain. Having a Spanish passport is sufficient for that.
The tax treaty would not help.
You would need to become domiciled in Cyprus.
A non-dom is supposed to have no intention to permanently reside in the country, and this non intention is proof that you did not cut your ties with Spain.

Let's assume for a second that I wasn't a 50% shareholder of a company in Spain (meaning the only tie I have with Spain is a flat which I rent out and the fact I hold a Spanish Passport).

In this theoretical case, would Spain still consider me a Spanish tax resident?

 

[JohnnyDoe]

Let's assume for a second that I wasn't a 50% shareholder of a company in Spain (meaning the only tie I have with Spain is a flat which I rent out and the fact I hold a Spanish Passport).

In this theoretical case, would Spain still consider me a Spanish tax resident?

Yes

 

[Larin]

There are two factors that will be at play here.

Are you a factual tax resident in Spain?
If you are also a factual tax resident in Cyprus, to which states are you liable to pay tax?

Based on the reading of the following summary: Spain - Individual - Residence

• Have Spain as their main base or centre of activities or economic interests.

Persons who do not meet any of the foregoing criteria are not resident in Spain for tax purposes. In such cases, Spanish-source income and capital gains in Spain are subject to NRIT.

These three concepts are designed to be pretty comprehensive. Given that you are a shareholder of a local company and have a property there, it will be hard to argue that you have no economic interests in the country.

That brings us to the second point of your tax residency in Cyprus. Provided you are a tax resident in both countries, there is a double taxation treaty that came into force in 2014 that can help. It is a pretty modern one so its quite clear: https://www.hacienda.gob.es/Documentacion/Publico/NormativaDoctrina/Tributaria/CDI/BOEIN_Chipre.pdf

Article 4 is what you are looking for. Provided you are a tax resident in both states, you will be considered to be a tax resident in one of the states based on the following:

a) he shall be deemed to be a resident only of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident only of the State with which his personal and economic relations are closer (centre of vital interests);
b) if the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident only of the State in which he has an habitual abode;
c) if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident only of the State of which he is a national;
d) if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

If for example you have a permanent home available to you in Cyprus and your Spanish home is rented out on an annual basis, you would only be considered a tax resident of Cyprus.

I would just add one final note. Based on the PwC tax summary there quite a few anti-avoidance measures in the Spanish tax code and from the look of it, you would still be liable to pay taxes on your Spanish-generated income. So, the entire matter of tax residency is really only important if you derive income from a 3rd country (i.e. not Cyprus, or Spain).

 

[JohnnyDoe]

There are two factors that will be at play here.

Are you a factual tax resident in Spain?
If you are also a factual tax resident in Cyprus, to which states are you liable to pay tax?

Based on the reading of the following summary: Spain - Individual - Residence

• Have Spain as their main base or centre of activities or economic interests.

Persons who do not meet any of the foregoing criteria are not resident in Spain for tax purposes. In such cases, Spanish-source income and capital gains in Spain are subject to NRIT.

These three concepts are designed to be pretty comprehensive. Given that you are a shareholder of a local company and have a property there, it will be hard to argue that you have no economic interests in the country.

That brings us to the second point of your tax residency in Cyprus. Provided you are a tax resident in both countries, there is a double taxation treaty that came into force in 2014 that can help. It is a pretty modern one so its quite clear: https://www.hacienda.gob.es/Documentacion/Publico/NormativaDoctrina/Tributaria/CDI/BOEIN_Chipre.pdf

Article 4 is what you are looking for. Provided you are a tax resident in both states, you will be considered to be a tax resident in one of the states based on the following:

a) he shall be deemed to be a resident only of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident only of the State with which his personal and economic relations are closer (centre of vital interests);
b) if the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident only of the State in which he has an habitual abode;
c) if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident only of the State of which he is a national;
d) if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

If for example you have a permanent home available to you in Cyprus and your Spanish home is rented out on an annual basis, you would only be considered a tax resident of Cyprus.

I would just add one final note. Based on the PwC tax summary there quite a few anti-avoidance measures in the Spanish tax code and from the look of it, you would still be liable to pay taxes on your Spanish-generated income. So, the entire matter of tax residency is really only important if you derive income from a 3rd country (i.e. not Cyprus, or Spain).

It’s all correct, but he is a CY non-dom, which automatically means that his vital interests are not in CY.

 

[Larin]

It’s all correct, but he is a CY non-dom, which automatically means that his vital interests are not in CY.

Tax residency and tax domicility are two different concepts and my comment (along with the tax treaty only made references to tax residency). Cyprus has its own criteria for tax residency (which would trigger the double taxation agreement, as it refers to the tax residency). For posterity, here is the link to the Cyprus tax residency rules (including the '60 day' rule that OP referred to): Cyprus - Individual - Residence

Tax residency and tax domicility are two different concepts and my comment (along with the tax treaty only made references to tax residency). Cyprus has its own criteria for tax residency (which would trigger the double taxation agreement, as it refers to the tax residency). For posterity, here is the link to the Cyprus tax residency rules (including the '60 day' rule that OP referred to): Cyprus - Individual - Residence

Interestingly, looking closer at the Cyprus tax residence, the '60-day rule' includes the requirement to not be considered a tax resident in any other state. So, perhaps, it is worth looking into severing more ties to Spain.

 

[JohnnyDoe]

Tax residency and tax domicility are two different concepts and my comment (along with the tax treaty only made references to tax residency). Cyprus has its own criteria for tax residency (which would trigger the double taxation agreement, as it refers to the tax residency). For posterity, here is the link to the Cyprus tax residency rules (including the '60 day' rule that OP referred to): Cyprus - Individual - Residence

My comment is referred to the Spanish perspective.

 

[Marzio]

I currently relocated to Cyprus under the Non-Dom program

Are you aware that one of the requirements to be considered non-dom in Cyprus is not be considered tax resident in any other country?

 

[Enrique123]

Tax residency and tax domicility are two different concepts and my comment (along with the tax treaty only made references to tax residency). Cyprus has its own criteria for tax residency (which would trigger the double taxation agreement, as it refers to the tax residency). For posterity, here is the link to the Cyprus tax residency rules (including the '60 day' rule that OP referred to): Cyprus - Individual - Residence


Interestingly, looking closer at the Cyprus tax residence, the '60-day rule' includes the requirement to not be considered a tax resident in any other state. So, perhaps, it is worth looking into severing more ties to Spain.

Thanks JohnnyDoe and Larin for taking the time with this - greatly appreciate.

Even though I am not domiciled in Cyprus, I have been granted tax residency by the country. Spain may not accept it, but surely in the event of a dispute between ESP & CY the tax treaty should come into play? Or would CY simply say: "Since ESP considers you to be a tax resident, we void your Non-Dom"

However, Upon reading this link provided by Larin, I still struggle to see how I would be deemed a resident in Spain if I don’t spend more than 183 days, I don’t have a place of residence at my disposal in ESP (it is rented out), I do have a place at my disposal in CY, I don’t have a spouse or children and I can justify boarding cards and AirBnB bookings on international travel for the bulk of the year.

 

[JohnnyDoe]

Thanks JohnnyDoe and Larin for taking the time with this - greatly appreciate.

Even though I am not domiciled in Cyprus, I have been granted tax residency by the country.

Non dom=not resident for Spain. Spain doesn’t care about Cyprus.

Spain may not accept it, but surely in the event of a dispute between ESP & CY the tax treaty should come into play?

Best (fantasy) scenario is that Spain discounts taxes already paid in Cyprus and charges you the difference.

Or would CY simply say: "Since ESP considers you to be a tax resident, we void your Non-Dom"

This is also possible

However, Upon reading this link provided by Larin, I still struggle to see how I would be deemed a resident in Spain if I don’t spend more than 183 days, I don’t have a place of residence at my disposal in ESP (it is rented out), I do have a place at my disposal in CY, I don’t have a spouse or children and I can justify boarding cards and AirBnB bookings on international travel for the bulk of the year.

You are Spanish. Enough for Hacienda to harass you and find every possible way to take your money. That’s the paradigm you should consider when planning your setup.

 

[Martin Everson]

You can take my advice below or leave it. But to leave it you would be making a historic mistake when it comes to aggression of Spanish taxman. Legal precedence matters in Spain as I demonstrated in another thread related to avoiding property taxes.

I would get professional tax advice here. As Spanish tax man is aggressive and anti avoidance rules exist.

Good luck.

 

[Sols]

This is definitely playing with fire. Your ties to Spain remain quite strong, especially being a citizen. Spend 183+ days per year somewhere, claim tax residence there, cut ties to Spain properly, and keep paying whatever taxes you are liable for in Spain on your remaining connections. I'd say your biggest risk comes from not spending 183+ days in a single country.

Are you aware that one of the requirements to be considered non-dom in Cyprus is not be considered tax resident in any other country?

Everyone in the whole world who isn't Cypriot and who hasn't lived in Cyprus for a period of 17 years is non-dom. What I think you're talking about is the 60-day tax residence program, whereby you can be tax resident in Cyprus by only spending 60 days per year there and not be tax resident anywhere else. That's different from being a non-dom.

You would have to convince a court that they are not supposed to take your money. You will not succeed: as a CY non dom, Spain will consider you not resident in CY, and absent any other residence that you can prove you will be considered resident in Spain,

Non dom=not resident for Spain. Spain doesn’t care about Cyprus.

Do you have a source for the claim that Spain doesn't consider people who are resident in Cyprus as non-resident if they claim the non-domicile exemption? It's the second time I hear about it and when I've checked it with lawyers in the alleged countries where this is the case, none have been able to confirm it.

What you're saying is that you can spend 365 days per year in Cyprus, claim non-domicile exemption, and still be taxed as if resident in Spain. From the lawyers I've spoken with, that isn't the case.