Zero Tax Strategy: UAE Company with Cyprus or US LLC

[AtMo]

Hello,

I'm exploring a tax strategy involving a UAE Free Zone Company and a Cyprus company or US LLC. The plan is:

1. Create a Free Zone Company in the UAE (0% tax rate).
2. Set up a company in Cyprus (12.5% tax rate) or a US LLC, whichever is more favorable with banks, especially those with SEPA.
3. Clients pay the Cyprus company or US LLC. Payments will be sent directly from European e-commerce websites, while many of my customers are from the US.
4. Transfer all profits to the UAE company.
I'm under the impression that transferring all profits to the UAE company would result in no taxable income for the Cyprus company or US LLC.

Does anyone have experience with this structure? Are there any potential issues or legal implications I should be aware of? Would banks have any problem with transferring profits to a parent company? Also, if I use a US LLC and my customers are from the US, would I need to pay tax for the US LLC in this case?

Thanks in advance for your insights.

 

[sergeylim88]

in order to "transfer profits" you have to declare them as dividends, meaning you will have to pay those 12.5% in Cyprus. you can not just shift money from one company to another.

In this case UAE company will be some sort of a "holding company", and if you meet the required criteria you will be able to achieve 0% tax in the UAE (otherwise 9%).

previous comment was talking about a case where UAE company owns Cyprus company.

in case you are the owner of both companies, but they are not connected in ownership(one company owns another), then for sure you can't do something like that legally (shifting money from one to another)
it would be against BEPS and Cyprus might go after you if they found out of setup like this

i remember some people were talking about a contract between companies for processing payments, not sure if that would work
maybe someone can shed some light @CyprusLawyer101

(sorry no edit option to edit previous post)

 

[Marzio]

Are there any potential issues or legal implications I should be aware of?

https://en.wikipedia.org/wiki/Base_erosion_and_profit_shifting

 

[AtMo]

in order to "transfer profits" you have to declare them as dividends, meaning you will have to pay those 12.5% in Cyprus. you can not just shift money from one company to another.

In this case UAE company will be some sort of a "holding company", and if you meet the required criteria you will be able to achieve 0% tax in the UAE (otherwise 9%).

previous comment was talking about a case where UAE company owns Cyprus company.

in case you are the owner of both companies, but they are not connected in ownership(one company owns another), then for sure you can't do something like that legally (shifting money from one to another)
it would be against BEPS and Cyprus might go after you if they found out of setup like this

i remember some people were talking about a contract between companies for processing payments, not sure if that would work
maybe someone can shed some light @CyprusLawyer101

(sorry no edit option to edit previous post)

Thank you for the information.

Do you think the situation would be better if I choose US LLC over Cyprus LLC, and UAE company owns 100% of the US LLC, as it is owned by a non US resident,

Should I be able to transfer the profits directly to the UAE company please?

 

[sergeylim88]

situation would be the same.
you could be eligible for 9% tax in UAE, and it could be eligible for US tax too (since it is not owned by physical person).

 

[AtMo]

situation would be the same.
you could be eligible for 9% tax in UAE, and it could be eligible for US tax too (since it is not owned by physical person).

I would open a Freezone UAE company, and my business is 100% online, I do e-commerce on a EU-based website, and payments are paid directly from the website.

So I think I will pay 0% corporate tax in UAE. The reason I want to have a US LLC is for easier banking solutions than a UAE company.

 

[sergeylim88]

we are all well aware of the reasons, but some things changed lately
why are you sure your freezone entity would be 0% tax? is your activity under qualifying income?

 

[AtMo]

we are all well aware of the reasons, but some things changed lately
why are you sure your freezone entity would be 0% tax? is your activity under qualifying income?

I thought all freezone entities are 0% tax if there are no customers from UAE. Is there anything else I should beware of that changed lately?

 

[sergeylim88]

a lot
there is a new corporate tax 9%(from 1st June 2023) for non qualifying free zone companies