Cyprus Exit taxation and getting out of the EU

[heliotrope]

I've read @Martin Everson in multiple places warning about the EU, get out before it's too late, etc. This poses a slight difficulty to those of us wanting to hedge against Brexit a little by establishing residence in an EU member state before the end of the transition period. (Easier service provision to other EU countries, and possibly beneficial if further rights accrue, via impending ECJ court cases, to those who exercised freedom of movement before the end of the transition period). Not to mention the high probability that the UK will raise corporation and capital gains taxes to pay for Covid.

I plan to set up a CyprusCo mainly for 60d tax residence. I have a UKCo which I will probably close. Remote services business doing low to mid six figures per year. I would take dividends on an ongoing basis and avoid leaving too much cash in the company bank / Transferwise account -- easier taking of dividends is a key advantage versus the UK. Because it's a services business, I'd say there's not much in terms of goodwill, long client lists, advertising, etc. I don't even plan to have a company website.

What can be done to hedge against the exit tax situation? If I open a company in Singapore/Dubai/Georgia while still in Cyprus and transact any business/SaaS where there are more intangible assets to reckon with, would that help?

 

[Martin Everson]

heliotrope said:
What can be done to hedge against the exit tax situation? If I open a company in Singapore/Dubai/Georgia while still in Cyprus and transact any business/SaaS where there are more intangible assets to reckon with, would that help?
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The exit taxation rules for each EU country that adopts the EU ATAD directive needs to be examined carefully. Each country will implement it differently. So your starting place is to see how Cyprus has implemented it. It might not be as bad as how i.e Poland has implemented it. Once you know what the thresholds are in Cyprus you can work under those thresholds for example.

The ATAD directive in general is really aimed at big and medium corps but read the rules first as each country will implement it to try and scalp businesses that try and leave their country.

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[cyprusbanker]

Martin Everson said:
The ATAD directive in general is really aimed at big and medium corps but read the rules first as each country will implement it to try and scalp businesses that try and leave their country.
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do you know a simple exit strategy that may work the next 3 weeks at least with a similar setup as OP think of?

 

[Martin Everson]

cyprusbanker said:
do you know a simple exit strategy that may work the next 3 weeks at least with a similar setup as OP think of?
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No. ATAD in Cyprus was but into law on 19 June 2020 and applied retrospectively to 1 January 2020 according to EY 😕

https://taxnews.ey.com/news/2020-16...nting-exit-taxation-and-hybrid-mismatch-rules
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Exit taxation rules

Scope of application

A company which is tax resident in Cyprus or a non-Cypriot tax resident company which has a permanent establishment (PE) in Cyprus, will be subject to tax at an amount equal to the market value of the transferred assets at the time of exit of the assets, less their value for tax purposes, in any of the following cases:

1. A Cypriot tax resident company transfers asset(s) from its head office in Cyprus to its PE in another Member State or in a third country in so far as Cyprus no longer has the right to tax the transferred assets due to the transfer.
2. A non-Cypriot tax resident company with a PE in Cyprus transfers assets from its PE in Cyprus to its head office or another PE in another Member State or in a third country in so far as Cyprus no longer has the right to tax the transferred assets due to the transfer.
3. A Cypriot tax resident company transfers its tax residence from Cyprus to another Member State or to a third country, except for those assets which remain effectively connected with a PE in Cyprus.
4. A non-Cypriot tax resident company with a PE in Cyprus transfers the business carried on by its PE from Cyprus to another Member State or to a third country in so far as Cyprus no longer has the right to tax the transferred assets due to the transfer.

If a company tax resident in a Member State transfers into Cyprus its assets or its tax residence or its activities carried out through a foreign PE, the starting value of the transferred assets for tax purposes must be equal to the value as determined by the Member State at the point of exit, unless this does not reflect the market value of the transferred assets.

In addition, the exit taxation provisions are not applicable in the case of assets which are expected to return in Cyprus within a period of 12 months provided these assets relate to the financing of securities, assets provided as collateral or when the transfer of assets is made to meet prudential capital requirements or for the purposes of liquidity management.

Payment deferral of the exit tax

In accordance with ATAD I, a taxpayer has the right to defer the payment of an exit tax by paying it in installments over five years provided certain conditions are met.

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[heliotrope]

Difficult to see what kind of assets would be taxed; if one has a services business and pays a small salary and withdraws the rest at 2.65% dividends, what is it they expect to apply exit tax to? And presumably if one strikes the company off that's that.

 

[boomy]

heliotrope said:
And presumably if one strikes the company off that's that.
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doing so will help you to avoid any further troubles in most cases and most countries.

However, if the amount owed to the tax office is high enough you will have to pay it from your own pockets anyway.