Cyprus non dom + offshore company, most tax efficient setup?

[Researcher]

I thought about this: what if EU individual gets Cyprus non dom status and tax residency in Cyprus and then upkeeps an offshore company, let's say in UK, USA or other jurisdiction...won't that be most tax efficient setup? Because if this offshore company hires no employees and pays out purely dividends to Cyprus non-dom, then these dividends won't get taxed. Is this the correct idea?

 

[Sols]

This been discussed dozens of times. Should be able to find a lot of threads with people sharing their experiences

UK company is a bad example because it's tax resident and taxable in UK by simply being incorporated there.

US LLC is also not a good example because income from an LLC may be considered salary/income rather than dividends, as LLCs aren't taxable entities that issue dividends.

But if you form a company in for example BVI or some other place with no corporate tax, the theory is that the company may end up tax resident in Cyprus (and be taxed like a Cypriot company) due place of effective management and control being in Cyprus. The reality is that the Cypriot authorities aren't lifting a finger to pursue otherwise well behaved non-doms and their offshore companies. A lot of people are doing what you suggest and no one bats an eye.

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[Researcher]

Sols said:
This been discussed dozens of times. Should be able to find a lot of threads with people sharing their experiences

UK company is a bad example because it's tax resident and taxable in UK by simply being incorporated there.

US LLC is also not a good example because income from an LLC may be considered salary/income rather than dividends, as LLCs aren't taxable entities that issue dividends.

But if you form a company in for example BVI or some other place with no corporate tax, the theory is that the company may end up tax resident in Cyprus (and be taxed like a Cypriot company) due place of effective management and control being in Cyprus. The reality is that the Cypriot authorities aren't lifting a finger to pursue otherwise well behaved non-doms and their offshore companies. A lot of people are doing what you suggest and no one bats an eye.
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Thanks, super helpful! Which jurisdictions are mostly used for this? BVI? Which else? BVI has negative stigma against it

 

[Sols]

Researcher said:
Thanks, super helpful! Which jurisdictions are mostly used for this? BVI? Which else? BVI has negative stigma against it
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AFAIK, BVI is the most common. Then it's a mix of all the usual suspects: Hong Kong, Mauritius, Seychelles, Belize, and so on.

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[Researcher]

Sols said:
AFAIK, BVI is the most common. Then it's a mix of all the usual suspects: Hong Kong, Mauritius, Seychelles, Belize, and so on.
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It's easy to open companies in those countries, but getting a bank account may prove problematic, no? Last I heard banks shun companies from "grey" jurisdictions

 

[Sols]

Researcher said:
It's easy to open companies in those countries, but getting a bank account may prove problematic, no? Last I heard banks shun companies from "grey" jurisdictions
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That's over simplification. Banks only shun companies from gray jurisdictions if the bank's revenue doesn't match the risk they take. Onboarding a typical offshore company take up a lot more time and people resources, including the extra ongoing monitoring.

EMIs tend to have more flexible pricing than banks, so they can more easily crank up the fees until it makes financial sense for them to onboard an offshore company.

If the only weak aspect in an applicant is the place of incorporation and everything else is low risk, you might have a decent chance even with some banks. A good CSP can make a difference, too, if you also appoint them as directors of your BVI company.

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This is the probably the answer to your question.

 

[Researcher]

Sols said:
That's over simplification. Banks only shun companies from gray jurisdictions if the bank's revenue doesn't match the risk they take. Onboarding a typical offshore company take up a lot more time and people resources, including the extra ongoing monitoring.

EMIs tend to have more flexible pricing than banks, so they can more easily crank up the fees until it makes financial sense for them to onboard an offshore company.

If the only weak aspect in an applicant is the place of incorporation and everything else is low risk, you might have a decent chance even with some banks. A good CSP can make a difference, too, if you also appoint them as directors of your BVI company.
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Pardon the ignorance, what is a "CSP"?
And do you know any EMIs that are more lenient toward offshore companies? Revolut, N26, Paysera, Wise?

 

[Sols]

Researcher said:
Pardon the ignorance, what is a "CSP"?
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Corporate services provider.

Researcher said:
And do you know any EMIs that are more lenient toward offshore companies? Revolut, N26, Paysera, Wise?
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Wise, Revolut, and Paysera do from time to time accept companies from these kinds of jurisdiction.

Currenxie, Airwallex, Statrys, RD Technologies, Statrys, WorldFirst, Fazz, and Aspire can often work if you're incorporated in Hong Kong, Singapore, Labuan, or elsewhere in Asia.

Within Europe, there is a wide range of EMIs that have a higher risk appetite. I've listed them before many times. Just to rattle of a few I know to open accounts for offshore companies: Zen.com, Verifo, 3S.Money, GuruPay, Connectpay, Genome, Sepaga, Klarpay, Nexpay, IBS, Interpolitan Money, Payset, PayAlly, Wallter, Narvi, EcommBX, WireBloom, Intergiro, FinXP, Bilderlings, VertoFX, and more... Availability varies. Do your own due diligence.

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[GrumpyMess]

Sols said:
The reality is that the Cypriot authorities aren't lifting a finger to pursue otherwise well behaved non-doms and their offshore companies. A lot of people are doing what you suggest and no one bats an eye.
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What if one day they will send the letters that you owe them several bags of money? Especially now they can do this when many people use this structure. May be there is a legal loophole about which we are not aware, but repeating someone's structure just because they haven't been caught yet doesn't seem very reliable.

 

[Sols]

GrumpyMess said:
What if one day they will send the letters that you owe them several bags of money? Especially now they can do this when many people use this structure.
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That's about as likely to happen as the opposite is to happen: for example the Swedish or Canadian tax authority deciding to not question wealthy foreigners' offshore income.

If you come from a typical tax hell and haven't spent much time in places where tax authorities prioritize coffee breaks over tax collection, I understand it's hard to believe how things work in places like Cyprus, Malta, and others.

They wrote laws specifically carving out exceptions for non-doms. That's a pretty clear signal about where their current and future concerns are.

Things move slowly in these places. If things are going to change, there will in all likelihood be plenty of warning, and time for people to leave or regularize their affairs.

GrumpyMess said:
May be there is a legal loophole about which we are not aware, but repeating someone's structure just because they haven't been caught yet doesn't seem very reliable.
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It's a good thing it's entirely optional. A lot of people in Cyprus choose to incorporate in Cyprus and pay the 12.50% CIT.

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[ShillGates]

if cyprus and malta will change their stance - 75% of the islands economy will be relocated. Not going to bite the hand that gives. they need the cash there so people buy fancy stuff.

 

[GrumpyMess]

ShillGates said:
if cyprus and malta will change their stance - 75% of the islands economy will be relocated. Not going to bite the hand that gives. they need the cash there so people buy fancy stuff.
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Some will leave, but some will stay, and getting 12.5 + 2.65% is better than 2.65 alone. On the other hand they may not even see all the numbers now as EMI don't send the crs reports, but things will change in 2026. I'm very skeptical on such setup. Life in Cyprus or Malta is too good to pay 0 taxes.

 

[Gediminas]

Researcher said:
I thought about this: what if EU individual gets Cyprus non dom status and tax residency in Cyprus and then upkeeps an offshore company, let's say in UK, USA or other jurisdiction...won't that be most tax efficient setup? Because if this offshore company hires no employees and pays out purely dividends to Cyprus non-dom, then these dividends won't get taxed. Is this the correct idea?
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Hey,

In short ”“ no, legally it should not work.

But in practice, it might be possible to maneuver.

Cyprus applies the Permanent Establishment (PE) rule which says that if you reside in Cyprus and manage an offshore company from Cyprus it should pay local corporate income tax. On the other hand, in practice Cypriot tax authorities are not very aggressive so many individuals manage to live with such a structure, especially if they don't live all year in Cyprus.

US LLCs (disregarded for tax purposes) or HK companies are non-resident companies (if they don't pay local tax). I would not advise to use them in such structure. Having a nonresident company means it is not managed from the US, or HK (that's why such companies don't pay local tax), so it speaks for itself that it should be managed from somewhere. It means that PE risk is high.

It would work better with Dubai or another country where the company has tax resident status especially if you come to this country a few times per year.

I hope this helps.

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[GrumpyMess]

Gediminas said:
But in practice, it might be possible to maneuver.

Cyprus applies the Permanent Establishment (PE) rule which says that if you reside in Cyprus and manage an offshore company from Cyprus it should pay local corporate income tax.
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Gediminas said:
It would work better with Dubai or another country where the company has tax resident status especially if you come to this country a few times per year.
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I appreciate your answer. If I get you right any company with a tax residence certificate will work in case of Cyprus? If we don't take into account Dubai, which has now lost all its benefits with a 9% tax, then what about Malta with 5%? Or maybe another maneuver?

 

[JimBeam]

GrumpyMess said:
I appreciate your answer. If I get you right any company with a tax residence certificate will work in case of Cyprus? If we don't take into account Dubai, which has now lost all its benefits with a 9% tax, then what about Malta with 5%? Or maybe another maneuver?
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Dubai is 9% but first 100k is tax free so you make 300k profit you pay tax on 200k meaning your effective tax is 6%. Also salaries are tax exempt so paying out a salary lowers your tax + many expenses (even personal one) can be tax deductible. So it's not "dead" it's not just that "simple" as it used to be. Still no dividend tax (Cyprus 2.65%) etc. It clearly hasn't lost all of it's benefits.

Cyprus is good option but in my personal experience more expensive than Dubai and Malta is probably the worst one.

Things are quite complex on Malta and to get to 5% is not an easy task. I have no personal experience with Malta (so if this is not correct feel free to correct me) but as far as I have understood you need to pay the 35% tax and than wait (up to 2 years !?!?) to get 6/7 (30%) of the tax back so than the effective rate is 5%.

 

[Sols]

JimBeam said:
Things are quite complex on Malta and to get to 5% is not an easy task. I have no personal experience with Malta (so if this is not correct feel free to correct me) but as far as I have understood you need to pay the 35% tax and than wait (up to 2 years !?!?) to get 6/7 (30%) of the tax back so than the effective rate is 5%.
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Not anymore. That's how it used to be years ago, except the wait time was rarely more than a few weeks or a couple of months at most. Nowadays, you can form what's called a fiscal unit and get to 5% right away.

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[GrumpyMess]

Sols said:
Not anymore. That's how it used to be years ago, except the wait time was rarely more than a few weeks or a couple of months at most. Nowadays, you can form what's called a fiscal unit and get to 5% right away.
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What are the annual expenses for this fiscal unit? Can such a setup be used in case of Cyprus non dom?

 

[Sols]

GrumpyMess said:
What are the annual expenses for this fiscal unit?
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It varies a lot, between service providers and based on what goes on in your fiscal unit. I'd say 5”“15,000 EUR setup and annual costs

GrumpyMess said:
Can such a setup be used in case of Cyprus non dom?
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Someone who is non-domiciled resident in Cyprus could have a fiscal unit in Malta, yes. You have the same problem/risk as forming a company in BVI. Place of effective management and control are in Cyprus, so there's a risk of tax residence there.

In your hypothetical scenario where the Cyprus tax authority is going after non-doms and their offshore companies, why would they leave a Malta company alone?

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[MarkusCostigan]

Sols said:
Not anymore. That's how it used to be years ago, except the wait time was rarely more than a few weeks or a couple of months at most. Nowadays, you can form what's called a fiscal unit and get to 5% right away.
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Yes but you need to have 3 companies. It is ONLY worth it with important turnovers. The costs always go up every year and anyway, in the end you get "trapped" in a crazy bureaucracy. However, yes, with the fiscal unit the refund is fast and you actually pay 5%.

Your business life will be totally determined by the accountant you rely on.

Last edited: Mar 6, 2024

 

[MarkusCostigan]

Sorry for the double post, I wrote "with the fiscal unit the refund is fast" wrongly. There is not refund actually, with "fiscal unit" you pay DIRECTLY 5%.