HK-CY setup / What do you think?

[D0naldDuck]

Hi guys,
It would be amazing if you would share your thoughts on that setup:‌

1. HK company receives B2C payment from EU customers (service business, so no VAT) through‍ Stripe and paypal to EMI

2. HK Companys 100% shareholder is (natural person) CY resident⁠ (who manages the company from CY)

3. Since there are no CFC rules applicable to⁤ CY residents (or there are thresholds in case it’s a company ), shareholder can⁣ pay himself dividend from HK Company to CY tax free.

My main points are:
1. Will the tax free dividend payment from HK to CY resident work?

2. Is it⁢ right that the HK Ltd doesn’t have to pay VAT here? Why?

I don’t see︀ any showstoppers. What do you guys think?

 

[Marzio]

Go back to the drawing‌ board.

Managing a HK company from CY will make the company taxable as a CY‍ company.

 

[Jerry1911]

They don't enforce it as far as I know? At‍ least not if you're a non-dom

 

[Marzio]

I would not bet on that but i understand‍ different people have different degree of risk tolerance.

 

[Sols]

That is correct. Appoint a (nominee) director in HK‍ or somewhere outside of Cyprus and the tax authorities are very likely to not bother⁠ you.

However, it's not compliant with the law, and it's a risky strategy and can⁤ backfire when/if in the future Cyprus does start to go after tax dodgers.

Consider the⁣ new law coming into effect in January in Cyprus whereby they are closing the loophole⁢ of Cyprus non-resident companies. It's a small step but it's a signal that there is︀ a desire to clean up a little bit.

 

[Marzio]

By appointing a‍ nominee director in HK how is likely that HK will see EU payments as HK⁠ sourced income?

 

[Sols]

It's probably not ideal, especially‍ with HK changing to becoming more China compliant and less of a tax haven. The⁠ IRD has started making it more difficult to get exemption.

Whether income is HK sources⁤ is decided based on six principles. Having a local director in HK would risk triggering⁣ some of those. IRD : A Simple Guide on The Territorial Source Principle of Taxation⁢

 

[Marzio]

So this defies the whole point of this setup, OP will pay less‌ taxes in CY