How to avoid creating Permanent Establishment in Europe?

[FixieHartmann]

(this is based on US tax residency + Apartment in Spain)

Do you know of any country in or close to (max. 4-5h flight time) Europe where I could work full-time for a European company without running into the issue of creating a permanent establishment?

Of course it wouldn't hurt if the self-employment tax is reasonable and I'd definitely need to be close to an airport because I will need to fly to the HQ of the company about once a month (but I don't want to live in that country).

I am not a big fan of Dubai or the eastern European countries (e.g. Bulgaria) and I am not rich enough for Monaco.
Cherry on top would be if this country wouldn't have an exit tax, but this is not a must have.

I'd love to hear your ideas / suggestions!

 

[Sols]

Is there a reason why you don't just want to set up a permanent home‌ base in Malta or Cyprus?

You can quite easily achieve 5% corporate tax in Malta,‍ even 0% is possible in some circumstances. Thereafter, you are taxed on a remittance basis,⁠ meaning only what you bring into Malta is taxed.

In Cyprus, you're looking at a⁤ total tax burden of 12.50% corporate tax on profits and then around 2.65% in social⁣ security contributions (capped at around 4,800 EUR/year). You can pocket everything. No further taxes.

 

[CyprusLawyer101]

Cyprus is indeed a good option as Sols mentions. With respect to whether a PE‌ is created, this should depend on the type of activity you will be carrying in‍ the country of residence. In essense if you are not conducting any sales in the⁠ country fo residence a PE is unlikely to be created. Also if you choose Cyprus⁤ as your country of residence there might be an opportunity to qualify for 0% tax⁣ on income generated from salaried services to your employer. If Cyprus could be in your⁢ plan, let me know and I can PM you to further the discussion.

 

[Don]

Are you saying there are no employment taxes in Cyprus?
Georgia and Armenia︉ could be interesting and low tax choices.

 

[FixieHartmann]

Malta and Cyprus are definitely options that I consider, however for︀ me it is not too much about the total tax rate (even though of course︁ lower is better) but more about not causing any issues for my employer.

If PE︂ risk can be avoided in Malta and Cyprus then they would be the obvious candidates.︃

Let’s discuss here so that everyone can benefit 🙂

Are you aware of︋ any measures that can be done to further diminish the risk of creating a PE?︌ I’d definitely don’t do sales, so that is not an issue but is there something︍ else? Could we get a binding statement from the authorities that PE is not an︎ issue?

How would 0% as employee work?

I also wouldn’t mind setting up a company️ in Cyprus if that makes everything easier.

 

[Sols]

No, I'm saying there are no payroll taxes if you are a non-domicile resident in‍ Cyprus whose sole source of income is dividends.

Maybe I missed something in this or the⁢ previous thread, but what problem is there for your employer in case you have a︀ PE in Cyprus/Malta?

If your employer terminates your current employment, you move to Cyprus/Malta, you︁ form a new company there, and then the employer contracts your company as a consultant︂ or some other type of B2B service provider, what risks do you perceive for yourself︃ or the company you provide services to?

 

[FixieHartmann]

AFAICT if Malta or Cyprus would argue that me living⁢ there would create a PE that would result in the company of my employer becoming︀ tax resident in the jurisdiction and having to file corporate tax returns etc. This is︁ what I would like to avoid.

If this can be avoided by forming a new︂ company that would be great.

However, either me or my Cyprus / Malta company will︃ own substantial shares in the operating company (probably 25-45%), which - if my understanding is︄ correct - definitely increases the risk of the tax authorities arguing for a PE because︅ of the fact that a manager of the operating company lives full-time on the island︆ (even if the person is paid through invoices from a local company).

I hope that︇ clarifies it.

 

[myhand]

Why not setup a company in Dubai, 0% corporate tax. You can live somewhere else‌ for instant in Cyprus or where the personal income tax is low i.e. Switzerland.

Following the flag theory would not hurt your plans.

 

[FixieHartmann]

Well, if⁠ I set up a company without substance in Dubai and live in Cyprus then CFC⁤ rules will come into place and the company will become tax resident of Cyprus? Cyprus - Corporate - Group taxation

According to my understanding living in country a) but having⁣ a company in an offshore tax haven b) only works if you have a good⁢ amount of substance in country b).

 

[myhand]

you want to⁠ setup this with substance! Speak with @Fred he may have a package that fits.

 

[FixieHartmann]

Well, let's see but I don't think my‍ income would be high enough for a Dubai setup with substance 😉

 

[myhand]

You should be more clear. Do you have a job at McDonalds? you don't wrote‌ anything about you income so you expect us to know what your income is.

So I will make it easy for you:

low income = stay home, mind your job‍ at McD
high income = speak with professionals and mindwise people like you do here⁠ and contact some of them

 

[Marzio]

Have you scraped the whole US residency and US LLC part?

Now will you be an‌ employee of a EU company?

 

[FixieHartmann]

The income will likely be⁣ in the low 6 digits.

I am still working on my US residency but it'll take a while. I︁ do have a US LLC but it is not in use. I am considering becoming︂ co-founder of a EU tech startup.

 

[Marzio]

Which country the company will be incorporated?

I'm asking because maybe it could beneficial for‍ the EU startup to form a PE in another country (where you want to reside)⁠ if the taxe in that country are lower than the EU country of incorporation.

 

[Sols]

I understand the risk now. However, if we're talking about Malta or Cyprus,︂ it's not really a meaningful risk. If the company has a base of operations somewhere︃ else (in EU or not) and is tax resident there, Malta or Cyprus are both︄ extremely unlikely to seek to tax that company. They will be content with just your︅ own company.

Tax residence in Cyprus is quite simple. If the company is tax resident︆ somewhere else, it's not tax resident in Cyprus. Speak with @CyprusLawyer101 since he's already in︇ the thread.

Malta is less clear in its definition but I don't see it being︈ a meaningful risk there either.

 

[CyprusLawyer101]

Yes, there are measures that can be undertakrn, however initially︃ your personal circumstances must be assessed i.e. where is your employer based, what is the︄ operation, what part of that operation you are working on, the existence or not of︅ a tax treaty between Cyprus and the country of employer etc.

 

[TheCryptoAnt]

Cause hes⁠ American

 

[myhand]

Yeah but if he give up his American citizenship and renounce it somewhere else it‌ may still work.

There is so much information missing from him that it's impossible to‍ give any true answer to his case. All will be speculation and, yeah, simple discussions.⁠

 

[FixieHartmann]

What else would you like to know?

As stated earlier,⁤ I am working on my US residency / Green Card, so (obviously) I am not⁣ American.