Non-EU/EEA foundations and Cyprus residency

[Onassis]

Hello,

Does anyone know how Cyprus treats non-EU/EEA foundations in the context of non-dom residency? I can describe a specific example if needed.

Thanks

Last edited: Apr 22, 2023

 

[Martin Everson]

Can you explain firstly if your question about treatment relates to tax? Secondly please provide the example.

Maybe @CyprusLawyer101 can help here.

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

 

[CyprusLawyer101]

You mean in terms of distributions from the foundations? Maybe if you could elaborate further , better feedback can be provided.

 

[Onassis]

CyprusLawyer101 said:
You mean in terms of distributions from the foundations?
Click to expand...

Here's the example:

Let's say that a person (who is at the time not a tax resident of Cyprus) sets up an irrevocable discretionary foundation in Panama and endows it with cash that the professional councillor uses to invest in stocks and ETFs.

The founder then moves to Cyprus and becomes a non-dom tax resident. The broker is informed and the brokerage account gets reported to Cyprus as it is a passive NFE.

Scenario #1: The founder does not receive any distributions but the Cypriot tax authorities are aware of the account due to CRS. Would they ask any questions?

Scenario #2: The founder at some point receives one or more distributions from the foundation. How would these be taxed?

Thank you

Last edited: Apr 22, 2023

 

[CyprusLawyer101]

Onassis said:
Here's the example:

Let's say that a person (who is at the time not a tax resident of Cyprus) sets up an irrevocable discretionary foundation in Panama and endows it with cash that the professional councillor uses to invest in stocks and ETFs.

The founder then moves to Cyprus and becomes a non-dom tax resident. The broker is informed and the brokerage account gets reported to Cyprus as it is a passive NFE.

Scenario #1: The founder does not receive any distributions but the Cypriot tax authorities are aware of the account due to CRS. Would they ask any questions?

Scenario #2: The founder at some point receives one or more distributions from the foundation. How would these be taxed?

Thank you
Click to expand...

1. No unprovoked questions are expected to be asked;
2. These should either be recognized as dividend distributions or capital distributions. As a non dom in either case no SDC tax is expected to apply, however prior to final conclusion the treatment of the foundation as an investment vehicle both from the point of view of the set up country( as withholding tax may apply ) as well as from the point of Cyprus should be looked at ( maybe it could be treated as a transparent vehicle, although again tax treatment should be the same even if income is recognized as dividend or interest. All in all it appears that you get it clean with taxes, but probably you will have to pay national health insurance in the event you get a dividend characterization.

Last edited: Apr 23, 2023

 

[Onassis]

Sounds good. Thank you.