SaaS in Cyprus with IP Box 2,5%, substance and POEM questions

[Merowinger]

Greetings to all of you. I am GER and tax resident and currently working on a SaaS software, which I would like to offer B2C through a website, the company would start from 0. As Cyprus offers 2.5% IP box for such a business, it seems to be the smartest decision. I can't relocate to Cyprus due to personal circumstances at least for the next few years. I have several questions:

• Substance requirement. The company will create real revenue, I understand that it needs an office space with internet, phone and so on. Yet it is important to be absolutely compliant with POEM, place of effective management to only get taxed in Cyprus. How hard and expensive it is to set this up? Nominee director would probably not be sufficient in case of a control.
  
  
  
• Timing and initial cost reduction: How early should I establish everything needed for the full 100% substance? Is this immediately expected, the company would grow from 0.
  
  
  
• I plan to give some programming tasks to companies or freelancers located in Cyprus. Just few thousands of Euro, but this should help?
  
  
  
• Accounting: I saw very high prices per item for accountants on Cyprus. This would ruin all the tax advantage, as the SaaS subscription ( the only product price) would not be more than 100 Euro. The accounting would be very easy as the purchases would probably go through Stripe, the items would always cost the same amount of money, nothing complicated.
  
  
  
• Real world experience: Do tax offices from other countries challenge the Cyprus company tax residency and how is the procedure?
  

 

[Marzio]

Are you sure?

https://ipbox.cy/

 

[Merowinger]

Yes as the software in the SaaS as intangable asset would create all the revenue.‌ The costs to develop and improve it would come directly from the company or by‍ involving not related persona or companies.

 

[Marzio]

It all depends on the amount of qualifying expenditure whereby for an intangible asset to‌ qualify for the benefits of the regime, there needs to be a direct link between‍ the qualifying income and the own qualifying expenses contributing to that income.

Are you serious? You want to start a SaaS by outsourcing programming tasks⁣ to non related parties for few thousands euros and think that kind of expenditure will⁢ be enough to lower the CIT to 2.5%?

Beside that, your plan is completely backwards.

You don't start︃ optimizing taxes when your idea isn't even validated in the market because you are creating︄ yourself costs that you need to invest in marketing, not in substance requirements.

 

[JohnDones]

I've heard cases of people getting IP box after 3-4 salaries of 3-4k/m to themselves‌ (they develop it). So doesn't take a lot.

 

[Marzio]

@CyprusLawyer101 would this be really possibile?

 

[CyprusLawyer101]

Well yes, you could‌ create qualifying profits through showing salaries being for R & D work.
I think what‍ needs to be c)made clear is that the IP regime is not a status or⁠ a medal which you obtain. It simply says that if you meet certain criteria in⁤ your operation, the income which quailifies from meeting those criteria is allowed a major exemption⁣ from tax which can result to as low as 2.5% tax on your overall income.⁢ But realistically I don't think that people should be approaching this as an attempt to︀ get taxed at 2.5% . The guideline is simple, if you have an IP from︁ which income is generated, Cyprus provides excellent tax concessions subject to certain reasonable criteria.

 

[Merowinger]

Thank you all adding to the discussion.︂ @Marzio I generally agree with you, yet the concept is validated, it will be rather︃ the question if the product and marketing will be good enough to make it profitable︄ with all the background costs of setup and maintaining. Therefore achieving the 2.5% would further︅ increase the margin and indirectly decrease the operation costs in Cyprus. Make it worth to︆ host the company there instead of Germany.

For the substance I will definitely need an︇ active manager, who will make the decisions from Cyprus, even though there is not that︈ much to do once the company is set up. I am just not familiar with︉ how the reality looks like in that regard, costs and administration through board meetings.

@CyprusLawyer101 100% of the companies income will be generated through the software (SaaS), yet I won't︊ have very high costs for the development of it. Most of the software I would︋ develop before and give it into the company as asset, then let do the last︌ 20% by a freelancer or company, potentially on Cyprus. Not sure if that is a︍ problem.

 

[CyprusLawyer101]

It can︆ still work to a certain extent

 

[Houdini]

This is absolutely workable for Cyprus. An active⁣ Cyprus-based manager who genuinely makes the day to day decisions will cover the management and⁢ control requirement. In practice: appoint a resident executive director, hold and minute board meetings in︀ Cyprus, execute key contracts from Cyprus, and keep basic admin on island.

For a SaaS︁ model with low ongoing costs, contributing your pre-developed software to the company as an asset︂ is fine. Do it via an IP assignment or in-kind capital contribution with a simple︃ valuation so the company can amortize it. Having the final 20% completed by a Cyprus︄ freelancer or vendor actually strengthens substance, provided the Cyprus manager directs and approves the work.︅

Overall, this setup is clean and should not be an issue. If you plan to︆ use the Cyprus IP regime, just ensure the DEMPE functions and oversight are in Cyprus︇ or clearly controlled from there.

@CyprusBusiness @CyprusLaw @CyprusLawyer101