Software developer from Austria to operate from Cyprus for low tax

[soberman]

Hello!

There seems to be a change of rules for the companies registered in Cyprus‌ starting from December 2022, thus, it makes it a bit unclear for me, so I‍ would hugely appreciate your help and advice.

I want to move my tax residency to⁠ Cyprus. I am a software developer from Austria, working as self-employed and mainly contracting for⁤ companies in the UK.
Now I would have to register a company in Cyprus as⁣ a non-dom and be sure to spend 60 days per annum there. I would be⁢ the director and a shareholder. I would need to rent an office (?) and will︀ hire a company to do accounting for me.
This should give a corporate taxe at︁ the rate of 12.5%, the rest of which I am going to distribute to me︂ as dividends afterward under a 0% tax rate if I understand the scheme correctly. Does︃ my personal bank location matter in this case? Austria or Cyprus?
Please correct me I︄ am wrong somewhere.

Now another question is whether this scheme still holds true or are︅ there any changes coming up to this by the end of the year?
Moreover, in︆ case I won't move out of Austria, will only my dividends be taxed at a︇ rate that sets the Austrian government, or company income as well per Austrian rate too?︈

Does this mean that to have these sweet low tax rates I would have to︉ move to Cyprus for at least 60 days per annum and then make sure I︊ don't spend more than 183 days in Austria so that I don't get tax residency︋ of Austria once again?
And if I eventually decide to stay all the time at︌ Cyprus, does that mean that after 17 years or so, is my tax rate going︍ to be greater? Considering that I am still going to be working as a software︎ developer through my LTD in Cyprus and pay myself dividends.

Thank you in advance.

 

[Jerry1911]

No, it doesn't matter.

As far as I know, no, only non-resident companies⁠ are going away.

 

[soberman]

Thank you for you answer.
What does that mean in my case? In the scheme I have described?

 

[Jerry1911]

The Cypriot company will be tax resident in⁠ Austria in that case.

Nothing, makes no difference.

 

[soberman]

Could I have your opinion on the rest of the questions please?

 

[Sols]

The probably most important⁠ change is that Cyprus is doing away with non-resident companies. Companies are now tax resident⁤ in Cyprus by default, unless they can prove tax residence somewhere else. This doesn't have⁣ any impact on people who form companies in Cyprus while living there.

No need to rent an⁢ office. Living in Cyprus is enough.

The company pays 12.50%. You can take out dividends on the profits. The︂ dividends are not subject to any taxation, but you are liable for social security contribution︃ (Gesy) which is around 2.6% and is capped at 4,800 EUR/year, so if you take︄ out more than 180,000 EUR/year, there is no further Gesy.

Note that paying this does︅ not give you access to the social healthcare system. For that, most people either take︆ out a private health insurance or pay themselves a small salary in addition to dividends,︇ so that they pay social security contributions as an employer and employee.

Does not matter.

Do yourself a favor and keep your Austrian bank account if you can.︈ Chances are it's a much better banking service than any bank in Cyprus can offer.︉

No changes that affect your proposed setup.

If you don't move, the company is Austrian for tax purposes and has to comply with︎ Austrian tax code.

You have to⁠ spend 60 days per year in Cyprus and not be tax resident anywhere else. IIRC,⁤ Austria's definition of tax residence is similar to Germany's which includes the concept of abode. If you have an abode available to you in Austria and don't spend the⁣ majority of your time in a single other jurisdiction, Austria may consider you tax resident.⁢

Check this with an Austrian tax adviser to be sure.

Yes, you then have to start paying SDC (Special Defense Contribution, i.e. Capital Gains Tax) which︂ is 17%.

 

[soberman]

Thank you for your answer @Sols.
Is that an additional one to 12.5% or did you mean 17% in total?

 

[Sols]

It's additional. So after 17 years, your company would pay 12.50%‍ and then you personally pay 2.60% for Gesy and 17% for SDC.

 

[soberman]

@Sols Just to clarify whether I understood it correctly or not - SDC tax only‌ after 17 years of doing business there, even if I live in Cyprus all the‍ time during those 17 years?
Thank you.

 

[Sols]

Correct.

 

[soberman]

Thank you for your answers.

Would it be legal to rent an apartment in Cyprus‌ for an indefinite term (since I don't need an office there), then rent an apartment‍ for an indefinite time in Austria and, say Slovakia? So that I would be able⁠ to live 2 months in Cyprus, then 5 months in Austria, and 5 months in⁤ Slovakia to not exceed 180 days in any of those countries and be taxed in⁣ Cyprus only? Basically having 3 rent contracts all the time.

 

[Sols]

Slovakia has clauses in their⁢ definition of tax residence that can make you tax resident simply by having a place︀ to live there, if they perceive that you intend to stay there full-time (meaning either︁ 183 days or it being the place where you spend the most of your time).︂

If you rent an apartment in Austria as an Austrian citizen and live there five︃ months per year, there is a not insignificant risk that Austria will simply consider you︄ tax resident. Sure, you might be under the 183 days standard check but you are︅ a citizen, which is used as a tie-breaking condition.

If either Slovakia or Austria consider︆ you tax resident, your 60-day tax residence in Cyprus is not valid. However, that isn't︇ being actively monitored.

 

[Mr Gus]

You are using the "183 day rule" the wrong way. It's not about where you︀ reside less then 183 days but it's about where you reside more then 183 days.︁

If you have a permanent home in Cyprus and not in Austria and stay there︂ 183 days or more you have tax treaty protection. What you could do is spend︃ 183 days in Cyprus in the winter months and and spend the summer months in︄ Austria. You can stay at your friends or family's place, Airbnb or short term rental.︅

You might be able to get away with 2 months in Cyprus if you have︆ a permanent home there and not in the other two countries, but you will have︇ no treaty protection which is a big risk.

 

[soberman]

Thank you for your insights.

It looks like the best approach is to have a‌ permanent apartment renting in Cyprus and just live at the family's place in Austria, thus‍ technically having only one renting contract to my name in Cyprus at all times. Nobody⁠ really checks if I actually live in Cyprus as long as I am paying the⁤ rent, electricity, and internet bills, no? I can then stay at my family's place in⁣ Austria without a problem.
Am I understanding it correctly?

And two more questions please:
1. Does this change the situation if I am getting married and my spouse is still⁢ going to live in Austria?
2. And what if I decide to buy a house︀ in Austria, will that effectively render me tax liable in Austria? Which would mean that︁ I am not allowed to be anywhere in the contract of buying a house?
I am trying to understand a non-dangerous course of action to keep the Cyprus tax benefits︂ and not abandon my family in Austria if they don't want to move.

Thank you︃ in advance.

 

[Sols]

Cyprus very rarely checks. Your problem⁢ isn't Cyprus. Your problem is Austria.

Yes, the fire you are playing with turns from a campfire to a︁ bonfire.

Yes, since Austria follows definition of tax residence similar to Germany, there is a very︅ high risk that you become tax resident in Austria by simply having an abode available︆ there (and not being majority resident/tax resident somewhere else).

You can't.︉

Look at it critically. You are an Austrian citizen with an Austrian abode (your own︊ or provided by family), married to an Austrian resident (maybe even also Austrian citizen?), and︋ spending a lot of time in Austria. Yet you want Finanzamt to accept that your︌ primary place of economic interest and residence is Cyprus? , It works until it doesn't.︍ When it doesn't, you might be spending time away from your family anyway for a︎ few years while you serve your prison sentence.

You are taking risks and leaving trails️ that would make it very, very, very easy for the Austrian tax authority to drag‌ you to court and slap you with so many fines, penalties, and back taxes you'll‍ forget your own name. Prison time is usually reserved for very egregious cases, though, so⁠ it might not go that far. Although if you take steps to claim tax residence⁤ in Cyprus, de-register from Austria, and do other things to conceal your connections to Austria,⁣ that could probably be aggravating circumstances.

 

[Mr Gus]

Like I said before if you don't stay︆ over 183 days in Cyprus you will have no treaty protection, which is very risky.︇ Even more so if you have a spouse actually living in Austria.

Imo if you︈ are not actually willing to move just stop bothering about paying a low tax rate,︉ just do as much tax planning in your own country by using deductions, deferral etc..︊

I don't know how much you are making but I assume not high 6 digits︋ or more a year... You are also forgetting all the expenses you will have actually︌ moving, setting up companies, maintaining companies and all of the other small fees that will︍ eventually cut deep in your profits if you add them all up. Also don't forget︎ the time and energy that is wasted by travelling, finding a new place etc. All️ that time and energy would have way better invested in your business instead...

 

[soberman]

Alright, thank you for your advice guys. Might be indeed better to not risk it‌ all in that situation.

 

[Marzio]

Gosh why are you complicating your life so much when you could setup a company‌ in Liechtenstein, commute there every day and come back at home at the end of‍ the working day?

Yes Austria has CFC rules but only on passive income meaning that if your company⁢ in Liechtenstein doesn't receive any passive income you are fine.

Taxation in Liechtenstain is 12.5%︀ like Cyprus but i'm not 100% sure how wages or dividends are taxed for commuters.︁ You should read double tax treaty between Austria and Liechteinstein.

At minimum you would︂ immediately slash in half Austrian taxation.

 

[Sols]

If this works, it would only lower⁠ the corporate tax burden. But the cost of setting up and maintaining a company in⁤ Liechtenstein with a local office is going to eat into those tax savings quite a⁣ bit.

soberman would personally be tax resident in Austria,︁ so there are no savings for him personally. Salary, dividends, and so on would be︂ subject to Austrian tax. There might be additional taxes (payroll taxes) as an employer in︃ Liechtenstein.

 

[Marzio]

If the‌ alternative is to pay full 100% Austrian tax then why not?

From the little research i did i see that there's a⁤ no tax area in Austria till 11K and the DTA between Liecthenstein and Austra says⁣ that dividends are taxed at 15%.

Yes, the cost involved in a setting up a⁢ Liechtenstein company could be a high but if he is not one of those fools︀ that wants to take out every penny from the company he could be comfortably living︁ receiving a minimum salary + dividends taxed at 15% (instead of 27.5%).