Solution for EU Setup + situational considerations

desertonahorsewithnoname said:

Hey guys,

Looking for some direction on setting up an EU company, that is in the most tax beneficial jurisdiction, in regards to both the company + a personal situation I know of.

EU COMPANY

The EU company will be used as the trading entity for admin, bank accounts, billing etc.
It will be used for two different ventures- a communications agency + a startup tech platform.

I see that it is a very basic setup, and is probably pointed towards Cyprus.

SITUATION I KNOW OF

British Citizen, technically domiciled in Iceland still.
But living mostly in Spain without residency for the last 5 years.

Paying taxes in Iceland for the past 1 year, until 2 month ago.
Not payed taxes in Spain, despite being there for many years.
UK not paying taxes or having presence.

All in consideration, I write this example below as a solution;
An EU company formed in Cyprus as a Cyprus non-tax resident, to do business across Europe, salary paid out at min. tax threshold, dividends paid abroad would not be taxed thanks to Cyprus.
UK 'non-resident for tax purposes' can be used as a tax status, where foreign income is not taxed- but does this mean that said salary and dividends would then be taxed in Spain?

If all foreign income can be declared to HMRC under 'non-resident for tax purposes' status and not be liable for any tax in the UK, does it need to be declared elsewhere?

Does all of this add up? Or are there any blind spots approaching in the logic?

Is there a way any of you would structure this differently?
Different jurisdiction?
Different way to frame the exampled situation?

Thanks guys, just for a friend.

The Cypriot company would legally be resident in Spain and subject to Spanish taxation, which is a nightmare.
Your friend however could play some tricks and be able to avoid (evade) taxes if he is smart enough.
If he wants to remain in the legal playing field and not pay taxes, he should move his a*s out of Spain.

desertonahorsewithnoname said:

SITUATION I KNOW OF

British Citizen, technically domiciled in Iceland still.
But living mostly in Spain without residency for the last 5 years.

Paying taxes in Iceland for the past 1 year, until 2 month ago.
Not payed taxes in Spain, despite being there for many years.

So you have been committing tax evasion in Spain?

desertonahorsewithnoname said:

All in consideration, I write this example below as a solution;
An EU company formed in Cyprus as a Cyprus non-tax resident, to do business across Europe, salary paid out at min. tax threshold, dividends paid abroad would not be taxed thanks to Cyprus.

Cyprus non-resident companies are going away. The company will be deemed tax resident in Cyprus, unless it can demonstrate tax residence somewhere. I'm not sure if this already is in place or is still in the works, maybe @CyprusLaw or @CyprusLawyer101 can confirm the exact status.

desertonahorsewithnoname said:

UK 'non-resident for tax purposes' can be used as a tax status, where foreign income is not taxed- but does this mean that said salary and dividends would then be taxed in Spain?

If all foreign income can be declared to HMRC under 'non-resident for tax purposes' status and not be liable for any tax in the UK, does it need to be declared elsewhere?

I believe you are referring to treaty non-resident, which requires an applicable tax treaty to kick in and for the company to prove and declare tax residence somewhere else.

desertonahorsewithnoname said:

Does all of this add up? Or are there any blind spots approaching in the logic?

Speak with a lawyer. It sounds like you're in a bigger mess than you might realise, and are about to make it worse.

desertonahorsewithnoname said:

Is there a way any of you would structure this differently?
Different jurisdiction?
Different way to frame the exampled situation?

There are many ways to do this. The first step would be to sort yourself out and establish proper, provable tax residence somewhere. Base the structure around that.

If you have family or other ties to Spain, you need to plan around the reality that you are personally liable for tax in Spain. There are ways, through establishing proper tax residence and permanent establishments elsewhere, to reduce or avoid corporate tax burden in Spain, though.

Sols said:

Cyprus non-resident companies are going away. The company will be deemed tax resident in Cyprus, unless it can demonstrate tax residence somewhere. I'm not sure if this already is in place or is still in the works, maybe @CyprusLaw or @CyprusLawyer101 can confirm the exact status.

What do you mean with “going away”?

This is an extract from a legal opinion I got in Cyprus a few months ago:

JohnnyDoe said:

What do you mean with “going away”?

There is a loophole at the moment, whereby a company can be non-resident in Cyprus and not resident anywhere else. My understanding is that the government is in the process of closing this loophole, so that Cypriot company are tax-resident in Cyprus by default unless provably tax resident in another jurisdiction.

ey.com/en_gl/tax-alerts/cyprus-amends-defini…and-introduc

As of 31 December 2022, the definition of corporate tax residency is expanded to additionally include the incorporation test. More specifically, a company which is incorporated or registered in Cyprus, and its management and control is exercised outside Cyprus, should be considered a resident of Cyprus for tax purposes unless it is a tax resident in another country.

Sols said:

There is a loophole at the moment, whereby a company can be non-resident in Cyprus and not resident anywhere else. My understanding is that the government is in the process of closing this loophole, so that Cypriot company are tax-resident in Cyprus by default unless provably tax resident in another jurisdiction.

ey.com/en_gl/tax-alerts/cyprus-amends-defini…and-introduc

This would be great as it would establish residence unless proven otherwise, whereas now, as per the opinion I shared, it is quite onerous for a company to be tax resident.
The current situation is not a loophole: a company cannot be resident nowhere, it resides where it is managed from. Of course many just “forget” to declare the company in their home country ;)

I will ask for a new opinion based on these new provisions you mentioned. 12.5% is a very attractive rate.

Sols said:

There is a loophole at the moment, whereby a company can be non-resident in Cyprus and not resident anywhere else. My understanding is that the government is in the process of closing this loophole, so that Cypriot company are tax-resident in Cyprus by default unless provably tax resident in another jurisdiction.

ey.com/en_gl/tax-alerts/cyprus-amends-defini…and-introduc

Hi

This is correct, and these changes to the income tax legislation will be effective from 31 December 2022.

In accordance with the Law amendment the definition of a “resident in the Republic” is enhanced so that a company established or registered under any applicable Law in the Republic, which has its management and control exercised outside the Republic, is considered to be a resident of the Republic, unless such company is a tax resident in any other jurisdiction. This is a further anti-avoidance measure taken by the CY government

This means that Cyprus incorporated / registered companies, with (i) management and control exercised outside Cyprus; AND (ii) not tax resident in any other jurisdiction will now be considered as Cyprus tax residents and as such, taxed in Cyprus on their worldwide income.

Can the rules be adjusted with professional hellp?

Hi ,
It is true that there is a new legislation being introduced. For some cases it makes things worse, while for others it makes things better. It all depends on each case at hand.

desertonahorsewithnoname said:

Looking for some direction on setting up an EU company, that is in the most tax beneficial jurisdiction, in regards to both the company + a personal situation I know of.

First thing that comes to my mind is Cyprus, Switzerland and Lichtenstein have a look at all of them. Your budget will set the limit.