3 weeks ago

    Insights into Cyprus and UAE tax benefits

    Table of contents

      The Global Tax Landscape for Cryptocurrencies

      Non-compliance with crypto regulations has severe consequences. Do Kwon’s $4.5 billion penalty in the SEC case and Changpeng Zhao’s 4-month jail sentence for money laundering underscore the growing scrutiny of cryptocurrency activities.  As crypto whales and high-net-worth individuals increasingly adopt nomadic lifestyles, they face significant challenges in understanding and managing their crypto taxes. This often results in complex headaches when declaring gains across multiple jurisdictions, leading to potential legal and financial repercussions.

      Integrating cryptocurrencies into traditional financial systems has led to complex tax obligations. Countries worldwide are updating tax laws to capture revenue from this burgeoning asset class, often leading to hefty tax liabilities for unwary investors. Rough estimates suggest that a 20 percent tax on capital gains from crypto would have raised about $100 billion worldwide amid soaring prices in 2021. That is about 4 percent of global corporate income tax revenues and material enough for global tax authorities to tax notice. There are also essential fairness issues at stake. Though their anonymity makes it difficult to be sure precisely who holds crypto, there are signs that ownership is heavily concentrated among the relatively wealthy—even though holding crypto is strikingly common across people with low incomes, too. Available surveys indicate that about 10,000 people hold one-quarter of all Bitcoin.

      An interview with Charles Savva, Managing Director of Savva & Associates

      In this interview, Charles Savva explains how jurisdictions like Cyprus and the UAE offer favorable tax regimes to help crypto investors optimize their tax positions effectively.

      Benefits of the Cyprus Non-Domicile Scheme

      What are the benefits of the Cyprus non-domicile scheme for high-net-worth individuals?

      Charles Savva: “The Cyprus non-domicile scheme is one of the world’s most attractive personal income tax regimes. By spending just 60 days in Cyprus annually and not residing in any other country for more than six months, individuals can benefit from a 17-year tax exemption on dividends, interest, and profits from securities. This simplicity and effectiveness make it an excellent choice for international tax planning.”

      How does this scheme apply to crypto investors?

      Charles Savva: “While the scheme exempts dividends, interest, and profits from securities, it does not directly cover profits from cryptocurrency. However, crypto investors can still benefit by structuring their investments through corporate entities in favorable jurisdictions like the UAE and then repatriating profits as dividends, exempt under the Cyprus non-domicile scheme.”

      How does the Cyprus non-domicile scheme compare with similar programs in other European countries?

      Charles Savva: “The Cyprus non-domicile scheme is more straightforward and beneficial than similar programs in countries like Portugal and Italy, which have either been retracted or are more complicated. Cyprus offers a clear and efficient process for individuals looking to benefit from its tax advantages.”

      Leveraging UAE Tax Policies

      Can you elaborate on the UAE’s new tax policy for crypto investments?

      Charles Savva: “The UAE has introduced a 0% tax policy for cryptocurrency investments held for over 12 months. This exemption from the 9% corporate income tax rate makes the UAE a highly favorable jurisdiction for crypto investors. By combining this with the Cyprus non-domicile scheme, investors can optimize their tax efficiency on both corporate and personal levels.”

      How can investors utilize both Cyprus and UAE tax advantages?

      Charles Savva: “Investors can establish corporate entities in the UAE to benefit from the 0% tax on long-term crypto holdings. If the shareholder of this company is a Cyprus non-domicile tax resident, dividends paid out are exempt from Cyprus taxation. This creates a tax-efficient structure that leverages both jurisdictions’ favorable policies.”

      What is your advice for crypto investors considering these options?

      Charles Savva: “It is crucial to examine the details of each individual’s situation. Ensuring compliance with both Cyprus and UAE tax regulations and understanding the benefits and requirements of each jurisdiction can significantly optimize tax positions. Working with experienced tax advisors is essential to navigating these complexities effectively.”

      Navigating Tax Strategies and Compliance

      What services do Savva & Associates offer international clients seeking to optimize their tax positions?

      Charles Savva: “Savva & Associates provides a comprehensive range of services, including international tax planning, corporate structuring, and compliance advisory. Our expertise extends to the setup and administration of trusts and foundations, as well as providing support with citizenship and residency applications. We specialize in assisting high-net-worth individuals and corporations to achieve tax efficiency and regulatory compliance, ensuring tailored solutions to meet each client’s unique needs.”

      What are some common misconceptions about the Cyprus and UAE tax benefits for crypto investors?

      Charles Savva: “One common misconception is that these tax benefits automatically apply without specific structuring. The tax advantages require careful planning and proper legal frameworks to ensure compliance. Another misconception is that the tax benefits are exclusively for large-scale investors. While they certainly attract high-net-worth individuals, even smaller investors can benefit significantly if they navigate the tax systems correctly with professional advice.”

      How do recent global regulatory changes impact the attractiveness of Cyprus and UAE for crypto investors?

      Charles Savva: “Global regulatory changes, such as increased transparency and stricter reporting requirements, have made tax planning more challenging. However, jurisdictions like Cyprus and the UAE have adapted by maintaining favorable tax regimes while ensuring compliance with international standards. This balance of favorable tax policies and regulatory compliance makes them even more attractive amidst a tightening global regulatory environment.”

      Are there any potential risks or downsides to utilizing these tax regimes?

      Charles Savva: “One potential risk is the complexity of maintaining compliance across multiple jurisdictions, which can lead to inadvertent breaches if not managed properly. Additionally, changes in local tax laws or international treaties can impact the benefits. Investors must stay informed and work with experienced advisors to mitigate these risks. Understanding the nuances of each jurisdiction and regularly reviewing one’s tax strategy is essential to maintaining the benefits.”

      How does Savva & Associates assist clients in navigating the initial setup and ongoing compliance of these tax strategies?

      Charles Savva: “Our firm assists clients from the initial planning stages to implementation and ongoing compliance. We provide comprehensive assessments of each client’s unique situation, help set up the necessary corporate structures, and offer continuous support to ensure compliance with all relevant regulations. Our services include legal advisory, tax reporting, and administrative support, ensuring clients can focus on their investments without worrying about regulatory pitfalls.”

      Can you provide a specific example of a successful tax strategy implemented for a crypto investor using Cyprus and UAE jurisdictions?

      Charles Savva: “Certainly. We had a client who was a high-net-worth individual holding significant crypto assets. We structured his investments through a UAE-based corporate entity to take advantage of the 0% tax on long-term crypto holdings. The profits were then repatriated as dividends to the individual, a Cyprus non-domicile resident, ensuring these dividends were tax-exempt. This strategy significantly reduced the client’s overall tax burden while fully complying with both jurisdictions’ regulations. The client also benefited from our ongoing support, ensuring all regulatory changes were promptly addressed.”

      Fee Quote Example

      Here is an example of fees related to assisting a client in establishing a business in Cyprus with non-EU national employees and transferring their personal tax residency to Cyprus under the non-domicile scheme. The fees listed below are intended to give a general idea of our professional charges and will be customized for each client’s specific situation.

      Necessary action to be taken € EUR
      (non-inclusive of VAT and disbursements
      To ensure compliance with residency requirements in Cyprus, you are required to secure a permanent residence through either a purchase or rental agreement. Should you intend to register as a non-domicile tax resident of Cyprus, it may be prudent to establish substance within the country, particularly due to considerations related to foreign tax obligations. It is assumed that you have sought appropriate advice in this regard.

      Additionally, our services extend to assisting you in sourcing a suitable property and fulfilling any other requirements associated with your relocation to Cyprus, such as locating private schooling, purchasing a vehicle, or joining professional associations, among others.

      Drafting/reviewing a rental agreement- we charge on a time spent basis, EUR 150/hr (fixed fee quote is available once we have details of the property and your requirements)

      Drafting/reviewing a property acquisition agreement- we charge on a time spent basis, EUR 200/hr (fixed fee quote is available once we have details of the property and your requirements)

      Registration to the Cyprus tax authorities as an individual. Simple registration- EUR 500

      Registration as a Cyprus non-domicile- EUR 1,250

      Formation of a Cyprus Foreign Interest Company, including licensing and incorporation, and the immigration application and registration of one non-EU national employee (i.e. yourself). This fee includes government disbursements connected to licensing and formation. EUR 10,000
      Regarding the structure of the Foreign Interest Company, we typically will act as Secretary, and as such handle all the statutory filings of the Company, such as AGM, filings of statutory Financial Statements. EUR 600/annum for individual Secretary, and EUR 300/annum for corporate Secretary
      You are required to have a business address for your Foreign Interest Company, which we may potentially be able to provide you within our own office space, otherwise assist your to source a suitable office. There are also serviced office options in Cyprus, like Regus etc. To be determined (EUR 500/month if we are able to provide you with a business address)
      Opening of bank account for Foreign Interest Company. EUR 800, which covers up to 10 hours of work.

      Additional hours charged at EUR 80/hr

      Opening of personal bank account in Cyprus (optional, but recommended) EUR 800
      Immigration application and registration of each Foreign Interest Company employee. EUR 1,500/employee
      Registration of Foreign Interest Company with Cyprus Social Insurance Authorities and Tax Authorities (Tax Identification Code); registration of one non-EU national employee of the Foreign Interest Company with the Social Insurance Authorities. EUR 1,000
      Registration of Foreign Interest Company with VAT authorities (if applicable). EUR 400 (if applicable)
      Quarterly VAT filings (if applicable). To be determined once we have details of the nature and scope of activities.
      Preparation and filing of annual Cyprus personal income tax return. To be determined once we have details of your worldwide income.
      Monthly payroll services for your Foreign Interest Company, including arranging the relevant monthly payment of SI and tax. Setup fee (one time): EUR 250

      EUR 100/month for first employee, and EUR 50/moth per additional employee

      Quarterly accounting services. To be determined once we have details of the nature and scope of activities.
      Annual audit and tax compliance- Foreign Interest Company. To be determined once we have details of the nature and scope of activities (see attached Accounting Questionnaire).
      Initial onboarding fee in accordance with Cyprus AML regulations and EU Directives. EUR 500
      Preparation and filing of a Permanent Residency by Investment application (the so called “golden visa”). Includes assistance sourcing suitable property, drafting of agreement for property acquisition, filing the same. EUR 10,000, non-inclusive of VAT and disbursements.
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