Tax Issues in Acquiring a Cypriot Company

Question

A Greek tax resident individual entrepreneur (software engineer) considers acquiring 100% of the shares of a Cypriot company, established under Cypriot law, whose registered seat is in Limassol. The accounting books of the Company are currently kept in Cyprus by a local accounting firm and he also considers registering himself personally as the Company’s Manager after the acquisition. He will remain, though, a Greek tax resident as an individual, since his family will remain in Greece.

The income of the company will comprise of fees by Greek tax resident companies and by foreign entities (clients). However, all the work will be performed by the individual from his home in Greece, since the Cypriot Company will neither employ any personnel, nor will have an office space available in Cyprus (the registered seat is the office of the lawyer in Limassol that helped with the Company’s incorporation and the intention of the new shareholder is to keep this unchanged).

The individual’s objective is in fact to invoice all the services he renders in the name of the Cypriot company to benefit from the 12.5% Corporate Income Tax in Cyprus, compared to the 29% CIT in Greece or the marginal 45% for business income rendered by Greek tax resident individuals.

Moreover, the Cypriot entity will derive royalty income from a patent that will be contributed in its share capital after the acquisition of the shares by the individual. The royalty will be charged to both affiliate and non-affiliate entities in the near future. Finally, the ultimate goal is the Cypriot company to become the holding entity for various other software companies located all over the EU, which will distribute dividends to it.

Please analyze all the tax issues that you would advise the Greek tax resident individual to take into account before implementing his business plan.

Summary

This question belongs to accounting and discusses about a Greek Tax resident individual entrepreneur acquiring 100% of shares of a Cypriot company.

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