January 11, 2016 at 19:31The tax consequences of moving Envato to the USA. Cyprus company and form W-8BEN-E
January 1 has already arrived, and we continue to analyze the transfer of the Internet giant to the USA that has already taken place. After writing an article written by LAWBOOT Lawyers & Consultants , some of our readers asked to describe:
a) why the Cyprus company is suitable for working with Envato
b) why the US Royalty Withholding Tax (US RWHT) zero rate will be applied
The facts below will help to understand this.
Fact No. 1. Resident of Cyprus in terms of the Double Taxation Treaty between the USA and Cyprus.
Source, Tax treaty between the USA and Cyprus.
(1) In this Convention:
(a) The term '' resident of Cyprus " means:
(i) A Cypriot corporation ; and
(ii) Any person (except a corporation) resident in Cyprus for the purposes of its tax, but in the case of income derived or paid by a partnership, estate, or trust this term applies only to the extent that the income derived by such person is subject to Cypriot tax as the income of a resident either in its hands or in the hands of its partners or beneficiaries.
Fact No. 2. Beneficial Owner concept in the form of W-8BEN-E.
Cypriot companies serve in Envato W-8BEN-E Form , as they are legal entities.
In this form, the most interesting is Part 3. Claim of Tax Treaty Benefits.
Cypriot companies are required to complete this part if they receive FDAP from the USA. Royalty fall
under the definition of FDAP , the link shows this.
So boxing 14a says, “The beneficial owner is a resident of within the meaning of the income tax treaty between the United States and that country.”
Beneficial Ownerin the understanding of this agreement, this is a Cyprus company (neither as a founder, an ultimate beneficiary, he is also a beneficiary in the usual sense of the word) - and this is logical, since in Part 1, in the box “Name of organization that is the beneficial owner ” The name of the Cyprus company is indicated.
Having opened the instructions for boxing 14a, we see the following:
An entity that is claiming a reduced rate of, or exemption from, withholding under an income tax treaty must enter the country where the entity identified on line 1 is a resident for income tax treaty purposes and check the box to certify that it is a resident of that country. For treaty purposes, a person is a resident of a treaty country if the person is a resident of that country under the terms of the treaty.
We return to Fact No. 1 - and conclude that “reisdent of Cyprus ” must be entered in boxing 14a .
By the way,
Fact No. 3. The status of "resident of Cyprus" in terms of local law.
Under Cyprus law, a company must be managed from Cyprus to be a resident. To register such a company, we recommend involving specialists from LAWBOOT Lawyers & Consultants
According to Cyprus tax law, a Cyprus company must be managed and controlled from Cyprus in order to be considered as tax resident in Cyprus and enjoy the advantages of the tax system (12.5% corporation tax). Thus it is necessary that the majority of the Board of Directors to stay and work in Cyprus. For foreign clients this is achieved by appointing 2 nominee directors in the Board of Directors.
Fact No. 4. Cyprus Tax ID in the form of W-8BEN-E.
In the field 9b of form W-8BEN-E, the Cyprus company must indicate its Tax ID.
If a Cyprus company is registered taking into account Fact No. 3, it must receive a tax residence certificate and it will have the coveted Tax ID.
Line 9b. If your country of residence for tax purposes has issued you a tax identifying number (TIN), enter it here. If you are providing this Form W-8BEN-E to document yourself with respect to a financial account that you hold at a US office of a financial institution, you must provide the taxpayer identifying number (TIN) issued to you by the jurisdiction in which you are a tax resident unless: You have not been issued a TIN, or The jurisdiction does not issue TINs
You can also get such a certificate with the help of local auditors:
Fact No. 5. Signatory of the form W-8BEN-E.
The signer of the form must be a person authorized to sign this form on behalf of the Cyprus Company.
Conclusion: For the purposes of optimizing US RWHT to 0% (using the rules of the Double Taxation Agreement between Cyprus and the USA) when working with Envato, a Cyprus company is suitable if it has the status of a resident company in terms of Cyprus law and has submitted Form W-8BEN- E.
For DEVELOPERS wordpress templates, we have a special offer!
Email us for more information.
ps In the next article we will tell you about the Cyprus IP BOX, do not miss!
