Cyprus Tax Guide For Sportspersons / Entertainers:
An Executive Summary
This is an introductory guide for Sportspeople and Entertainers,
linking in to our full Cyprus Fact-File. If you'd rather dive
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Business Formation: The government has a
fairly light touch in terms of statutory requirements. You
don't need anyone's permission to be a stand-up comic or to
play golf, although professional organizations and the club
system may constrain your choices in some cases. You won't
have to register or license your business unless you form
a limited company or a formal partnership, or you are
the Rolling Stones and you need to take over the Presidential
Palace for your gig, which will certainly require a special
license. Many sportsmen and entertainers operate very
successfully as individuals. Limited companies do have to
be registered
of course, and have to report
annually. And remembering that the only two certainties
in life are death and taxes, inevitably you'll have to make
annual tax
returns, whether you're a limited company or not. If you're
really in a small way of business, you won't have to bother
with VAT,
which in any case doesn't apply to some types of sporting
and entertainment activity. Of course if you take on staff,
life becomes more complicated!
Domestic Taxation: The big issue is whether
to be taxed as an individual
or as a company.
At first sight it's a no-brainer, with individual taxes going
up to 30% while company profits are taxed at 10%. Needless
to say, it's more complicated than that. The special circumstances
of a sportsperson or an antertainer may also have a bearing
on the choice to be made; long-term streams of sponsorship
income, if you are successful, may dictate the use of a company.
Husbands
and wives can play some interesting variations, and get
the best of both worlds. Longer term, the holy grail is to
turn income into capital, something which is not straightforward
for sportspeople and entertainers, unless they can sell rights;
but it isn't easy - if company profits aren't distributed
after two years they are charged 15% tax. If you're not born
and bred in Cyprus, another goal is to remain non-resident,
which means not having a permanent
establishment (fixed place of business) so that you get
taxed only on Cyprus-source
income. If there's one aspect of your business on which
you should consider taking paid-for advice, it's probably
the tax structure. It's so important to get it right at the
beginning!
International Taxation: Few sportspersons
or entertainers have a static location, although a marketing
company may be based in one particular spot. In fact it's
one of the advantages of this rather special way of life is
that you're not tied to one place, and you have the opportunity
to base yourself in a low-tax location such as Cyprus. Getting
performance or royalty
income without tax may be straightforward inside the EU
if you have a corporate set-up, although some countries discriminate
against low-tax locations, but it can be more complicated
if the foreign country takes a bite out of your income, called
withholding
tax. Then you have to turn to double
tax treaties to try to get the money back, of which indeed
Cyprus has many. It's all a bit of a jungle. If you set up
a marketing operation in a foreign country, you need to try
to avoid the 'permanent
establishment' trap, and you may get bogged down in local
VAT.
If you go to work in a foreign country for a longer period
of time, you need to think hard about your tax situation in
advance, both in respect of local income taxation and perhaps
because of withholding
tax.
Tax-Efficient Structures: With a corporate
tax rate of 10%, there appears to be not much need for
exotic structures to minimize tax; but if you are resident,
things are not so simple. Depending on the nature of your
income flows there may be a case to be made for locating the
business focus of your activities in a low-tax, 'offshore'
jurisdiction, especially if you are eventually planning to
retire somewhere out of Cyprus. As yet, there are no 'CFC'
rules in Cyprus, so that profits made in such places can stay
there. Offshore
structures are often useful for inheritance
tax and asset protection reasons as well, and anti-avoidance
law has not gone nearly so far in Cyprus as in, for example,
the UK. Non-resident sportspersons and entertainers with activities
in Cyprus can also use offshore structures, as long as they
avoid the 'permanent
establishment' trap.
Business Incentives: Thereare quite a few
support
schemes operated by various levels of government, some
of them in association with the European Union, ofering direct
grants to support employment, rebates on taxes, and loans
for SMEs. Although not many of these will be relevant to artistic
creators, it could be worth investigating what's on offer.
However, the saying: 'He who sups with the devil needs a long
spoon' comes to mind. The schemes are well-intentioned, no
doubt, but they can be intensely bureaucratic, with very intrusive
qualification procedures, and a long 'tail' of reporting
requirements.
Employing People: Many experienced employers
will just tell you: 'Don't do it'. 'Marry in haste; repent
at leisure', they say, and it was never so true than when
it comes to employment.
Don't kid yourself that employees will feel that they owe
you anything. Today's workers, encouraged by a slew of anti-business
legislation from Brussels, and the general nannying attitude
of government, often feel that the world owes them a living.
Many employers of course bring problems on themselves by treating
employees as little better than slaves. Despite stories about
rock stars who take entire floors of the Nicosia Hilton, most
sportspersons and entertainers run quite skinny operations,
but if you do need staff try as hard as you can to use contractors
(ie self-employed
people) rather than employees. The tax authority has plenty
to say about that, of course, so if you are left with no choice,
realize that you will have to operate 'PAYE',
provide various statutory social
benefits, and that it is extremely hard to dismiss
an unsatisfactory employee once you have taken them on. Of
course, there are plenty of exceptions to these rather sweeping
generalizations. Lucky you if you find some!
Welfare And Lifestyle: Meaning, for the
sportsperson or entertainer herself. Obviously, state social
welfare schemes apply to sportspeople and entertainers as
much as to anyone else, although there may be problems if
you operate across national borders. Many people will want
to have improved (meaning private) health
benefits, and almost all will want to find tax-efficient
ways of making provision for their pensions.
It's important to separate these from your business itself,
in case of failure. If you have it in mind to retire
to somewhere less highly taxed, then the time to start is
now, in terms of building
up a pension away from the grasp of the Revenue. If you
are an expat, though, Cyprus itself may be your chosen retirement
home, and you'll pay only 5% tax on your pension.
International Aspects: Perhaps
you plan to live out your life as a respected and contented
member of your local community. The salt of the earth, one
might say, if that's not patronising. But some people, and
perhaps especially sportspersons and entertainers, will find
themselves drawn inevitably into an international existence,
working and/or living in other countries. There are many challenges:
apart from the difficulty of arranging your tax affairs satisfactorily,
there are the problems that go along with property
ownership, education
of your children, international removals, health
care and pension
provision, just to take some of the more obvious issues. Of
course no one can predict the future with any certainty, but
there are all too many stories of people who have trapped
themselves in the wrong investment in the wrong currency in
the wrong place, with multiple taxmen on their backs. Most
such problems are avoidable, with forethought.
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