1. If we set up a Branch Office (BO) in Cyprus, and employ just one employee in this Branch office, can we invoice the costs of the BO to the mother company quarterly, and could these invoices be without Cyprian VAT? Or, due to VAT, it does need to be monthly invoiced as performed services for that month? Sales between 2 EU VAT companies do not carry VAT

In other words, for what kind of services would we need to issue invoices to mother company with Cyprian VAT and for which services could we issue invoice without VAT? ---> I would rather answer this in isolation once you read all of the below responses in red.

 

For better understanding , services provided by the BO are provided in the territory of Cyprus to the Cyprian customer, and would be invoiced to mother company that would issue invoices to Customer in Cyprus. In this way only services provided in the Cyprian territory would be subject to Cyprian CIT. What about hours and costs of travelling mother company employees that are performed on territory? Does this needs to be somehow included in BO costs/income as it is performed also on territory? Maybe by assigning them to BO from mother company for period working in Cyprus, and transferring somehow their costs? Additionally under question no.8   ---> I would rather answer this in isolation once you read all of the below responses in red.

Also, we have understood that CIT calculation and obligation payment is to be performed once a year, on yearly period. Could you please confirm. Confirmed

 

 

1. Do you see any risks connected to this kind of set up? No, it is common

 

1. If we employ only one employee in this Branch office, (as there is no intention that others involved employees are employed locally in Cyprus), must this one employee be nominated as a Branch office director? Branch does not have directors, so no responsibility for your employee

 

1. Is there prescribed minimum monthly salary for the director position? Can director or any other employee be employed only part time, or needs to be employed on full time? Its a case by case scenario but full time must exceed Euro 950 per month i would expect, for part timers it depends on job description and profile as each industry segement has its own minimum and maximum acceptable by the social insurance office remuneratinos. This should not be an issue for you.

 

1. Can this employee have some other function? Can the appointed director of the Branch office live and work in Zagreb, and the local employee have some other function? As the branch has no director - send me revised enquire if still applicable.

 

1. Is there any requirement for issuing work permit for the employee employed in the Branch office, if this employee would be Croatian citizen? No i would not see any issues with it

 

1. Is there any requirement for issuing work permits for the employees traveling on and off from Zagreb, no more than 3 months in a year (also Croatian citizens)? Since the candidate is an EU citizen there are no such issues; I can look into it more formally at a fee.

 

 

1. Do you see any risks if we employ only one employee in the BO, but 3-4 employees travel on and of from Zagreb and provide the system support services to the customer in the territory of Cyprus? This is common practise actually!

These employees of mother company would be properly assigned to work to Branch office for several months annually (not more than 3 months), would stay in the Croatian health and pensions system (would have A1 certificates), and their salary would be paid by mother company. Beside the work on Cyprian project they would work for other projects in Croatia as well. That is great, it makes sense.

In this case, should mother company in Croatia invoice their services or manhours to Branch office in Cyprus? It is up to you, strictly speaking yes but if you want you do not recharge it to the parent branch.

And the BO would again issue invoices to the mother company for the whole office costs + adequate mark-up (10-20%)? Yes 5- 8%

Or BO would issue invoices to mother company only for office costs including salary costs for only one employee locally employed (plus mark-up)?

Seems to us that in the last written there is a risk present that not the whole profit from services provided in Cyprus would be taxable in Cyprus. Do you see this as a risk also? No, Cyprus is happy to get some profits taxed by having you instead of not having you in the Republic.

Do you have any other proposal to eliminate it? 

 

1. There is also option that cyprian BO issues invoices for the services provided in the territory directly to the Cyprian customer, and the mother company issues invoices for the services provided outside of the territory also to the Cyprian customer. We are not sure if the customer would accept this kind of invoicing combination, and how to implement it in the contract. Mother company would be signing the contract with the customer, and probably would need to implement some clauses enabling invoicing from Branch office, for the part of the services. Correct? Correct but does not seem right, rather avoid this avenue.

Should there also be additional contract between mother company and BO? Or only customer and BO and customer and mother company?

 

If you have some other proposal for us do let us know. We are definitely considering registering Branch office, with foreign bank account (Croatian), and wish to minimise the profit of this Branch office, to pay the CIT in Cyprus but only on the services provided in Cyprian territory. This makes sense. Only if there is some risk involved and we could be facing penalties (?) than we would consider the whole contract being atributed to the Branch office. It is not normal for 1 registered employee of the Cyprus Branch to generate huge turnover ==> it is clear that Parent Turnover is channeled to the branch --> avoid this.

 

Disclaimer: The information provided in this article is for general informational purposes only and should not be construed as legal or tax advice. Please consult with a professional tax advisor for advice on your specific situation.