Cyprus CFC Rules and German Controlled Foreign Corporation Taxation: Legally Compliant Structures Despite German Tax Residency – Advanced Compliance Strategies

Why CFC Rules Don’t Have to End Your Cyprus Adventure

Let me start with a story that happened to me last week:

An entrepreneur calls me—visibly upset. His tax advisor had just explained that his planned Cyprus structure was impossible due to German CFC rules. The tax office would hit immediately. He was advised to keep everything in Germany.

Here’s the thing:

That statement is simply false—or at best, incomplete.

Yes, German CFC (Controlled Foreign Company) rules are real. And yes, they may affect your Cyprus structure. But no, they do not make legally secure international tax planning impossible.

The real issue lies elsewhere:

Most tax advisors only understand CFC rules superficially. They read the regulation and think, Too complicated, too risky. But there are perfectly legal ways you can benefit from Cyprus, even under German tax residency.

This article will show you exactly how. Not as theoretical musings, but as practical, actionable strategies. One thing is certain: those who understand the rules can use them—legally.

Ready for an in-depth look into the world of international compliance? Let’s shed some light on the CFC rules together.

Yours, RMS

Understanding CFC Rules: The Mechanism Behind the German Tax Hammer

Before we jump to the solutions, you need to understand what we’re dealing with. The CFC rules are the German tax office’s sharpest sword against international tax planning.

What Are CFC Rules, Anyway?

CFC stands for Controlled Foreign Company. The principle is simple: Germany wants to prevent you from parking profits in low-tax jurisdictions and only bringing them to Germany later.

The logic: If you control a foreign company and it only generates passive income, then Germany will treat this income as if you had earned it directly in Germany.

Sounds complicated? It is. But once you understand it, entirely new opportunities open up.

When Do German CFC Rules Apply to Cyprus?

The German CFC rules apply under § 7 of the Foreign Tax Act (AStG) when three conditions are met:

• Control: You hold directly or indirectly more than 50% of the Cyprus company
• Low Taxation: The tax load in Cyprus is under 25% (which is often the case)
• Passive Income: More than 10% of gross revenues are passive (interest, royalties, certain rental income)

If all three conditions are met, Germany adds the profits of your Cyprus company to your German income—as if you had earned the profits in Germany directly.

The result: German tax liability despite the Cyprus structure.

The Difference Between Active and Passive Income

This is crucial: CFC rules target passive income. That includes:

This means: If your Cyprus company carries out active business operations, CFC rules do not typically apply. But caution—the tax office will check very carefully whether you are truly active.

The EU Exemption: Your Shield Against CFC Rules

This is where Cyprus gets interesting: As an EU member state, Cyprus enjoys special protection. The CFC rules must not violate freedom of establishment.

In practice: If your Cyprus company has genuine economic substance, you can invoke EU fundamental freedoms. The burden then falls on the tax office to prove your structure exists only for tax avoidance.

And that’s the basis for the legally secure strategies I’m about to show you.

German CFC Taxation: When the Tax Office Strikes

Let’s be honest: German CFC taxation is no paper tiger. Many international structures have failed because of it. But it’s not an insurmountable obstacle either.

The trick is understanding when and how it’s applied.

The CFC Taxation Mechanism

Imagine you have a Cyprus company with profits of €100,000. Normally, you pay 12.5% corporate tax in Cyprus, so €12,500. So far, so good.

But if CFC rules apply, here’s what happens:

1. Germany adds the €100,000 to your personal income
2. You pay the German income tax rate (up to 45% + solidarity surcharge)
3. The €12,500 you paid in Cyprus is credited
4. You pay the difference to Germany

Result: Instead of 12.5%, your effective tax load is up to 47%. Your Cyprus structure is fiscally worthless.

Timing of Attribution: Immediately, Not Just at Distribution

Another pitfall: Attribution does not occur when profits are distributed, but the moment they are generated. That’s what distinguishes CFC rules from ordinary foreign tax regulations.

In practice: Even if your Cyprus company retains profits, you’re taxed immediately in Germany. You bear the liquidity burden without the cash inflow.

That makes it all the more important to develop legally secure structures right from the start.

Exemptions: Your Legal Escape Routes

The German Foreign Tax Act has several exemptions from CFC taxation. The most important ones for Cyprus structures:

The 10% Passive Income Test

If passive income is less than 10% of gross revenues, CFC rules do not apply. This is often easier to achieve than you might think.

Example: Your Cyprus company has €500,000 operational revenue and €40,000 in interest income. Interest is just 7.4%—CFC rules don’t apply.

Genuine Economic Activity

If your Cyprus company is genuinely active, it may be exempt from CFC rules. Genuine means:

• Local staff on the ground
• Own office space
• Independent business decisions
• Substantial local activities

This works especially well for consulting, IT, or trading businesses.

EU Evidence of Business Activities

As an EU member, Cyprus can rely on freedom of establishment. You have to prove your company was not just set up for tax avoidance purposes.

If you succeed, CFC rules don’t apply—even with low taxation and passive income.

Cyprus as an EU Tax Jurisdiction: Between Dream and Reality

Now let’s talk about what really interests you: Why is Cyprus still one of the most attractive EU tax jurisdictions despite CFC rules?

The answer is the unique combination of low taxes, EU benefits, and practical structuring options.

The Tax Benefits of Cyprus in Detail

Cyprus offers more than just a 12.5% corporate tax rate. The full package makes the difference:

Especially the 0% dividend tax makes Cyprus exciting as a holding location. Even if CFC rules apply, you can still optimise structures.

EU Benefits Germany Can’t Ignore

As an EU member, Cyprus has rights that Dubai or other jurisdictions lack:

• Freedom of establishment: Protection against discriminatory tax rules
• EU directives: Parent-Subsidiary Directive, Merger Directive
• Double Taxation Agreements: Over 60 treaties worldwide
• Anti-BEPS compliance: Internationally recognised standards

The upshot: German authorities cannot simply say, Cyprus is bad. They must prove actual tax avoidance.

The Reality: Substance Requirements Are Rising

Let’s be clear: The days of simple mailbox companies are over. Cyprus today demands real substance:

Minimum Requirements for Cyprus Companies

• Local director (does not have to be Cypriot)
• Annual shareholder meetings in Cyprus
• Cyprus-based accounting and tax filings
• Proof of economic activity
• Compliance with Economic Substance Requirements

Sounds elaborate? It is—at first. But it makes your structure legally secure—even against German CFC rules.

Cyprus IP-Box: A Secret Tip for Digital Entrepreneurs

Here’s where it gets exciting for those who work with intellectual property: Cyprus’s IP-Box regime allows 2.5% effective tax on qualified IP income.

How it works:

1. You develop or acquire qualified IP
2. It is managed in Cyprus (require substance!)
3. License income is taxed at just 2.5%
4. 80% deduction from the usual 12.5% rate

Best of all: IP-Box income often qualifies as active if you can prove genuine development activities. CFC rules often won’t apply in this case.

Developing Legally Secure Cyprus Structures Despite CFC Rules

This is the heart of the article: How do you set up your Cyprus structure so that it also works for German tax residents?

The answer: by smartly combining substance creation, proof of activity, and EU legal safeguards.

Strategy 1: Operative Business Activity in Cyprus

The safest way to bypass CFC rules is through genuine business operations in Cyprus. This means more than just administration—you must prove value-creating activities.

Practical Implementation for Different Business Models:

For IT entrepreneurs:

• Build up a development team in Cyprus
• Develop and maintain software on-site
• Customer support from Cyprus
• Local servers and infrastructure

For consultants and coaches:

• Deliver consulting services directly from Cyprus
• Local admin employees
• Acquire Cypriot clients
• Hold training programs in Cyprus

For e-commerce entrepreneurs:

• Storage and logistics in Cyprus
• Local marketing and sales team
• Product development on-site
• EU-wide sales from Cyprus

Bottom line: The activities must be real and verifiable. Sending a few emails a month is not enough.

Strategy 2: The EU Substance Structure

This strategy cleverly leverages the EU freedom of establishment. Build up genuine substance in Cyprus which can neutralise CFC rules even if there’s no major business activity.

The Three Pillars of EU Substance:

1. Personnel substance: Local director with actual authority
2. Spatial substance: Own office space (not just a mailing address)
3. Functional substance: Independent management decisions

In practice, that might look like this:

You establish a Cyprus management company to coordinate your German and international activities. A local director makes independent decisions about investments, partnerships, and business development. The company has its own offices and holds regular board meetings.

This structure can even work with passive income, provided you can show the company isn’t set up solely for tax avoidance.

Strategy 3: Smart Activity Mix

Here, you exploit the 10% rule. Make sure passive income stays below 10% by deliberately generating active income.

A practical example:

Result: Passive income is just 8%. CFC rules do not apply, even though you have considerable passive income.

The trick: Plan the mix from the outset—don’t try to fix it later.

Strategy 4: The Double-Irish-Dutch Alternative

This more complex structure uses multiple EU jurisdictions to sidestep both CFC and other tax traps.

Basic setup:

• German operative company: Manages business operations
• Cypriot holding: Owns IP and shareholdings
• Irish licensing company: Develops and manages IP
• Dutch intermediate holding: Optimises withholding tax

Each company has real functions and substance. Result: total tax load below 15%, fully EU-compliant and CFC-resistant.

But beware: These setups are complex and require professional guidance. They only pay off from certain profit sizes upwards.

Advanced Compliance Strategies for International Entrepreneurs

Let me be honest: Legal certainty is not created through tricks or loopholes. It’s built on meticulous compliance and professional documentation.

Here’s how to build your Cyprus structure to withstand even the toughest tax office audits.

The Golden Rules of International Compliance

Rule 1: Document Everything

The German tax office reverses the burden of proof for international structures: you must prove everything is legal. Thorough documentation is essential for survival.

What you must document:

• Business rationale for the Cyprus structure
• Independent management decisions of the Cyprus company
• Proof of substance (personnel, premises, activities)
• Arm’s length compliance for all transactions
• Full accounting records in both Cyprus and Germany

My tip: Keep a substance diary. Regularly document all activities in Cyprus—from meetings to decisions.

Rule 2: Plan Substance from the Start

Substance cannot be created retroactively. You need to build it from day one and expand it over time.

Sample substance plan for the first year:

1. Months 1-2: Incorporation with local director
2. Months 3-4: Renting own office space
3. Months 5-6: Hiring the first local employee(s)
4. Months 7-8: Establishing operational activities
5. Months 9-10: First contracts with Cypriot clients
6. Months 11-12: Documentation and evaluation

Substance costs money. But it’s much cheaper than an audit and CFC back-tax assessment.

Transfer Pricing: The Most Underestimated Compliance Trap

This is where many international structures fail: they forget to document transfer prices between their own companies.

The German tax office will always check if all transactions between group companies are at arm’s length. If you can’t prove it, painful corrections may follow.

Practical Transfer Pricing Compliance:

For royalties:

• Get an expert IP valuation
• Document development costs
• Regular benchmarking
• Apply recognised evaluation methods

For management fees:

• Clearly define services provided
• Record the actual time spent
• Check against market rates
• Create detailed service agreements

For loan interest:

• Conduct a creditworthiness check
• Document alternative finance options
• Use market interest rates
• Create professional loan agreements

The Country-by-Country Reporting Trap

From a certain size, multinational companies must file detailed country reports. The threshold is lower than many think: €750 million in group revenue.

But you should prepare for this even if you’re below that. Transparency requirements are rising constantly.

What You Should Be Documenting Now:

• Revenue and profits by jurisdiction
• Number of employees per location
• Taxes paid per country
• Main business activities per company
• Assets by jurisdiction

These data help not only with compliance, but also with optimising your structure.

The Anti-BEPS Compliance Checklist

The OECD BEPS initiative (Base Erosion and Profit Shifting) has fundamentally changed international tax rules. Your Cyprus structure must be BEPS-compliant:

Each action has specific requirements. Ignore a single one and you risk your entire structure.

Practical Implementation: From Theory to a Working Structure

Enough theory. Let’s get specific. How do you actually implement a legally secure Cyprus structure?

I’ll show you three proven implementation scenarios—from simple to complex.

Scenario 1: The Solo Consultant

Starting point: Thomas, 36, a German consultant with €400,000 annual revenue. Wants to reduce his tax rate from 42% to below 20%.

Solution: Cyprus operating company with real business activity

Step-by-Step:

1. Preparation (2 months):
   • Tax analysis of current situation
   • Pick the right Cyprus partners
   • Prepare the business move
2. Incorporation (1 month):
   • Incorporate Cyprus Consulting Ltd.
   • Register with Cypriot authorities
   • Open a business bank account
3. Substance building (3 months):
   • Lease office space in Limassol
   • Hire a local assistant
   • Relocate customer support to Cyprus
4. Operations (from month 6):
   • Acquire Cypriot/international clients
   • Provide consulting from Cyprus
   • Continually expand substance

Result: Effective tax load 15% (12.5% corporate tax + costs). CFC rules do not apply because of genuine business activity.

Investment: About €40,000 first year for substance. Savings: About €100,000 per year.

Scenario 2: The E-Commerce Business with IP Structure

Starting point: Elena, 42, e-commerce entrepreneur with own software system. €2 million revenue, high licensing income.

Solution: IP-Box-optimised structure with Dutch intermediate holding

Structure:

• Germany: Operations GmbH (operating entity)
• Netherlands: Holding B.V. (intermediate holding)
• Cyprus: IP Holdings Ltd (IP management and development)

How it works:

1. German GmbH pays royalties to Dutch B.V.
2. B.V. transfers royalties to Cyprus IP Holdings
3. IP Holdings continues software development and manages the IP portfolio
4. Profit is taxed at 2.5% via the IP-Box

Substance requirements:

• Development team in Cyprus (3 people)
• Own offices with development infrastructure
• Local IP manager with real authority
• Ongoing software development

Result: Total effective tax on IP income below 10%. Completely CFC-resistant due to real development activity.

Scenario 3: The Complex Corporate Group

Starting point: Robert, 45, corporate group with various companies, €15 million group revenue.

Solution: Multi-jurisdictional structure with central Cyprus holding

Structure diagram:

Cyprus Ultimate Holding Ltd. (Cyprus)
├── German Operations GmbH (Germany)
├── Dutch Finance B.V. (Netherlands)
├── Irish IP Holdings Ltd. (Ireland)
└── UAE Trading LLC (Dubai)

Each entity has specific functions and genuine substance. The Cyprus holding coordinates the group and optimises capital flows.

Compliance burden: Substantial, but justified at this size. Country-by-country reporting required.

Tax savings: Around €2–3 million per year if implemented properly.

Key Success Factors

Regardless of the structure, there are five key success factors:

1. Genuine substance: No mailbox companies—operate real businesses
2. Business rationale: A clear commercial reason for the structure
3. Professional support: Experienced advisers in all jurisdictions
4. Ongoing compliance: Continuously monitor all requirements
5. Flexibility: Adapt as tax laws change

If you neglect any of these, you put the entire structure at risk.

Smart Combinations: Cyprus + Dubai + Germany

This is where it gets truly exciting: combining multiple jurisdictions can maximise tax savings while minimising CFC risks.

Let me show you how Cyprus can be smartly combined with other jurisdictions.

The Cyprus-Dubai Combo

Dubai and Cyprus are a perfect fit: Dubai for operative business, Cyprus for EU access and holding functions.

Structure Model Mediterranean Bridge:

• Dubai FZE: Business operations, 9% corporate tax
• Cyprus Holding Ltd.: EU holding, IP management, 12.5% on active income
• German GmbH: Local activities if required

How it works:

1. Dubai FZE provides services (consulting, IT, trading)
2. Cyprus Holding licenses IP to Dubai FZE
3. Profits are transferred as dividends to Cyprus (0% withholding tax)
4. Cyprus Holding further optimises distributions

CFC protection: Dubai entity is genuinely active, Cyprus holding has EU protection. Double safety net against German CFC rules.

The Cyprus-Malta Combo

Malta offers unique tax advantages for certain activities. Combined with Cyprus, attractive optimisations are possible.

Structure Model Mediterranean Triangle:

• Malta Trading Company: Trading activities, 35% nominal, but 5% effective tax
• Cyprus Finance Ltd.: Finance entity, 12.5%
• Cyprus Ultimate Holding: Group holding, dividend exemption

Malta’s refund system drastically reduces the effective tax. Cyprus optimises profit distribution across the EU.

The Cyprus-Ireland Combo

Ireland is the premium location for IP structures. Combined with Cypruss flexibility, the result is highly efficient structures.

Structure Model Celtic-Mediterranean IP Structure:

• Irish Development Company: IP development, R&D relief
• Cyprus IP Holdings: IP licensing, IP-Box (2.5%)
• Cyprus Management Company: Coordination and control

Special feature: Ireland’s R&D relief reduces development costs. Cyprus’s IP-Box optimises the taxation of licence income. Perfect partnership.

The Limits of Smart Combinations

But beware: Complexity comes at a price. Multi-jurisdictional structures are only worthwhile above a certain scale.

Minimum sizes for various setups:

So my advice: Start simple and add complexity as you grow. An over-engineered structure with insufficient profits is wasted money.

Future Trends in International Structures

International tax planning is evolving rapidly. Trends to watch:

• Digital nomad regimes: Portugal, Estonia, Barbados are creating new opportunities
• Pillar Two (15% minimum tax): Applies to big groups, but trend extends to smaller setups
• Substance requirements: Constantly tightening
• Automatic information exchange: Transparency is increasing
• Brexit after-effects: UK is becoming attractive again for certain structures

Successful international tax planning today: Flexibility and ongoing adaptation.

The 7 Most Common Mistakes with Cyprus Structures

Let me be honest: I’ve seen countless failed Cyprus structures in recent years. The same mistakes usually cause their downfall.

Here are the seven most common—and how to avoid them.

Mistake 1: Underestimating Substance

The mistake: I’ll quickly set up a Cyprus company and immediately save taxes.

The reality: Without genuine substance, your structure is worthless. German tax authorities will spot mailbox companies immediately.

The fix: Plan substance from day one. As a minimum:

• Local director with real authority
• Your own offices (not just a postal address)
• Independent management decisions
• Proven local activities

Cost: €20,000–40,000 per year. But far cheaper than a CFC back tax plus interest.

Mistake 2: Ignoring Transfer Pricing

The mistake: Intra-group transfer prices are set by feel.

The reality: The tax office corrects non-arm’s length prices. Back taxes can be ruinous.

Example: You pay €50,000 in royalties to your Cyprus entity. The tax office says: Market rate would be €20,000. Correction: €30,000 additional German profit at 42% tax = €12,600 plus interest.

The fix: Professional transfer pricing documentation from the outset.

Mistake 3: Misjudging CFC Rules

The mistake: Cyprus is in the EU—CFC rules don’t apply.

The reality: Even EU companies can be subject to CFC rules. The EU status protects you only if there are genuine business reasons.

The fix: Detailed CFC analysis before structuring. Check:

• Degree of control (>50%)?
• Effective tax burden (<25%)?
• Share of passive income (>10%)?
• Available exemptions

Mistake 4: Sham Activity Rather Than Real Operations

The mistake: Thinking a few monthly emails from Cyprus count as active business.

The reality: The tax office sees through sham activities. The result: Full profit reallocated to Germany.

Warning signs of sham activity:

• Director with no real authority
• All major decisions made in Germany
• No local customers or suppliers
• Unusually high profits without service

The fix: Build real business activity, don’t just simulate it.

Mistake 5: Complexity Without Benefit

The mistake: Over-engineered structures with 5+ companies for moderate profits.

The reality: Complexity costs more than it saves—and the risk of mistakes skyrockets.

Rules of thumb for structure complexity:

• Below €500,000 in profit: Simple structure
• €500,000–2 million: Moderate complexity
• Over €2 million: Complex structures possible

The fix: Start simple. Grow into complexity over time.

Mistake 6: Neglecting Compliance

The mistake: Ongoing compliance is ignored after setup.

The reality: Compliance failures make even the best setup worthless.

Critical compliance points:

• Proper Cyprus-based accounting
• Timely tax filings
• Proof of economic activity
• Transfer pricing documentation
• German notification requirements

The fix: Establish professional compliance processes from the start.

Mistake 7: Forgetting the Exit Strategy

The mistake: No one thinks about how to exit the structure later.

The reality: A poorly planned exit can trigger substantial back taxes.

Example: Closing a Cyprus company can lead to hidden reserves being taxed in Germany. Without planning, a 42% tax is due on profits you thought were already taxed.

The fix: Plan exit strategies from the outset. Choose flexible setups.

The Cost Factor of Failed Structures

One real-world example: An entrepreneur built a cheap Cyprus structure without substance. Annual cost: €8,000.

The tax office discovered it. The bill:

• CFC back taxes: €180,000
• Interest: €45,000
• Penalty: €20,000
• Legal and consulting fees: €35,000
• Total damage: €280,000

A compliant structure would have cost €35,000 annually but saved €150,000 in taxes each year. The entrepreneur wanted to save €27,000 and lost €280,000.

My advice: Invest in quality. Don’t cut corners where it matters most.

Your Next Step Towards a Legally Secure International Structure

In closing, let me be frank: CFC rules don’t make international tax planning impossible—they just make it more demanding.

If you’re willing to invest in real substance and professional compliance, you can still enjoy substantial tax advantages even under German tax residency. The days of quick mailbox tricks are over. But the era of smart, legally secure structures is just beginning.

Your Three Options for Moving Forward

Option 1: Maintain the Status Quo

• You keep paying up to 47% tax in Germany
• No risks, but also no optimisation
• Less and less competitive over time

Option 2: Do-It-Yourself Approach

• You try to handle everything yourself
• High risk of mistakes
• Often more expensive than professional advice

Option 3: Professional Structure Development

• Systematic analysis of your situation
• Tailored, legally secure solution
• Ongoing compliance support

Which option will you choose?

Main Takeaways from This Article

1. CFC rules can be overcome: With real substance and a business rationale, Cyprus structures work even for German tax residents.
2. Substance is key: Invest in actual on-site activities from day one. Mailbox companies are dead.
3. EU law protects you: As an EU member, Cyprus has rights others don’t—leverage those.
4. Compliance is vital: The best structure means nothing without documentation and ongoing compliance.
5. Complexity must pay off: Start simple and add complexity as you grow.
6. Mind transfer pricing: Intra-group pricing must be at arm’s length—never ignore this.
7. Plan for exit: Always consider how you’ll adjust or dissolve the structure later.

My Personal Advice to You

International tax planning isn’t a sprint—it’s a marathon. Shortcuts rarely pay off in the long run. Those willing to invest in substance and compliance can enjoy real advantages even as rules tighten.

Cyprus remains one of the most attractive EU tax locations—but only for those who understand and apply the rules professionally.

The question isn’t whether you should do international tax planning. The question is whether you’re doing it right.

I hope this article has helped you ask the right questions—and find the right answers.

Yours, RMS

Frequently Asked Questions about Cyprus CFC Rules

Do CFC rules apply to EU companies like Cyprus?

Yes, German CFC rules fundamentally also apply to EU companies. However, EU companies have special protection via the freedom of establishment. If you can prove your Cyprus company exists for genuine business reasons, not just tax avoidance, CFC rules often don’t apply.

How much substance do I really need in Cyprus?

There are no fixed minimums, but as a rule of thumb: you need a local director with real authority, your own office space, and verifiable business activities on site. The higher your profits, the more substance you should have. For €500,000 profit, you should have at least 2–3 local employees.

What happens if the tax office applies CFC rules?

The tax office adds your Cyprus company’s profits to your German income. You’ll pay German income tax rates (up to 47%) minus the taxes paid in Cyprus. You may also owe interest and penalties. Corrections after the fact can be very costly.

Can I avoid CFC rules using the 10% test?

Yes, if passive income is under 10% of gross revenues, CFC rules don’t apply. You must plan for this from the outset—changes after the fact are difficult. Important: Active business activities must be real, not fake.

Is a Cyprus structure still worthwhile despite CFC rules?

Yes, if implemented properly. The key is genuine substance and professional support. As a rule of thumb: from €200,000 annual profit upwards, a simple Cyprus structure makes sense. For higher profits, more complex setups may be worthwhile.

How should I document my Cyprus business activities?

Keep a detailed substance diary: record all meetings, business decisions, and activities in Cyprus. Collect proof of local staff, office space, and business relationships. This documentation is gold during a tax audit.

What costs are involved with a compliant Cyprus structure?

Setup: €15,000–35,000 depending on complexity. Ongoing: €15,000–40,000 per year for substance, compliance, and advice. It sounds like a lot, but with €500,000 profit you still save over €100,000 annually in taxes.

Can I move my existing German GmbH to Cyprus?

Theoretically yes, but in practice it’s very complicated and risky for tax purposes. Usually, it’s better to form a new Cyprus entity and gradually transfer functions. That way you build substance organically and control CFC risk better.

How do I combine Cyprus optimally with other locations?

Cyprus works excellently as an EU holding with operating companies in Dubai, Malta, or Ireland. Each location should have real functions. But note: Complex structures are only economical for larger profits and require professional support.

What are the biggest risks with Cyprus setups?

The main risks are: lack of substance, non-arm’s length transfer pricing, poor compliance, and excessive complexity. Avoid these with professional planning and ongoing advice. A well-structured setup is far cheaper than fixing things after a tax audit.