Income of Your company after paying all taxes approaches zero? You don’t calculate whole sum of taxes due in advance? Your business is registered merely in one jurisdiction? If answer for one or for all questions is “yes”, then it will be beneficial for You to get acquainted with possibilities of “tax planning”. By its notion, tax planning means set of lawful, measures employed by taxpayer in order to decrease expenditures for paying taxes, duties and other mandatory payments. The simplest example of tax planning is calculating all taxes in advance, before any economic transaction.
Legarithm provides following “tax planning” services:
– Analysis of all taxes, duties and other mandatory, state payments, which have been paid by Your company for the last fiscal period;
– Examining of existing tax paying schemes developed by specialists of Your company;
– Consulting concerning particular transactions;
– Expert report on unregulated or disputed tax issues;
– Consulting on avoiding double taxation, in particular, during conducting transactions with foreign entities;
– Lawful minimization of taxes, due to business restructuring, revising contractual basis, decreasing of tax bases and other methods;
– Risk assessment concerning employment of different tax optimization methods.
International tax planning
It is gold rule that one-size-fits-all recipe for any type of business that can significantly reduce taxes through legal means does not exist. The reason lies in many factors, ranging from the fact that different jurisdictions have different benefits for different industries and ending with the possibility of full-fledged operation (opening bank, merchant accounts) or its absence in some jurisdictions.
Thanks to a significant amount of accumulated knowledge, experts in the field of tax law are able to choose the optimal functioning model for you. In any case, when it comes to preserving some of the taxes by using offshore companies, here’s what you should know about the four main types of tax systems:
- Countries with low tax rates
There are countries where the tax rate is approximately 12.5%, we aware that it is not zero, but you can believe us that, countries with a zero tax rate will suit hardly anybody. On the other hand, by incorporation of your company in such type of jurisdiction, it will be possible to gain access to a larger capital market and enjoy the preferences provided by double taxation agreements, because we are talking about such countries as Bulgaria, Cyprus, Montenegro, Mauritania. If you still think that 12.5% is a too much, think about the 18% + that exists in your jurisdiction.
- Countries with a system of deferred tax
This category of countries, from our point of view, is the most interesting, since despite the fact that for the most part in such countries the tax rate is at a sufficiently high level (15% +), your company will pay nothing in taxes until you decide to distribute the profit among the owners, in other words, such a system is also called a tax on withdrawn capital. These countries include Estonia (20%), Georgia (15%), Macedonia (10%). With this system your company will be able to develop, and you, as an owner, will receive bank loans with low tax rates, secured by corporate rights, thus “killing two birds with one stone,” while minimizing the tax burden by legal methods.
- Countries with special tax regimes
As a rule, in this category of countries, a different tax system has been created for the business with sources of profit located outside the jurisdiction. An example of this jurisdiction can be Hong Kong or Malta, because in the first case, the tax rate reaches 16.5%, and in the second even more, but if you are not a resident, and your business operates outside Malta, the special tax rate will be 5 %, and even less in some cases.
- Countries with a zero tax rate
Yes, these are they, the countries that we imagine saying “offshore”, because the tax rate is at the level of 0% or near it, such jurisdictions include Belize, the British Virgin Islands, Seychelles, and some territories of the UAE. When incorporating a company in one of these jurisdictions, you must also consider its reputation and your needs.
Tax planning for individuals
Having selected the right tax planning tools for your company and legally reduced the amount of taxes paid, it is necessary to understand that this is not the end, because after the company has paid taxes, you, personally, still cannot use this money. It remains to pay personal income tax. Again, everything is very individual and the ability to reduce the tax burden legally depends on the willingness to take “radical” measures: changing citizenship or obtaining the second one, changing tax residency or place of primary living. We will select the option that suits you, but first we suggest you to familiarize yourself with the schemes present in various jurisdictions.
- Countries with zero tax
Obvious option? Of course, it seems that obtaining citizenship or resident status in one of these countries is the easiest way to pay zero in personal taxes. But in practice, not everything is so simple, because it is almost impossible to obtain citizenship of such countries (UAE) or requires financial investments that significantly exceed the taxes that you pay now (Monaco, Vanuatu). For this reason, such a solution is suitable for an incredibly limited circle of people and in practice we have not yet recommended it to anyone.
- Countries with low tax rates
These are countries that tax those persons who have spent more than six months on their territory, perceiving them as tax residents. In any case, such countries are becoming more and more popular, they include Montenegro (9%) and Bulgaria (10%). Of course, an important point is not just a low tax rate, but also the absence of rules on controlled foreign corporations, in this case, only distributed income and salaries will be taxed, while all other profits may remain undistributed.
- Countries with low tax rates on earnings gained outside its borders
This option is much less obvious, but possible for a bigger circle of people. The bottom line is that the normal tax rate (sufficiently high) applies only to those sources of income that were received within the country. These countries include Costa Rica, Georgia, Nicaragua, Singapore, Hong Kong, Malaysia, Thailand.
- Countries allowing to obtain the status of a living non-resident
Quite a strange design, and again, not suitable for everyone. An example of such a scheme is the United Kingdom, where it is possible to obtain this status through the purchase of real estate and investment. It should be borne in mind that the cost of living in such countries is usually extremely high and this status imposes some restrictions on you in doing business.
- Countries calculating tax based on a fixed amount
This system is not common and consists in the fact that the tax is calculated on the basis of a certain amount, for example, the cost of renting your home multiplied by coefficients, Switzerland is an example.
Each situation has its own characteristics and depends heavily on a starting point: the country of your current citizenship, residence, your willingness to change your place of living, your willingness to invest in other jurisdictions. Of course, legal means of tax optimization is possible, employing which you will not need to radically change anything in your own life, but the number of possible tools in this case also decreases.
We don’t offer our clients services on “tax evasion” and other illegal schemes. All our decisions are individual, and we always take into account size of Your business, industry in which You operate, number of counterparties, Your purposes and ambitions.