Tax-free Offshore Jurisdictions – How to Make the Right Choice
So let's start with offshore jurisdictions definition. According to the generally accepted one, offshore jurisdiction (sometimes also called low tax or zero tax country, tax free jurisdiction) is a country, or its part, within which special taxation rules are applied to companies with foreign capital or foreign private individuals with simplified registration and reporting system and other preferences. As a rule, offshore companies do not operate in the local market of the country in which they are registered.
Sometimes it can be difficult to choose a tax-free jurisdiction for creating a business for the modern entrepreneur and a potential investor. Today one can make a choice from a number of offshore jurisdictions in Europe, Asia, America and other continents (the list of best offshore jurisdictions includes more than 50 countries and even more particular areas in them, so one has lots of options to choose from). They offer competitive advantages and benefits in terms of taxation for the private business, and the conditions of the registration of the international companies are different everywhere.
According to the independent experts, one should approach responsibly to the choice of a tax-free country, because your future business activity depends largely on it. First of all, you need to determine the purpose of the formation of the international company, and to make an approximate business plan. Then you should define the territorial attachment. For example, you are going to make a brokerage or trading in the Asian region, and, accordingly, to gain profits there. In this case, it is useful to examine the opportunities for business in Singapore or Hong Kong.
What to choose – the traditional offshore schemes in Cyprus or Europe, Singapore or Hong Kong, or maybe it is worth to pay attention to the UAE. We offer to your attention a brief overview of the countries which are the most popular in terms of optimization of the taxable base.
Hong Kong has long been recognized as the region's largest financial center and an ideal platform for the implementation of agency operations in South and East Asia. If the international company is not engaged in the commercial or economic activities within the country, it is fully exempted from the corporate taxation.
The legal system of this offshore country is based on English law.
Tax advantages of Hong Kong:
- Tax rate of 17.5% is levied only on the income gained in the territory of the country;
- Companies that operate outside the country are not taxed;
- The tax rate of the income of the natural persons is less than 16%;
- Profit on the interests on deposits in Hong Kong are not taxed;
- No taxation of capitalization and income on capital;
- Paid out and collected dividends are also exempted from taxation.
Observance of certain conditions is necessary in order for the international company to count on the above-mentioned benefits, in particular:
- All the invoices, contracts, and commercial agreements are signed outside the country;
- The physical presence of your goods is excluded from the territory of the country;
- The manager of the international company must be a foreign citizen;
- It is prohibited to do business and to carry out commercial operations in favor of local companies.
Conditions of registration of an international company
Registration of an international company and the further economic activity are implemented under the following conditions:
- The minimal number of managers and shareholders of an international company is one (usage of the nominee service is acceptable);
- The availability in a company of a local secretary, who lives in Hong Kong is obligatory (usage of the nominee service is acceptable);
- The availability of the officially registered office in the territory of the country is obligatory;
- The share capital may be paid in any foreign currency, there is no minimum threshold;
Financial and tax reporting
Annual audit and provision of the financial reporting are obligatory for the international companies in Hong Kong. The first report must be filed not later than after 18 months after the registration of the company. If the international company does not operate in Hong Kong, a financial report and the appropriate application for the provision of the tax incentives are submitted to the IRS. In the case of receiving a notification of providing financial reporting from the public authorities, it should be submitted not later than in three months.
The international analysts admit that Singapore, in recent decades, has become very popular as an offshore jurisdiction for the registration of international companies. This offshore country is not included in the "black list" of the offshore companies.
The fiscal and tax law of Singapore for the international companies provides for the territorial principle. In other words, if an international company does not gain profits in the territory of Singapore, it is fully exempted from corporate taxation. The tax system of Singapore excludes the following types of payments:
- Taxes on dividends, which are collected in any country;
- Taxes on gains on capital of the company;
- Taxes on bank interests and profits from the investment activity.
The international agreements, which provide the reduction of the tax rates, are signed between Singapore and other countries. Conditions depend on the relevant agreement.
Registration of international companies
In terms of time, the procedure of registration of an international company in Singapore may take about two weeks. It should be noted that here there are higher requirements for the provision of the documents. For registration of an international company you will need the following documents:
- Notary-certified copy of the foreign passport of the founder;
- A document which proves the actual place of residence (receipt for payment of the utility bills, etc.);
- Recommendation letter from a banking institution;
- Declaration of the company certified by the auditor or a lawyer;
- Informal explanation of the origin of financial assets;
- A letter of recommendation from the audit or legal company in English and with the application of the relevant license.
Also, the obligatory requirement is that the director of the international company must hold the status of a tax resident of Singapore.
This island country of Europe, remains the most optimal offshore country for effective tax planning. Unlike the other European countries, Cyprus has the lowest tax rate on the withdrawn profit, which is 10%. In addition, the local fiscal and tax system excludes such types of taxes as:
- Dividend income taxes;
- Taxes on income from capitalization and increase of capital;
- Taxes on income from the sale of securities of the company.
Moreover, there is no taxation of income of the foreign companies, when paying the profits by the local establishments. Payments for the foreign workers and employees of the company are also exempted from taxation.
Usage of international companies
The company which is registered in the jurisdiction of the island country Cyprus can be used for the following activities:
- Carrying out the agency or trading operations;
- Provision of professional services;
- Registration of a subsidiary or a foreign office;
- Gaining profits in the forms of royalty, dividends, and interests;
- Implementation of construction or installation activities;
- Management and ownership of the ocean vessel;
- International tax planning in the frameworks of the bilateral agreements.
Registration of an international company
The procedure of registering an international company in the Cyprus jurisdiction can take a couple of weeks. You will need to provide the following set of documents:
- Certified copy of the foreign passport of the founder;
- Recommendation letter from a banking institution;
- A document which proves the place of residence of the founder;
- A detailed business plan and a description of the planned activity.
Financial reporting and audit
The norms of the local legislation imply that all the companies, which are registered in Cyprus and possess a status of a tax resident, are obliged to submit the annual financial report. The financial audit prepares all reports. Submitted declarations can be reviewed within six years.
The country fiscal authorities reserve the right to request the additional information as may be necessary. This can be information about the audit, contracts, certificates, etc. All the divergences and controversies with the fiscal authorities can be solved in a court at the initiative of one of the parties.
UAE: Ras Al Khaimah Emirate and other Emirates
According to the results of the study, which was conducted by the investment publication FDI, the Ras Al Khaimah Emirate in the UAE is on the top of the list of attractive places in the investment terms, cities. Moreover, the Emirate holds the 17th place among the hundreds of the best offshore jurisdictions in the world.
For businessmen, the main advantage is the possibility of registering a tax-free offshore company, and also the absence of bilateral agreements between the UAE and other countries, which are aimed at the information exchange. The Ras Al Khaimah Emirate is ready to offer for private business a very flexible system of corporate law and the maximal loyalty to foreign direct investors.
Fiscal and tax system of the Emirate exclude such forms of taxation such as:
- Corporate taxes on the withdrawal of the profits;
- Income taxation of private individuals.
There are no requirements for the provision of financial and tax reporting for offshore companies and entities. There are certain restrictions for the offshore companies, for obtaining a complete list of tax benefits and opportunities, in particular, these are:
- Offshore companies do not have the right to carry out economic and commercial activities on the territory of the jurisdiction;
- An offshore company may not acquire the real estate into the ownership in the Emirates.
Registration of an international company in the UAE
The procedure of registering an offshore company in the UAE is simplified to the maximum extent, and administering and maintaining the company do not require significant costs. Availability of a registered agent is the obligatory condition of registering a company. The possibility of the nominee service is acceptable for the maximum privacy and secrecy of information.
The Netherlands, as a tax-free country is of more interest for the international holding structures. But it is important to understand that it will happen by hardly possible to provide the necessary level of confidentiality of the information about the ultimate beneficiaries.
The experts acknowledge that this country is ideal for the following purposes:
- Gaining the profits which are stipulated by the international agreements (royalties, dividends, interests);
- For the reduction of the existing property risks for holding formations.
There is a number of requirements for ensuring the loyalty of the local authorities to the international companies, among which there are: availability of a local manager, financial reporting is conducted within the state, the share capital of the company is not less than 2 million Euros, etc.
Registration of an international company
Registration of an international company in the Netherlands may take from 3 to 6 calendar weeks. You have to submit the following documents to the registration authorities for registration:
- Copy of the passport of the founder;
- A written explanation of the origin of the financial assets;
- Filled in form questionnaire of the Ministry of Justice.
Use contact us form to gain a complete understanding of the possibilities and advantages of every single country. Our experts will help you to choose the optimal offshore country for your business. Trust the professionals, and get an effective solution to all your matters.