What you must know when going offshore…and an offshore salesman won’t tell you…
Today we will talk about one of the more complex topics, one of the things that a salesman won’t mention, but the taxman will and yell ‘gotcha’.
Let’s say you’ve set up an offshore company from a high tax jurisdiction (North America, Europe) as you think you are being clever – but haven’t followed the full set of Flag Theory criteria…
Controlled foreign company rules. Is your corporation really tax-free?
One of the most critical issues to consider when deciding where to establish your tax residency is ‘controlled foreign companies’ (CFC) rules.
CFC rules mean that income retained in your foreign entity may be subject to taxation. Implications of CFC rules vary. In some countries, they only apply to the corporate level (holding company) or on passive income (with different thresholds and passive income tests) and others on controlled foreign entities located in low-tax jurisdictions, among other cases.
Generally, you wouldn’t want to establish tax residency in a country that has CFC laws.
Tax residency is one of the most important flags to plant and it could make a difference come tax time. Combined with a powerful corporate structure, you can legally slash your tax burden significantly.
In an increasingly transparent world where governments and financial institutions are automatically exchanging information, it is not wise to think that you will be able to hide in the shadows without the authorities being noticed.
Be wise and properly set up your tax residency and international business structure. It is completely legal. And always seek tax advice from a qualified practitioner before taking action.
At Flag Theory, we can help you navigate through the world of tax residency. Whenever you are ready, just sign up for a consultation call, we will be happy to assist you.
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