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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…

Is your corporation really tax-free?

One of the most critical issues to consider when deciding where to establish your personal tax residency are

‘corporate tax residency’ rules – if the company is controlled and managed from a specific jurisdiction, it may be deemed as tax resident in such jurisdiction.

‘permanent establishment’ rules – if the company has a place of business or an agent exercising the authority to conclude contracts, it may constitute a permanent establishment, and income arising from such establishment subject to taxes locally.

‘controlled foreign companies’ (CFC) rules – CFC rules apply to nonresident companies held by resident individuals. Income retained in your CFC 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.

We’ve tried our best to compile these and put them in our and applications.


(Corporate and Personal) Tax residency is one of the most important flags to plant and it could make a difference come tax time. Combined with the appropriate 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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