There are several ways to optimize your Tax Strategy. Whether a Stand-Alone Business, a Group, or a High Net Worth Individual (HNWI) CYAUSE Tax Department has the necessary tools to ensure that your tax is optimized in the best possible way. We offer a comprehensive and structured approach to assess your needs and recommend incorporation onshore or offshore to reduce corporation tax and bring dividend taxes to a minimum. For Established Group Structures this is usually achieved through the use of Holding Companies whilst for Stand Alone, Independent Companies this may be achieved by forming International Business Companies in "tax havens" such as Belize, the Cayman Islands, or Seychelles to mention a few.
Enable High Net Worth Individuals to receive Worldwide Dividends Entirely Tax-Free.
High Net Worth Individuals can take advantage of Special Tax Regimes offered by countries that enable them to receive Worldwide Dividends Entirely Tax-Free or even to Acquire EU Citizenships. Since one size does not fit all, our tax experts adopt sophisticated processes and in-depth, consultation work to reach the best offering for your needs.
Therefore, whether our clients seek Tax Optimisation or Asset Protection Strategies the following areas must be decided in reaching an Optimum Solution:
- Suitable Tax Jurisdiction (i.e location, which country)
- Suitable Entity / Vehicle (i.e type of company used)
- Commercial Terms (restrictions in the usage of the structure)
- Banking Restrictions (i.e easiness to set up bank accounts)
- Filing Requirements (easy or cumbersome)
- Set Up Costs
- On-Going / Maintenance Costs
The amount of tax payable by any individual or company is determined by the tax jurisdiction it falls under.
How to Minimise Tax?
The amount of tax payable by any individual or company is determined by the tax jurisdiction it falls under. Therefore to reduce your taxation amount to the absolute minimum, it is imperative to select the appropriate tax jurisdiction that meets your needs.
What is a tax jurisdiction?
A tax jurisdiction is the location of the creation of the International Business Company (IBC). This location is very important as it determines the tax applicable to the Company and the legal and structural requirements of the IBC by the local government.
The tax jurisdiction will determine:
- the filing obligations of the IBCs
- the share structure (share classes, share rights, special arrangements for specific shares)
- the need to prepare management or audited financial statements
- the need to prepare and submit tax returns
- whether the director, secretary and officer of the company are on public record
- the legal framework of the company
- bilateral agreements with other jurisdictions
- whether a substance is required
- judicial framework of the company
- Automatic exchange of information status
How do you Select a Tax Jurisdiction?
With the help of a Tax Expert.
Even though the majority of information is available, following the global war against organized crime, terrorist activities, and money laundering there are frequent changes in the Corporate and Banking requirements which affect the Context and Manner business is conducted. FATCA and CRS explained below are new banking developments whilst Tax Information Exchange Agreement (TIEA) is a recent tax development.
FATCA, CRS, TIEA
a) FATCA which stands for "Foreign Account Tax Compliance Act" requires that any financial institutions such as banks, investment firms, and any service provider such as lawyers accountants, and registered agents submit to the USA IRS information about the Ultimate Controlling Party and Entities tax jurisdiction.
This information is updated annually.
Learn more about FATKA.
b) CRS which stands for "Common Reporting Standard" is a banking mechanism where all participating banks automatically send information for their non-local, tax resident clients who use "passive" banking facilities to their central banks, and the latter then send this information to the ECB which maintains these data.
Learn more about CRS
TIEA stands for Tax Information Exchange Agreement (TIEA) and it is currently signed by more than twenty countries; USA, Germany, UK, France, and many others. Unlike the CRS and the FATCA, the TIEA is NOT automatic; it is upon request by a participating Government. To be pursued, the overseas Government must have serious, justified grounds for the inquiry which must be evidenced on solid grounds. If the strict procedures and evidence are accepted by the local Government (say the BVIs), then the BVIs may confirm the information the enquiring Government already has in its possession and NOT disclose any other additional information held by the BVI.
Before Choosing a Tax Jurisdiction You Must Consider the Following:
- The Judicial System of the country,
- The Banking Structure of the country
- Costs for Setting Up & Maintaining a Company
- The Culture of the Jurisdiction.
Of course, there are also other factors to consider, such as local taxes and the quality of local professionals to name a few, however, the above factors will determine the quality and ease of your conduct of business which is of primary importance. Let's examine them in more detail.
It is very important to select a jurisdiction with a fair, strong, and efficient judicial system. This is because very often shareholders dispute and in some cases, a court decision must be obtained to resolve such disputes. If the court is fast and efficient such disputes are resolved and the company will continue its operations smoothly. If however court proceedings take a long time to be completed then this may hurt the operations of the company and even its forced closure.
Another major consideration and of paramount importance is whether or not the jurisdiction belongs within the European Union. If for instance a shareholder or a director wants to dispute a local court decision taken by the courts of Malta or Cyprus then the company can apply to the European Court of justice. On the other hand, if a company is established in the UAE, let's say in Dubai for instance, it is Less Likely that such a local court decision is challenged.
Following the global war against terrorist activities and money laundering, the banking requirements especially within the European Union have become stricter. As a result, money coming in from all jurisdictions is thoroughly examined by the banks which needs to be satisfied over the origin of funds and the commercial sense of the transactions. The banks may request supporting documentation for such transactions including the preparation of audited financial statements. As a result, even though one jurisdiction does not demand audited or management information to be prepared or filed locally, the European Banks may request such information. Therefore, the cost of the maintenance of the company increases as a result.
Consequently, it is very important to consider the banking transactions the company will have with other counterparties and where their banks are located to avoid unnecessary delays, frustration, and costs as a result.
Costing must be broken down into two parts. Incorporation & Maintenance Cost
Costs (Set Up & On-Going)
When it comes to cost, it must be broken down into two parts. Incorporation cost and maintenance cost. Incorporation cost is straightforward as the majority of jurisdictions cost fairly the same with the most expensive jurisdiction being app. Euro 1,300 is more expensive than the rest.
Similarly, the local disbursements for the initial setup may vary but they are not significant to justify further analysis as the more expensive jurisdictions may vary by Euro 500.
The most important cost to consider is the post-incorporation cost (the ongoing costs) which vary depending on the Jurisdiction, Service Providers, or Local Registered Agent's schedule of fees. As a result, such a comparison can not be accurately performed especially for jurisdictions that require audited financial statements as costing varies depending on size, complexity, and risk exposure to the auditor.
However, it is safe to assume that a high cost of living jurisdiction such as the Netherlands would be a more expensive jurisdiction to maintain an IBC than a smaller county in Belize Cyprus, or Malta. If for instance, the International Business Company requires audio t and legal services following a bank request for additional information, it is safe to assume that this incremental cost is expected to be much lower in Cyprus and Malta than in the Netherlands. Similarly, disbursements (government fees) for the creation of government documents or the apostilations of such documents are also expected to be lower in the Seychelles or Belize for instance than in Luxembourg.
Culture and language determine the manner and speed we contact the business. It is therefore very important to examine or assess the culture of jurisdiction before incorporation. For instance, it is safe to assume that EU jurisdictions such as Malta, Cyprus, the BVIs, and the Isle of White are likely to be more efficient, digitized, and easier to do business with than a jurisdiction in the Middle East where there are linguistic and cultural differences that may cause delays and inefficiencies.
Similarly, it is safe to assume that it will be much easier to set up a bank account for any company in the United Kingdom, Cyprus, or Germany than anywhere in the UAE or China (for instance) due to the numerous procedural and language barriers simply because of the vast difference in culture which as a result, could impair the conduct of business.
Even though in absolute terms some jurisdictions have clear advantages over others the comparison must be made with the use of a Tax Expert who will also consider other factors in determining the most Suitable Tax Jurisdiction for you such as Commercial Terms, Legal Framework, Banking needs, Physical Presence, Financing Needs, Taxes. Our Tax Department is engaged in these structures daily and would be more than happy to assist you.
CYAUSE Audit Services Ltd is a dedicated firm committed to providing SMEs and individuals with unwavering levels of tax and accounting services. Our knowledgeable staff work tirelessly to ensure clients' needs are met at the highest level. We provide a full spectrum of services with an emphasis on Company Incorporation offshore & onshore, Audit & Assurance services, Accounting and International Tax Planning to our local and international clientele.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.