- within Tax topic(s)
- in United States
- within Tax, International Law and Immigration topic(s)
How to minimise tax?
The amount of tax payable by any individual or company is determined by the tax jurisdiction it falls. Therefore in order to reduce your
taxation amount to the absolute minimum it is imperative to select the appropriate tax jurisdiction that meet 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 is on public record
- the legal framework of the company
- bilateral agreements with other jurisdictions
- whether 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 organised crime and terrorist activities there are frequent changes in the reporting requirements of local Governments and local banks therefore you must be informed of the latest developments by your tax experts.
Factors to consider
The main factors to consider before choosing a tax jurisdiction are the judicial system of the country, banking, costing and the culture of the jurisdiction. There are also other factors to consider which are explained in more details in the incorporation section of our website however these factors will determine the quality and ease of your conduct of business.
Judicial System
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 have a negative impact to the operations of the company.
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 of Cyprus then the company can apply to the European Court of justice. On the other hand, if a company is been established in the UAE, let's say in Dubai for instance, it is less likely that such a local court decision is challenged.
Banking
Following the global war against terrorist activities and money laundering, the banking requirements especially within the European Union have becomes stricter. As a result, money coming in from all jurisdictions are more thoroughly examined by the banks which needs to be satisfied over the origin of funds and the commercial sense of the transactions. Therefore the banks may request supporting documentation for such transactions including the preparation of audited financial statements. Therefore, even though a jurisdiction does not demand such 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 counter-parties and where their banks are located to avoid unnecessary delays, frustration and costs as a result.
Costing
When it comes to costing, it must be broken down into two parts. Incorporation cost and maintenance cost. Incorporation cost is straight forward as the majority of jurisdictions cost fairly the same with the most expensive jurisdiction been more expensive by app. Euro 1,300.
Similarly the local disbursements for the initial set up may vary but they are not significant to justify further analysis as the more expensive jurisdictions may vary by Euro 500. The important cost is the post incorporation cost which varies depending on the service providers or local registered agents schedule of fees. As a result, such a comparison can not be accurately be prepared.
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 IBC requires audit and legal services
following a bank request of additional information, it is safe to assume that this incremental cost is expected to be much lower in Cyprus and in 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 Luxembourg.
Culture and language determine the manner and speed we contact business. It is therefore very important to examine or assess the culture of a jurisdiction prior incorporation. For instance it is safe to assume that EU jurisdictions such as Malta, Cyprus, the BVIs and Isle of Wight, are likely to be more efficient, digitised 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 different culture and as a result, conduct of business.
CONCLUSION
To sum up, even though in absolute terms some jurisdictions can have clear advantages to 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 such as commercial terms, legal framework, banking needs, physical presence, financing needs, taxes.
About Us
CYAUSE Audit Services has extensive experience in the insurance industry has helped tens of insurance brokers and agents register and get licensed by the local Cyprus regulator granting them passporting access to the rest of the European Union.
CYAUSE Audit Services is an Audit & Assurance firm with offices in Cyprus and the UAE. During 2015 we have been awarded by I.C.P.A.C and the A.C.C.A (local and international association of Chartered Certified Accountants) for the Quality of our Audit Services and our Office's Procedures.
Being a Truly International Audit & Assurance firm, we have associates from all over the world and we are constantly looking for new associates to expand our network further. At present, CYAUSE Audit Services operates internationally through its membership with BKR International amongst the largest American associations in the world, Accace Circle, a co-created business community of like-minded BPO providers and advisors who deliver outstanding services with elevated customer experience. Our network covers almost 40 jurisdictions with over 2,000 professionals, it supports more than 10,000 customers, mostly mid-size and international Fortune 500 companies from various sectors, and processes at least 170,000 payslips globally.
CYAUSE Audit Services Ltd is also a member of BKR International one of the biggest US Accounting Associations of the word and the 3E Accounting Network, an international accounting network which originates from Hong Kong and has more than 80 members from all over the world.
Learn More about Cyprus Corporate Environment
Information about CYAUSE Audit Services and the Cyprus Corporate & Tax System can be obtained from our Website or our YouTube channel which provides valuable information about the Corporate & Tax Environment of Cyprus.
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.
