The details and complexity of a structure depend on the objectives of an overall International tax-planning strategy.
The International tax-planning structure depends further on whether such a structure is set up for a private individual or a corporation.
We have prepared some examples of commonly used structures for both of the two main categories of users.
- International tax-planning structures for private individuals
- International tax-planning structures for corporations
More complex structures are developed and utilised on an ongoing basis. To discuss more complex structures or your specific circumstances please Aspen Consultants® directly.
International tax-planning Structures for Private Individuals
How Individuals can take advantage of Offshore Financial Centres
- Individuals with inherited wealth
- Entertainers and Authors
- Owners of Intellectual Property
- Medical Practitioners and other Professionals
- International Investors
Individuals who inherit wealth can use offshore structures to reduce their inheritance taxes by converting the inheritance into money in low or non-tax jurisdictions instead of high-tax jurisdictions. They can also restructure the income that their inherited portfolio generates so as to protect their assets and so that the income compounds tax free. If you structure your pre-inheritance wealth, it will simplify the succession process.
Entrepreneurs who start off with an offshore structure can receive strategic benefits. Offshore offers entrepreneurs enhanced investment returns, access to global markets, better after-tax profits, and improved risk mitigation. An offshore vehicle can own corporate assets without exposing the entrepreneurs personal assets this also reduces business risk. As well, if an entrepreneur structures his or her new venture offshore, it will survive the life of the original entrepreneur and simplify the succession process.
Executives can use offshore for various aspects of their corporate agendas. Offshore can also help them restructure their compensation and stock programs so as to take advantage of reduced tax, asset protection, and access to global markets.
If entertainers and authors properly structure an offshore corporation to receive their contracts, they can reduce the tax they would otherwise owe. The offshore corporation earns income, and the entertainer or author is compensated for services rendered to that company.
Athletes can use offshore benefits in the same way entertainers and authors can. By properly arranging personal compensation contracts with an offshore corporation, athletes can reduce the amount of tax they would otherwise owe onshore. Since the offshore corporation earns the income, the athlete is compensated for services rendered to that company.
By assigning intellectual property rights and innovation rights to an offshore corporation, inventors, engineers, and designers can ensure revenue and royalties are received through an offshore corporation, as the owner of such rights, rather than have these revenues come to them personally. This reduces their personal tax obligation and protects their assets. Also, the intellectual property can remain offshore indefinitely, surviving the life of the original inventor. The inventor can easily specify the succession of what would otherwise have been his or her intellectual property rights.
The offshore company can arrange contracts to supply the invention or innovation outside the home country of the intellectual property owner. The offshore company earns the income the contracts generate, and this income can accumulate and compound, free from taxation, in the offshore centre.
Contracts for professional services often use offshore vehicles. Medical practitioners and other professionals use this technique to effectively restructure how their income is generated and realised, which reduces the personal tax they owe. Offshore vehicles also protect personal assets from professional business risks and malpractice claims.
Offshore companies can act as holding areas for investments made in a number of different markets and countries. You can collect all your investments together and have one offshore company hold legal ownership of them all. Personal holding companies can provide privacy and may save you the professional fees and other costs associated with setting up and maintaining a number of different offshore structures. Offshore entities allow your portfolio access to a variety of quality investment options that improve diversification and reduce risk. Investors regularly use offshore companies in personal portfolios for inheritance planning and to reduce the costs and time delays of probate.
International tax-planning structures for Corporations
How Corporations can take advantage of offshore financial centres
Most modern corporations find it increasingly difficult to create and sustain their competitive advantage for survival and growth. This applies to both small and medium sized enterprises pursuing international expansion as well as established multinationals and financial institutions.
Many have been able to establish and maintain their competitive edge by structuring some aspects of their operations through offshore centres. Operations that could be structured offshore include:
The list of such activities is not conclusive. To discuss more complex and specialised operations please contact Aspen Consultants® directly.
- Intellectual Property
- Investment Holding
- Administration and Treasury Management
- Insurance and Re-Insurance
- International Trade and Provision of Services
- Property Ownership
- Executive recruitment and Employment
Royalties and licensing fees for intellectual property can be owned by or assigned to an offshore company. Intellectual property may include computer software, technical knowledge, patents, trademarks, trade secrets, and copyrights. When the offshore company acquires the rights, it can then enter into license or franchise agreements with other companies interested in exploiting those rights around the world. The income arising from this arrangement can accumulate offshore in a tax-beneficial environment or repatriated at a preferred timescale. The right selection of an international jurisdiction for the use of double tax treaties can reduce or eliminate withholding taxes on royalty payments. (For example see www.aspen.com.cy)
The use of offshore entities for finance is extremely attractive. Offshore finance companies can fulfil intra-company and inter-company financial management functions, such as granting of loans for project finance or working capital requirements. Interest payments to the offshore financing company is tax deductible in the country of the borrower reducing the overall corporation tax liability. The right selection of an international jurisdiction for the use of double tax treaties can reduce or eliminate withholding taxes on interest payments. (For example see www.aspen.com.cy)
The ownership of most movable and immovable investment assets including stocks, shares, securities, bonds, mutual funds, and other can be consolidated in an offshore investment holding company. Such a structure allows for confidentiality of ownership and significant tax advantages. The right selection of an international jurisdiction for the use of double tax treaties can reduce or eliminate withholding taxes on dividend income.
The return on these investments is significantly higher given that the income is received and accumulated in a no tax or tax beneficial environment. Furthermore, the tax on the profit from a potential disposal of such investments can be reduced or eliminated. (For example see www.aspen.com.cy)
Companies operating in regions where the local banking and administration infrastructure is not reliable can gain significant advantages from outsourcing this function offshore. Further to the efficient banking system and tax beneficial regime of most of the offshore centres, there is an abundance of qualified personnel within most of the professional disciplines to support even the most complex operations. The centralised administration and treasury management function can take the advantage of a convenient time zone ensuring uninterrupted service to global operations. (For example see www.aspen.com.cy)
Insurance companies are attracted by the tax beneficial regimes of offshore centres that can assist in earning higher returns on their invested funds. The higher returns on investment and the reduced operating costs of insurance companies in an offshore centre leads to lower premiums on insurable risks as compared to onshore insurance competitors. The potential lower cost for insurance attracts a lot of companies to either insure directly with an offshore company or set up their own captive insurance. Onshore insurance companies can seek lower re-insurance costs with offshore insurance companies. (For example see www.aspen.com.cy)
The purchase and sale of products in international markets opens up limitless opportunities of structuring such activities through offshore centres. The resulting profit can be accumulated in a tax beneficial regime offshore. The subsequent repatriation of this profit can be planned to increase onshore equity base or be invested in other activities. International trade may include re-exporting and transhipment trade.
Services may be provided to third parties, in the form of consulting and specialised management expertise or to the group, in the form of international marketing and promotion. (For example see www.aspen.com.cy)
An offshore company in many cases can own real estate property both in the international jurisdiction of incorporation and other countries including the country of residence of the beneficial shareholders. The structuring of ownership through an offshore company can reduce capital gains and inheritance taxes and simplify a variety of other complex onshore issues. (For example see www.aspen.com.cy)
An offshore company can own equipment and lease it to an onshore entity. Such an arrangement allows the onshore entity to take advantage on the leasing payments. The equipment may come into the ownership of the offshore company under a sale and lease back agreement with the onshore entity. (For example see www.aspen.com.cy)
An onshore entity can set up an offshore company to employ all its executives that work internationally. In this way the tax payable by the executives and the contributions payable by the employing company are reduced. Such an arrangement benefits both the company by reducing its executive employment costs and the executive by increasing the amount of the net remuneration.
The concept of the Payroll Company can be extended to cover the hiring of workers for international contracts. (For example see www.aspen.com.cy)
The content of this article is intended only to provide general guidelines related to this particular matter. For your specific circumstances, full specialist advice is recommended.
To receive more information on offshore services or to discuss the particulars of your international tax planning needs please contact the authors.