Alternative to Offshore?

[singlelady90]

Hello!
One of my clients, a IT Software Consultant (Self employed) is living in high tax country in Western Europe, according to his local law, he needs to issue an invoice only when he gets the payment which according to his senior tax consultant the moment he receive the funds on his bank account. (....legal and economical availability). If the clients are based in EU he immediately get the payment directly on bank account and issue the invoice, if they are from outside of the EU, in order to guarantee more protection for all parties, they use a Escrow Agent.



His main activities is selling / brokering assets (license) among Buyers / Sellers.


i.e. Buyers send for example 100 into an Escrow Agent, Escrow Agent send 95 to Seller and 5 is at disposal of IT Software Consultant (Broker) .According to the tax consultant, in this way it is possible to postpone payments in the future based on IT Software Consultant needs because funds are not paid to the bank account yet and they will be taxed only when Escrow Agent send the wire to IT Software Consultant.


1. Do you know if this practice is accepted in all countries?
2.What happen if after some years the IT Software Consultant move to a low cost / taxes country and get paid?

Thanks!

 

[pesto]

nice nickname

 

[bizniz]

There is no country where local law says you cannot issue an invoice before you receive the money. The reason people say this sometimes is because if you issue an invoice it risks becoming taxable income and then if you don't get paid it can be a hassle to cancel it. Anyhow that is what pro forma invoices are for. You can issue a pro forma invoice to justify the payment, then issue a formal invoice once payment is received.

If the aim is to delay the taxable income (for example to move income earned in 2020 into the 2021 tax year for some benefit that there might be) then I am honestly not sure if holding it in the escrow account will work. That is a tricky one and that is why you need a tax consultant familiar with local laws. Often even within the same country you can legitimately choose different regimes with your tax department - usually there are simplified systems for smaller businesses that work on a cash-in cash-out basis, whereas larger more sophisticated businesses can elect to be taxed on the basis of dates on invoices, rather than dates the money actually comes in or goes out. But it varies by country.

 

[singlelady90]

There is no country where local law says you cannot issue an invoice before you receive the money. The reason people say this sometimes is because if you issue an invoice it risks becoming taxable income and then if you don't get paid it can be a hassle to cancel it. Anyhow that is what pro forma invoices are for. You can issue a pro forma invoice to justify the payment, then issue a formal invoice once payment is received.

If the aim is to delay the taxable income (for example to move income earned in 2020 into the 2021 tax year for some benefit that there might be) then I am honestly not sure if holding it in the escrow account will work. That is a tricky one and that is why you need a tax consultant familiar with local laws. Often even within the same country you can legitimately choose different regimes with your tax department - usually there are simplified systems for smaller businesses that work on a cash-in cash-out basis, whereas larger more sophisticated businesses can elect to be taxed on the basis of dates on invoices, rather than dates the money actually comes in or goes out. But it varies by country.

Yes, you understood the situation. For small businesses, self employed, the moment where occur taxation and invoicing is the when you "legal and economical" control of the amounts. According to the local tax consultant this happen only and when the money reach the bank account