Are IBC incomes personally taxable?

[Flycatcher]

I've understood that IBCs are legal entities, and any profits they have generated are supposed to be property of the company. Yet at least the USA and the UK require their residents to disclose any possible offshore assets, and those get taxed.

What is the norm? Are IBCs expected to be taxed by the countries you are a resident in? Furthermore, is this tax seen as a corporation or a personal tax?

 

[JohnLocke]

Well if you don't have any tax lawyer to help you and they find out you have an offshore IBC they will file it as personal income in your country. However if you declare the offshore IBC at your tax office before they find out and you have an accountant to help you you will only be taxed from the money you take out of the company and into your private bank account.

So it's up to the individual what you find to be the best way.

 

[dotbloup]

It is personal tax everywhere in Europe. In East Europe, in countries where there is a flat rate like Bulgaria, you pay the flat rate: Example for Bulgaria: 10% whatever the source.
In France, they have a special field on their tax form for money coming from company that does not pay corporate tax.

 

[JohnLocke]

In France, they have a special field on their tax form for money coming from company that does not pay corporate tax.

yeah the same for Germany, Sweden and Norway I saw.

 

[negon]

You need to consult an tax advisor to help you with this kind of tax & income reporting

 

[Flycatcher]

It does really seem like I should be speaking to a tax advisor. Apparently due to OECD regulations, there is a concept known as "corporate tax residence". This article explains what it means: http://www.oecd.org/ctp/treaties/2014-model-tax-convention-articles.pdf

It's a massive topic, but it is simple to understand: The registrant country of a corporation is not the only thing which matters, but more like where the company is run from on a day-to-day basis.

Now, here's an invaluable resource. It lists tens of countries with explanations on how each country interprets "corporate tax residence":

Tax residency - Organisation for Economic Co-operation and Development

Obviously most of the regulations were written not being aware of anything like an online business, so this immediately becomes a source of grey area. It however raises up interesting questions: If I can prove that the company is run in an offshore country, can be company profits be left untaxed? Further more, if a company is managed by more than one person, where is the company really managed?

I'm surprised people haven't talked about this topic that much, anyone who's running an offshore company and residing in the first world is sure to run into this issue.

 

[icecold]

It's a massive topic, but it is simple to understand: The registrant country of a corporation is not the only thing which matters, but more like where the company is run from on a day-to-day basis.

Doesn't that mean that Management and Control has to take place in a country in order to be considered to be a company resident in X country? So if you can proof the company to be resident in country X you will be able to avoid personal income tax from what profits the company generates but only from what you take home to country Y where you may live!

 

[Flycatcher]

@icecold "Where company is managed" is of course a fluid term, and if a tax officer ever inspects you then they define what it means.

Practically, if one runs an internet business, and that person travels around the world regularly (as a digital nomad), the two places of note is the location of the website server and the location of your company. Everything after that is being creative and defining "management". It could be that a simple registered address, or even just a Certification of Incorporation, is all you need to define residency, but then again, I'm not a tax lawyer and can't way for sure.

 

[realcat]

Live in country A, register company in B (tax heaven) , Set up website hosting and virtual office in C

How is this set up?

 

[negon]

You will need a simple offshore company registered somewhere i.e. Seychelles, Belize or so and then you need a virtual office service that is providing you with postal address etc in another jurisdiction, pretty simple to setup.

 

[suzy]

As far as I know from my professional advisors which I pay lots of money for a Spanish / Cyprus setup then we are not get taxed from profits generated in Spain locally, they get taxed in Spain under their tax regime.