Cheapest 0% Tax Route with Substance?

[inector]

Hi,

Jersey, Isle of Man, Guernsey and many others legally let you reduce CIT to 0% wherever you are, assuming you get a substance.

But...which ones have the cheapest substance so you don't pay $10s+ per year.

 

[Sols]

Just get a list of countries sorted by lowest corporate tax rate and get a list of countries by lowest GDP per capita. Find countries that have low corporate tax and low GDP per capita.

Low tax is what you want. Low GDP per capita usually equates to low cost of labor, i.e. you can cheaply hire a couple of workers to be the substance of the company.

 

[Don]

Hi,

Jersey, Isle of Man, Guernsey and many others legally let you reduce CIT to 0% wherever you are, assuming you get a substance.

But...which ones have the cheapest substance so you don't pay $10s+ per year.

Depends on the activities.

Just get a list of countries sorted by lowest corporate tax rate and get a list of countries by lowest GDP per capita. Find countries that have low corporate tax and low GDP per capita.

Low tax is what you want. Low GDP per capita usually equates to low cost of labor, i.e. you can cheaply hire a couple of workers to be the substance of the company.

Not a bad approach but this way you could miss out a lot of special tax regimes, freezones, etc., depending on your activities. Also check withholding taxes on top of headline corporate tax.

List of countries by tax rates - Wikipedia

en.m.wikipedia.org

List of countries by GDP (nominal) per capita - Wikipedia

en.m.wikipedia.org

 

[Sols]

Not a bad approach but this way you could miss out a lot of special tax regimes, freezones, etc., depending on your activities. Also check withholding taxes on top of headline corporate tax.

Indeed. I wouldn't recommend using Wikipedia for that part of the exercise. I would start looking at jurisdictions that have free zones, and jurisdictions which have a reputation for being tax havens/low tax.

Once you've identified some options, look into the whole picture. CIT is just one of many taxes that might be in scope.

Seek legal advice before taking action. Don't want any nasty surprised down the line. Especially labor laws, payroll, and so on.

 

[myhand]

What's wrong with Dubai and their 9% corporate tax ?

 

[inector]

Thanks @Don and @Sols, amazing advice (as always)

What's wrong with Dubai and their 9% corporate tax ?

It's becomes harder to wire money from there every year for us. Hopefully no-one has those issues.

 

[wellington]

Just get a list of countries sorted by lowest corporate tax rate and get a list of countries by lowest GDP per capita. Find countries that have low corporate tax and low GDP per capita.

Low tax is what you want. Low GDP per capita usually equates to low cost of labor, i.e. you can cheaply hire a couple of workers to be the substance of the company.

Hi,

Jersey, Isle of Man, Guernsey and many others legally let you reduce CIT to 0% wherever you are, assuming you get a substance.

But...which ones have the cheapest substance so you don't pay $10s+ per year.

Just looking at this (i've never considered anything like this, but in theory).

BVI Corp -> Barbados 'Graphic Designer ' + Barbados 'Copywriter' = 500$ per month. - ensure you've hired on a salary
+ Shared Office (300$).

Then i guess just all depends on yourself, actively being involved in the business operations, or passive shareholder, or relocating to a country with no world-wide taxes.

 

[Sols]

Just looking at this (i've never considered anything like this, but in theory).

BVI Corp -> Barbados 'Graphic Designer ' + Barbados 'Copywriter' = 500$ per month. - ensure you've hired on a salary
+ Shared Office (300$).

Then i guess just all depends on yourself, actively being involved in the business operations, or passive shareholder, or relocating to a country with no world-wide taxes.

Yep, you're on the right track. Although in the case of Barbados, I'd just form a Barbadian company and pay the 5.5% down to 1% corporate tax. Then you have company and substance all in one place, with an attractive tax rate.

 

[wellington]

Still have the issue with countries which are not territorial (Thailand for example - as shareholder).

But that can be offset by a blind trust, and automated businesses processes i'd imagine and a company for dividends (when paid out every 5-10yrs).

That period you'd have to relocate, OR bounce around (some issues with that).

 

[Don]

Yep, you're on the right track. Although in the case of Barbados, I'd just form a Barbadian company and pay the 5.5% down to 1% corporate tax. Then you have company and substance all in one place, with an attractive tax rate.

Don't forget the dividend withholding taxes, which for individual shareholders can be up to 15% depending on personal tax residence, so it requires some additional structuring to keep the tax rate low.

Barbados - Corporate - Withholding taxes

Detailed description of corporate withholding taxes in Barbados

taxsummaries.pwc.com

Barbados residency is not very desirable with this structure since you would be exposed to 15% WHT on dividends from your Barbadian company.

Since I believe OP was an Estonian tax resident with an Estonian company, most sensible would be to establish a branch office for the Estonian company in Barbados, since in such case you can just pay the corporate income tax in Barbados and freely pass such income as dividends to the head company and then to yourself.
Estonian company doesn't apply any withholding taxes + Estonian tax residency doesn't require any days of physical stay so it leaves you quite flexible.
On top of that you would of course have access to the "no tax until profits are distributed regime" in Estonia, and broader options for banking.

 

[wellington]

'd just form a Barbadian company and pay the 5.5% down to 1%

That wouldn't really work (in our scenario forecasts) as we would loose money annually in rate-rise years, and then a home run in rate decline years (usually 18 months) based on our forecasts, and the 5% could easily be a considerable set of figures in tax.

Which is better suited to reinvestment into the company.

---

 

[Sols]

Don't forget the dividend withholding taxes, which for individual shareholders can be up to 15% depending on personal tax residence, so it requires some additional structuring to keep the tax rate low.

I wasn't proposing residence in Barbados. Just incorporation and substance there.

Barbados - Corporate - Withholding taxes

Detailed description of corporate withholding taxes in Barbados

taxsummaries.pwc.com

Barbados residency is not very desirable with this structure since you would be exposed to 15% WHT on dividends from your Barbadian company.

If you're a natural person resident in Barbados, yes. But if you're a non-resident, it might be lower or even zero. And WHT paid in Barbados might be applicable as tax credit where received, depending on whether there's a tax treaty and what it says.

the 5% could easily be a considerable set of figures in tax.

It's unusual but the tax rate actually goes down the higher the taxable basis is. It's 5.5% on the first 1 million BBD (500,000 USD), 3.0% on the next 19 million BBD, et cetera, down to 1%.

 

[wellington]

It's unusual but the tax rate actually goes down the higher the taxable basis is. It's 5.5% on the first 1 million BBD (500,000 USD), 3.0% on the next 19 million BBD, et cetera, down to 1%.

Yeah, i read that (apologies)

1-3% is acceptable.

But suspect there's a better system out there (current BVI with Substance).

But BVI is getting a tarnished name, and doesn't really suit both sides of the company.

 

[inector]

Since I believe OP was an Estonian tax resident with an Estonian company, most sensible would be to establish a branch office for the Estonian company in Barbados

That is indeed interesting, how would Estonia view BVI considering that it's a high-risk jurisdiction?

I assume they would investigate it from time to time, and banks would definitely scrutinize transfers from there.

It's unusual but the tax rate actually goes down the higher the taxable basis is. It's 5.5% on the first 1 million BBD (500,000 USD), 3.0% on the next 19 million BBD, et cetera, down to 1%.

That's a dream.
---
Got quoted like 20-30K per year for a Jersey company, I assume the same for IOM and Guernsey.

Labuan seems like an option, with only 1 employee at 200$ per month, but then what are the chances for a traditional bank...plus people across forum have quite negative reviews of it.

 

[Sols]

Got quoted like 20-30K per year for a Jersey company, I assume the same for IOM and Guernsey.

Jersey is usually the most expensive of the three, but it'll be a similar order of magnitude in IOM and Guernsey as well if the pricing includes genuine substance.

Labuan seems like an option, with only 1 employee at 200$ per month, but then what are the chances for a traditional bank...plus people across forum have quite negative reviews of it.

There's a decent chance you can get a bank account opened in Labuan if you have an actual presence in Labuan. Hard to say for sure if a single 200 USD/month employee is enough.

I think a lot of the negativity around Labuan is that the jurisdiction has failed to become the meaningful alternative to Hong Kong and Singapore it set out to become. It's also excluded from several tax treaties signed by Malaysia, which makes it less valuable for tax planning purposes. But incorporating in Labuan isn't necessarily the wrong choice. I'm seeing a slight increase in interest for the jurisdiction among people who want to incorporate in Asia but are wary of Hong Kong's reduction of independence.

 

[Marzio]

most sensible would be to establish a branch office for the Estonian company in Barbados, since in such case you can just pay the corporate income tax in Barbados and freely pass such income as dividends to the head company and then to yourself.

Not so fast, you didn't consider the 5% branch profit tax on profits remitted to the head company (unless DTA lowers that tax to 0% and unfortunately Estonia doesn't have a DTA with Barbados)

Barbados - Corporate - Branch income

Detailed description of corporate branch income tax rules in Barbados

taxsummaries.pwc.com

UAE FZ + BB branch instead could work.

It could also work with a UK LTD with branch exemption but don't know if HMRC would accept that.

@Sols What do you think?

 

[Don]

That is indeed interesting, how would Estonia view BVI considering that it's a high-risk jurisdiction?

BVI is viewed pretty much the same way as Russia in the EU (better to avoid as you get hit with tax)

EU list of non-cooperative jurisdictions for tax purposes

The EU list of non-cooperative jurisdictions includes non-EU countries or territories that didn't make sufficient commitments to EU concerns on tax purposes.

www.consilium.europa.eu

Not so fast, you didn't consider the 5% branch profit tax on profits remitted to the head company (unless DTA lowers that tax to 0% and unfortunately Estonia doesn't have a DTA with Barbados)

Barbados - Corporate - Branch income

Detailed description of corporate branch income tax rules in Barbados

taxsummaries.pwc.com

reduced to 0% if paid out of income earned outside of Barbados

 

[Marzio]

reduced to 0% if paid out of income earned outside of Barbados

My bad, I misread the sentence!

This is great

 

[Don]

UAE FZ + BB branch instead could work.

It could also work with a UK LTD with branch exemption but don't know if HMRC would accept that.

@Sols What do you think?

UAE participation exemption requires the participation to be subject to tax in its country or territory of residence at a rate that is not lower than 9%.
Also, in Cyprus, participation exemption might not be available if an effective tax rate of participation is less than 6.25%
I believe the UK could possibly work. To the extent the branch profits are considered to have been artificially diverted from the United Kingdom, the anti-diversion rule will stop them from qualifying for the exemption.
+You also need to consider CFC rules

 

[tickertrader]

Watching you guys' discussion is an eye-opening process for me