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Developed countries with weak offshore substance requirements

JustAnotherNomad

Entrepreneur
Out of curiosity: Are there any high-tax countries that have weak substance requirements for offshore companies?
What about Switzerland or Liechtenstein for example? Can you legally and officially live there, but have an offshore company in a low-tax jurisdiction without having to fulfill extremely strict substance requirements?
So basically you can get a nominee director and a flexi desk office, or similar, provided you go there a couple of times per year?
I'm not talking about Panama or similar countries, I mean traditionally expensive/high-tax countries that offer a high standard of living.
 

Martin Everson

Offshore Retiree
Mentor Group Gold
Elite Member
Good question.

So you are basically looking at any country with no CFC or complex tax avoidance rules so take your pick.
 

JustAnotherNomad

Entrepreneur
Neither Switzerland nor Liechtenstein have explicit CFC rules. But is that really relevant? First of all, don’t CFC rules usually only apply to companies with (mostly) passive income like royalties etc.?
And then both Switzerland and Liechtenstein do have rules about the effective place of management. In other words, they would most likely require economic substance to avoid local tax...?
 

JustAnotherNomad

Entrepreneur
Controlled foreign companies (CFCs)
In Switzerland, no CFC or 'subject to tax' rules exist. Foreign companies are therefore recognised for Swiss tax purposes if they are managed and controlled offshore and are not set up purely for the reason of avoiding Swiss taxes.”

So my question obviously is how strict those requirements really are.
If they demand lots of economic substance to fulfill the “managed and controlled offshore” criteria, then what is the difference to any high-tax country with strict anti-avoidance rules?
I’m pretty sure a French tax resident can easily have a company in some tax haven, provided that there is a DTA and there is an office, employees etc.?
So would Switzerland really offer an advantage?
 

Camille Württemberg

20 years tax advisor on-shore/off-shore
Mentor Group Gold
Out of curiosity: Are there any high-tax countries that have weak substance requirements for offshore companies?
What about Switzerland or Liechtenstein for example? Can you legally and officially live there, but have an offshore company in a low-tax jurisdiction without having to fulfill extremely strict substance requirements?
So basically you can get a nominee director and a flexi desk office, or similar, provided you go there a couple of times per year?
I'm not talking about Panama or similar countries, I mean traditionally expensive/high-tax countries that offer a high standard of living.
Top of my head, the only few places where you can live and own/manage an offshore company without having to pay taxes in the country where you live are:
- United Kingdom, using the non-dom/remittance-basis system.
- Malta
- Hong Kong
- Singapore

You can then setup a standard BVI / Seychelles / Delaware / etc. company and as long as your revenue is not based from the country where you live, you should be good. In any case, if you're serious about it you should pick a country and have a chat with a local tax advisor.
 

JustAnotherNomad

Entrepreneur
Are you sure? I thought all of those countries are quite strict about substance, at least in theory? For example Malta strictly says that if you manage the company from Malta, the income will be deemed locally sourced? I think Singapore is even stricter?
It’s very possible that this isn’t enforced of course.
 

Camille Württemberg

20 years tax advisor on-shore/off-shore
Mentor Group Gold
Are you sure? I thought all of those countries are quite strict about substance, at least in theory? For example Malta strictly says that if you manage the company from Malta, the income will be deemed locally sourced? I think Singapore is even stricter?
It’s very possible that this isn’t enforced of course.
100% sure, that's the only reason you have so many billionaires living in the UK and Malta.

In practice, it depends on your company's activity and operations, how many employees you will have (if any), etc. In the UK for example, you can operate the business but not take decisions in the country, so everyone just takes a eurostar ticket to paris for the weekend, do a board meeting there and come back on monday. Depending on your turnover, it doesn't kill you to have some form of substance offshore to avoid transfer pricing mechanisms, but then again it really depends on your particular case.
 

JustAnotherNomad

Entrepreneur
With the billionaires I’m not surprised because they probably usually actually aren’t involved in the daily operations of their businesses. If you own a factory in China, then I’m pretty sure even a country like France wouldn’t tax you (well, maybe if they have a wealth tax). Because it’s clear that the company is operating outside of France, has substance etc. Only dividend payments would be taxable.
The UK/Malta/Singapore doesn’t tax those dividends (subject to certain conditions), unless they are remitted to that country.
Which is nice.

But even in France, you could simply accumulate savings in the company, although the company might have to pay corporate income tax on capital gains.

Correct so far?

The thing is that for example France definitely will be very strict when it comes to such arrangements. The French tax office will demand proof that the director gets paid a decent wage, they will want to see an office and a reason for running the operations in that country, and so forth.
But you say that’s not the case with Malta/Singapore/the UK? They are fine with a company in the Bahamas, as long as you go there from time to time? I’m asking because the SG tax office makes it very clear that if the company is effectively managed from Singapore, they will definitely consider the income locally sourced and thus taxable. But maybe that’s just the official language, so they don’t end up on some blacklist?

What about Switzerland/Liechtenstein? They are probably stricter with substance requirements?
 

Camille Württemberg

20 years tax advisor on-shore/off-shore
Mentor Group Gold
With the billionaires I’m not surprised because they probably usually actually aren’t involved in the daily operations of their businesses. If you own a factory in China, then I’m pretty sure even a country like France wouldn’t tax you (well, maybe if they have a wealth tax). Because it’s clear that the company is operating outside of France, has substance etc. Only dividend payments would be taxable.
The UK/Malta/Singapore doesn’t tax those dividends (subject to certain conditions), unless they are remitted to that country.
Which is nice.

But even in France, you could simply accumulate savings in the company, although the company might have to pay corporate income tax on capital gains.

Correct so far?

The thing is that for example France definitely will be very strict when it comes to such arrangements. The French tax office will demand proof that the director gets paid a decent wage, they will want to see an office and a reason for running the operations in that country, and so forth.
But you say that’s not the case with Malta/Singapore/the UK? They are fine with a company in the Bahamas, as long as you go there from time to time? I’m asking because the SG tax office makes it very clear that if the company is effectively managed from Singapore, they will definitely consider the income locally sourced and thus taxable. But maybe that’s just the official language, so they don’t end up on some blacklist?

What about Switzerland/Liechtenstein? They are probably stricter with substance requirements?
Your example with france is slightly different because they have heavy witholding taxes, so if tomorrow you have accumulated 10m€ in a French SA and decide to move to gibraltar, you will not be able to take out the 10m€ as dividends without paying a heavy french dividend tax.

In the case of the UK, you don't need to go to Bahamas at all, you can go to Paris, to Italy, etc. so essentially every time you take a holiday you make sure to do a board meeting. This only works if you pay your taxes on the remittance basis -- otherwise, the requirements for substance are much higher.

Switzerland/Liechtenstein are horrible places tax-wise. CH is very good if you can afford forfait status and it's more and more difficult to get.

Honestly I'd advise you to pay someone to give you a proper written advise, I'm not trying to sell our services, but it depends so much on the type of business that you do, how often you travel, what running costs you have, how much intellectual property you have, how much working capital is required, is there debt that can be swapped etc.

If you ask on our chat, someone from our team can probably organize a call with you and figure out the right structure for a couple of 1000's, otherwise you can talk to tier-2 advisory firms like Mazars, BDO, etc. they'll do it for 50k-70k or a Big Four, count > 120k
 

JustAnotherNomad

Entrepreneur
I wasn’t talking about a French company. I meant a company with economic substance outside of France. For example in Georgia, but with a proper local director, employees, an office and so on.

In the case of Malta/UK, you would still have to remit some money to your country of residence, right? For rent and living expenses. So you would most likely still be paying some (but very little) tax?

Thanks for the offer, I’m very happy with the structure I have, which is approved by tax lawyers. I only asked this question out of curiosity because I saw that CH/LI don’t have CFC rules.
 

TacitusKilgore

Active Member
There are no CFC rules in Singapore. Provided the company is managed elsewhere it can't really be called a tax resident of Singapore.
 

JustAnotherNomad

Entrepreneur
There are no CFC rules in Singapore. Provided the company is managed elsewhere it can't really be called a tax resident of Singapore.
Sorry, I didn’t see your reply earlier. This isn’t just about CFC rules. CFC rules often don’t apply to active businesses anyway.

In the case of Singapore, it seems like the rules whether income would be considered foreign sourced, are quite complex. Thus my question how much proof you’d need to show that the company is managed elsewhere.
 

TacitusKilgore

Active Member
Sorry, I didn’t see your reply earlier. This isn’t just about CFC rules. CFC rules often don’t apply to active businesses anyway.

In the case of Singapore, it seems like the rules whether income would be considered foreign sourced, are quite complex. Thus my question how much proof you’d need to show that the company is managed elsewhere.
I think a good starting point would definitely be evidence of directors' meetings in the country the company claims to be managed from. Those directors' meetings would make decisions about the strategy and operations of the business, which is arguably "managing" it from that country. Also having other infrastructure in the country will help your case - for example: IT setup (servers/website hosting), mailing address/virtual office. Obviously this isn't going to solve the problem straight away but it's a good starting point.
 
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