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How an IBC does not need to comply with substance requirements like LLCs

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mickey

New member
As the most of us know, a LLC is not affected by the recently coming up substance requirements of many offshore jurisdictions. The reason for that is the pass-through taxation which obliges each partner to pay taxes where they live.

Now I asked myself how an IBC could get rid of this substance requirements as well.
Well, an IBC has to move out its tax residency to another not EU/ OECD blacklisted jurisdiction.
+ This needs to be proved by a tax residency certificate issued by the tax authorities of the company’s country of residence. This certificate needs an expiration date as well.
+ A document confirming the payment of the income tax in the country of the company’s tax residency.

Theoretically you could become tax free as well, when you pick a jurisdiction which territorial taxation.

I have a document attached which describes this practice for Belize (page 6), do you know other jurisdictions where this is possible? Or do you have experiences of this practice?
 

Attachments

  • New company economic substance and tax regulations in Belize.pdf
    3.5 MB · Views: 44

Sols

Staff member
Mentor Group Gold
As the most of us know, a LLC is not affected by the recently coming up substance requirements of many offshore jurisdictions. The reason for that is the pass-through taxation which obliges each partner to pay taxes where they live.
It's not necessarily that simple. The LLC can be considered tax resident where the partners live and if the partners live in jurisdictions that do not recognise LLCs, the LLC might be a taxable corporation. I.e., you might still end up having to pay corporate tax.

Now I asked myself how an IBC could get rid of this substance requirements as well.
The requirement doesn't go away but you can solve it elegantly by relocating to a tax haven or jurisdiction with a favorable tax regime for foreigners/foreign companies. But if you do that, I'd just form a local company instead of bothering with Belize.
 

mickey

New member
But if you do that, I'd just form a local company instead of bothering with Belize.

A higher taxation is just one drawback of a local company. The much heavier drawback are regulations which are suppressing a local formed business more and more over time. If an online business does not send out invoices to other companies located in high tax countries, an offshore setup is still a better alternative even when the taxation is done in a high tax country.

Back to topic:
Did anyone get rid of the upcoming substance requirements of many offshore tax havens for IBCs by using tax residency certificates of an other jurisdiction?
 
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