How to avoid CFC penalties with passive income?

[justsomeguy]

Most countries around the world have some CFC rules which make it difficult when owing offshore companies. Some countries such as Australia make exceptions for active businesses that legitimately conduct business, however have strict rules for passive/tainted income. In Australia a CFC will fail the test and be taxed as a resident if more than 5% of income is passive.

I plan to hold investments such as stocks, in a brokerage account owned by a offshore company that pays zero tax and then over time pay myself a salary from that and pay taxes in Australia on that salary. But i cant seem to figure out how fix this CFC issue with passive income. Would love to hear from anyone that has experienced this or has any ideas.

Thanks.

 

[Marzio]

I cant seem to figure out how fix this CFC issue with passive income.

You really have to options:

1. move your aussie a*s offshore
2. have the offshore company in someone else's name

 

[KDX]

Yup as @marzio said those are the only 2 options. You can browse the forum to see why that is. CFC & Permanent Establishment are good keywords to start with along with CRS of you think you can hide it.

You could think of relocating to places like Cyprus or Dubai with the FZLLC scheme

 

[justsomeguy]

Appreciate the info @marzio and @KDX , will definitely look into it. Not really too keen to relocate due to family even though its by far the best idea.

In terms of avoiding CFC. There is 2 options as far as i understand:

1. Avoid legally controlling the business, this can be done through clever structures such as having foreign directors and shares held by foreign trusts. However this is pretty grey and would not technically be legal.
2. Somehow figure out how to make passive income become or legally look like active income, which i havent figured out a way that makes sense yet.

Would love any other input.

 

[KDX]

Appreciate the info @marzio and @KDX , will definitely look into it. Not really too keen to relocate due to family even though its by far the best idea.

In terms of avoiding CFC. There is 2 options as far as i understand:

1. Avoid legally controlling the business, this can be done through clever structures such as having foreign directors and shares held by foreign trusts. However this is pretty grey and would not technically be legal.
2. Somehow figure out how to make passive income become or legally look like active income, which i havent figured out a way that makes sense yet.

Would love any other input.

Trusts won't work. You will be the "UBO" and CRS will report you to the tax authorities. Foreign directors also wont help as you will still be the UBO. Convincing that a passive income entity is an active income entity will be incredibly hard and you will be reported under CRS.

You only have 1 legal option which is to relocate.

You have a bunch of illegal means though. But not sure if evading taxes is something you are ready to do.

 

[justsomeguy]

Trusts won't work. You will be the "UBO" and CRS will report you to the tax authorities. Foreign directors also wont help as you will still be the UBO. Convincing that a passive income entity is an active income entity will be incredibly hard and you will be reported under CRS.

You only have 1 legal option which is to relocate.

You have a bunch of illegal means though. But not sure if evading taxes is something you are ready to do.

Definitely a complicated and painful situation to deal with.

For the last part, id be open to hearing what that might entail.

 

[KDX]

Definitely a complicated and painful situation to deal with.

For the last part, id be open to hearing what that might entail.

That would be quite risky and if you withdraw a salary well you might get audited and thats it. In terms of what you can do well obviously hide that you're the UBO. Lets say for example letting your friend from the UAE sign and pretend to be the owner etc. This would mean that they can take over the company at any time so thats that. Another one is buying a CBI citizenship and getting a paper residency from Dubai and you probably would be able to dodge CRS (wouldn't count on this) another one is using darks which you can find more info about in the Mentor Group Gold.

All in all, with family involved, I would look into relocating. It may seem scary but theres a lot of wonderful places out there that you might like.

 

[myshufflemix]

2. have the offshore company in someone else's name

how will you do that, any real way of doing it without too much risk?