How to avoid local Company Residence rules?

[BerlusconiSchmidt]

Let's say you run an US LLC or a Dubai freezone company, with another business partner who holds 50% of the remaining shares.
He lives in Dubai, you live in New Zealand, or Canada, or Australia.

How does the local Tax agency say that your company must now be classified as a local company if :

- The majority of the management is done by the business partner in Dubai
- The entire work of the company is done outside of the Western country: Inventory, shipping, returns, customers service, etc
- Bank accounts are all offshore
- You get paid dividends once every quarter for being the director of the company and 50% decision maker
- None of the company customers are based in any of the directors countries of residence
- 90% of the business operations are made outside of the Director residential countries

Why and how do Canada/NZ/Australia decide that the company is taxable locally if all the above criteria are valid?

 

[daniels27]

First of all, you need to ensure that you are NOT a director and do NOT take any decisions. Then, you need to decide whether you are an investor not working for the company and get paid dividends (which are taxable in your ountry) or alternatively you are an independent contractor for the company and get paid a salary. Anything else is extremely dangerous.

Depending on the jurisdictions, you may also try to setup a partnership between you and the other party. In this way, only your part would be taxable in AUCANZ.

In any case, you will have to pay full taxes on your income in your home country. But you will get around tax for the other 50% and any exit tax on that part.

 

[clemens]

You need substance in the Dubai company beside what already is discussed here.

 

[jorge]

You need substance in the Dubai company beside what already is discussed here.

yeah rent a office and find a dummy employee to work for you.

 

[daniels27]

- The majority of the management is done by the business partner in Dubai

I think this already should be enough substance in most cases.

yeah rent a office and find a dummy employee to work for you.

Yes. But if the real director is living there, does this actually help?

 

[UniversalTrader]

Let's say you run an US LLC or a Dubai freezone company, with another business partner who holds 50% of the remaining shares.
He lives in Dubai, you live in New Zealand, or Canada, or Australia.

How does the local Tax agency say that your company must now be classified as a local company if :

- The majority of the management is done by the business partner in Dubai
- The entire work of the company is done outside of the Western country: Inventory, shipping, returns, customers service, etc
- Bank accounts are all offshore
- You get paid dividends once every quarter for being the director of the company and 50% decision maker
- None of the company customers are based in any of the directors countries of residence
- 90% of the business operations are made outside of the Director residential countries

Why and how do Canada/NZ/Australia decide that the company is taxable locally if all the above criteria are valid?

The key issue here is "central management and control," which is where significant management decisions are made. If you're making key decisions from Canada, NZ, or Australia, local tax agencies might argue your company is effectively managed there, making it taxable locally. Even if most operations are offshore, the place where strategic decisions are made is crucial.

Another point is the "permanent establishment." Having a director in these countries could be seen as having a business presence there, triggering local tax obligations. Anti-avoidance rules are also in place to prevent using offshore structures to evade taxes, so if tax authorities see your setup as primarily tax-driven, they might still tax your company locally.

Finally, the substance over form doctrine means tax authorities look at the reality of where management occurs, not just the legal setup. If significant control happens in your country of residence, local taxation can apply despite offshore operations.

So, even with offshore operations, your role as a director in these countries can bring local tax obligations into play.

There are options/solutions to avoid this which are fairly simple and low-cost, relatively speaking.

 

[BerlusconiSchmidt]

The key issue here is "central management and control," which is where significant management decisions are made. If you're making key decisions from Canada, NZ, or Australia, local tax agencies might argue your company is effectively managed there, making it taxable locally. Even if most operations are offshore, the place where strategic decisions are made is crucial.

Another point is the "permanent establishment." Having a director in these countries could be seen as having a business presence there, triggering local tax obligations. Anti-avoidance rules are also in place to prevent using offshore structures to evade taxes, so if tax authorities see your setup as primarily tax-driven, they might still tax your company locally.

Finally, the substance over form doctrine means tax authorities look at the reality of where management occurs, not just the legal setup. If significant control happens in your country of residence, local taxation can apply despite offshore operations.

So, even with offshore operations, your role as a director in these countries can bring local tax obligations into play.

There are options/solutions to avoid this which are fairly simple and low-cost, relatively speaking.

There are options to avoid this? Could you list some of them?

 

[daniels27]

Finally, the substance over form doctrine means tax authorities look at the reality of where management occurs, not just the legal setup. If significant control happens in your country of residence, local taxation can apply despite offshore operations.

It is not offshore. He has a bona fide business partner living in Dubai who is the main decision maker.

So, even with offshore operations, your role as a director in these countries can bring local tax obligations into play.

Yes. As I wrote it would be a partnership with his share being taxable in his country.

There are options/solutions to avoid this which are fairly simple and low-cost, relatively speaking.

Yes it would be free in his case as he already has a director there.

There are options to avoid this? Could you list some of them?

Yes, you stop being the director as I explained earlier.

But it won't help much as you still are subject to either personal income or dividend taxation in for home country in all money you take home. If course you can not take the money and leave it officially owned by your business partner.

 

[UniversalTrader]

There are options to avoid this? Could you list some of them?

Not required in this particular instance, as posted in another reply, but using nominee shareholders and directors, setting up a BVI or Cook Islands Trust with an e.g. Nevis IBC to own the company, as well as having nominee directors, etc. are a couple of ways.

 

[BerlusconiSchmidt]

It is not offshore. He has a bona fide business partner living in Dubai who is the main decision maker.


Yes. As I wrote it would be a partnership with his share being taxable in his country.


Yes it would be free in his case as he already has a director there.


Yes, you stop being the director as I explained earlier.

But it won't help much as you still are subject to either personal income or dividend taxation in for home country in all money you take home. If course you can not take the money and leave it officially owned by your business partner.

Ok thanks.

Well I'm looking at only avoiding getting the corporate tax since in Dubai is almost 0%.
The country I'm looking to move to doesn't tax foreign dividends for a certain number of years so that is already sorted. The main issue remain the Corporate residency rule that could be applied, or not.

I do not want to stop being a director, otherwise dividends cannot be received I suppose?

 

[clemens]

I think this already should be enough substance in most cases.


Yes. But if the real director is living there, does this actually help?

if the director lives in same country as the company it's fine. You can find directors fitting in anyone's budget in any country easily if you have a look in the mentor group gold forums in anonymous. It's not a big deal to solve.

 

[daniels27]

Ok thanks.

Well I'm looking at only avoiding getting the corporate tax since in Dubai is almost 0%.
The country I'm looking to move to doesn't tax foreign dividends for a certain number of years so that is already sorted. The main issue remain the Corporate residency rule that could be applied, or not.

I do not want to stop being a director, otherwise dividends cannot be received I suppose?

Dividends are paid out on equity ownership, not too directors.

That's why I recommend you to step down as director. You have one in the country of incorporation. All is good.

The only issue I see is that if you both receive a salary and dividends from the same company, your country may consider you part of the management.

Hence I would probably look to get paid a salary through another company, just to make sure nobody makes any claims.

 

[BerlusconiSchmidt]

Dividends are paid out on equity ownership, not too directors.

That's why I recommend you to step down as director. You have one in the country of incorporation. All is good.

The only issue I see is that if you both receive a salary and dividends from the same company, your country may consider you part of the management.

Hence I would probably look to get paid a salary through another company, just to make sure nobody makes any claims.

So do you think is it good like this?

- Living in country X( which doesn't tax foreign Dividends) : Getting paid a salary from a local company for some of the online businesses I run.
At the same time:
- Working as a shareholder for the UAE company without being the Director, just a shareholder, and getting paid in Dividends once every quarter, this is for a separate online business.

Makes sense to me. The f**k are they going to say honestly, they write their rules, No tax on foreign dividends. I'll get Tax Audit insurance on a personal level as well just in case.

 

[daniels27]

So do you think is it good like this?

- Living in country X( which doesn't tax foreign Dividends) : Getting paid a salary from a local company for some of the online businesses I run.
At the same time:
- Working as a shareholder for the UAE company without being the Director, just a shareholder, and getting paid in Dividends once every quarter, this is for a separate online business.

Makes sense to me. The f**k are they going to say honestly, they write their rules, No tax on foreign dividends. I'll get Tax Audit insurance on a personal level as well just in case.

In principle yes. I am not sure about the intra-year divided rules for UAE. don't countries only allow dividends after the fiscal year ended and others only once per year. But for all to work, you should not have to rely on those dividends to convert your daily expenses. I.e. your salary needs to be high enough that you can live on it.

Also, the are jurisdictions where you have to report received dividends while in others you don't. It would be better if they do not know about it. Also better to pay it out to a UAE or Australia/New Zealand bank account (just the one you do not live in).

 

[happyjohn]

From reading in another thread commented by @CyprusLawyer101 as far as I remember then in Cyprus you can take out dividends any time, maybe there is something here that could be connected to a Dubai company.

 

[clemens]

So do you think is it good like this?

- Living in country X( which doesn't tax foreign Dividends) : Getting paid a salary from a local company for some of the online businesses I run.
At the same time:
- Working as a shareholder for the UAE company without being the Director, just a shareholder, and getting paid in Dividends once every quarter, this is for a separate online business.

Makes sense to me. The f**k are they going to say honestly, they write their rules, No tax on foreign dividends. I'll get Tax Audit insurance on a personal level as well just in case.

where do you want to live to execute this plan ?

 

[koohl]

You need to be very cautious with tax authorities and offshore companies. Whether you're right or wrong, they can fabricate a story to suit their needs and tax you on everything the company has made. Don’t think the tax authorities don’t make up stories? Think again. The tax offices are full of people who only follow what AI tells them, and if something seems suspicious, they’ll piece together a story that may not be accurate but allows them to tax you immediately and impose fines.

It’s best not to be employed by a company you own; even ownership alone can cause issues! So, describing yourself as a passive investor might be a better approach. Additionally, the company should ideally have an office, employees, etc.