Making a dividend a cost for your offshore company

[heaven]

An Estonian company is not taxed unless the money in the company is distributed.

Let's say a Belgium holding company opens an Estonian company, the Estonian company makes 100K profit a year. When the holding company in Belgium needs money, instead of distributing the money as a dividend that is taxed, the Estonian company chooses to book the payment as a cost. In Belgium however the holding company books the payment as a dividend. What would be the implications of this and are there similar 'interesting' arrangements?

 

[Martin Everson]

the Estonian company chooses to book the payment as a cost. In Belgium however the holding company books the payment as a dividend.

So fraud.

What would be the implications of this and are there similar 'interesting' arrangements?

Jail in worst case

 

[JohnLocke]

short but you nailed it @Martin Everson

 

[Gediminas]

An Estonian company is not taxed unless the money in the company is distributed.

Let's say a Belgium holding company opens an Estonian company, the Estonian company makes 100K profit a year. When the holding company in Belgium needs money, instead of distributing the money as a dividend that is taxed, the Estonian company chooses to book the payment as a cost. In Belgium however the holding company books the payment as a dividend. What would be the implications of this and are there similar 'interesting' arrangements?

Just keep in mind that the tax officers are far away from stupid and they are aware of various schemes. I wouldn't recommend overplaying them. Avoid jail time.

 

[CaptK]

The structure is flawed from the beginning the Estonian company should be the mother and then any other company the subsidiary.

Its not worth it, look at a better structure. Book it as a cost to Belgium company and a payment for services with Estonian if you really must use this structure.

 

[heaven]

The structure is flawed from the beginning the Estonian company should be the mother and then any other company the subsidiary.

Its not worth it, look at a better structure. Book it as a cost to Belgium company and a payment for services with Estonian if you really must use this structure.

Just curious. Why would you choose Estonia as the holding? I'm a resident of Belgium and Belgium has already quite favourable laws for holding companies so I will probably keep it like that. But because my plan with Estonia seems not a great idea I wont pursue.

I'm just looking for another low taxed operating company outside of Belgium with a favourable tax treaty. I'm already going to open one in eastern Europe to have access to cheap labour.

But I also want another operating company for another project. Belgium has an interesting tax treaty with Seychelles for example. I can get a Seychelles SCL and pay 1.5% tax in Seychelles and 0 dividend tax from Seychelles to Belgium if I hold more then 25% of the shares.

 

[heaven]

So fraud.

Jail in worst case

Fair enough, I won't pursue. I was just curious if something like that would be possible or something else. You also have these mismatches in other structures where one country sees a company as resident and the other as non-resident for example.

 

[JustAnotherNomad]

Belgium has an interesting tax treaty with Seychelles for example. I can get a Seychelles SCL and pay 1.5% tax in Seychelles and 0 dividend tax from Seychelles to Belgium if I hold more then 25% of the shares.

No way that will work without substance.

 

[heaven]

No way that will work without substance.

I'm only looking in to structures with real substance. The Seychelles CSL company is a resident company with access to treaties and local labour. It's also only a 2 hour time difference.

 

[JustAnotherNomad]

But how will you do it? You’d have to prove taxes aren’t the reason for setting up a company there. They’ll probably also require a much larger investment than for a Romanian company.

 

[CaptK]

Im not sure of the Belgium tax law but it cant be that easy especially with the crackdown in the EU.

I would definitely look at a completely new set up making sure you have everything straight from the beginning.

 

[heaven]

But how will you do it? You’d have to prove taxes aren’t the reason for setting up a company there. They’ll probably also require a much larger investment than for a Romanian company.

Low cost of labour with only a 2 hour difference, for customer support, administrative support and personal assistant. Also a location where all outsourcing is tracked and managed.

Why do you think it requires more investment? You pay $1000 annual fee for the renewal with some extra costs (+- $500) for the CSL and about 2K/ month for a dedicated director handing in the interest of the company.

I also checked the ease of business ranking to see how Seychelles scores, definitely not that good (100). However, that list seems to me like a good factor to choose a specific location with an international partner that's not tax related. That makes me more interested in a Georgia free zone company. 0 tax and 5% tax on dividends to Belgium.

But I'm also still interested in Romania though.

Im not sure of the Belgium tax law but it cant be that easy especially with the crackdown in the EU.

I would definitely look at a completely new set up making sure you have everything straight from the beginning.

If you have an operating company in Seychelles with substance matching the type of business you do with that company you are not taxed on it's income. And if you own that company with a Belgian holding company you are not taxed on dividends. We have participation exemption (no extra tax on incoming dividends in Belgium, no captital gain tax,...) only the tax in the DTA which is 0 in the case of Seychelles. However, access to qualified people in Seychelles is probably a bigger problem.

Tax treaties Belgium Lowtax - Global Tax & Business Portal | Double Tax Treaties - Tax Treaty Agreements

 

[JustAnotherNomad]

Hey, if it works, good for you. I just know that for example the Netherlands have much higher substance requirements in tax havens. So you can still have a company in a Dutch overseas territory, but you would need an investment of at least €100,000 or so. Not sure about Belgium obviously.
CFC rules won’t be a problem? Because this would be a typical CFC case.

 

[heaven]

I'm just doing some research on different setups and treaties that would be interesting in Belgium. So I understand the structures when talking to a tax lawyer and suggest some that I find interesting. I've had one trying to sell the same structure over and over again without looking if that's the best in my scenario. Do you guys know some tax lawyers from Belgium? Or how to find good ones without going to the big 4.

 

[heaven]

Hey, if it works, good for you. I just know that for example the Netherlands have much higher substance requirements in tax havens. So you can still have a company in a Dutch overseas territory, but you would need an investment of at least €100,000 or so. Not sure about Belgium obviously.
CFC rules won’t be a problem? Because this would be a typical CFC case.

It would be a dedicated director working in the interest of the company. Not in my only interest. Also the substance requirements has weakened, it needs to be sufficient to fulfil the company goals.

https://www.loyensloeff.com/be/en/n...-escaping-the-claws-of-the-cayman-tax-n19888/If you know dutch: https://www.tiberghien.com/images/700ABF4F.pdf

An example given is: they won't require 10 people and an office for a holding company. 1 person without an office can be sufficient if the only company goal is to own shares in other companies for example. If you are actively trading these shares 1 person might not be sufficient. It all depends on the situation.

 

[JustAnotherNomad]

I think I mentioned him before, there is Iven de Hoon. I don’t think he is a lawyer, but maybe he could recommend someone.
But remember that under new EU regulations, they might have to report you for asking...

 

[JustAnotherNomad]

Ah, since you mentioned the Caymans... I remembered Belgium has this Cayman tax:
https://nomoretax.eu/the-belgian-cayman-tax/
You’ll want to check if that would apply to your Seychelles company.

 

[heaven]

Ah, since you mentioned the Caymans... I remembered Belgium has this Cayman tax:
https://nomoretax.eu/the-belgian-cayman-tax/
You’ll want to check if that would apply to your Seychelles company.

Yes, I was talking about the cayman tax three posts up, not the country

It would be a dedicated director working in the interest of the company. Not in my only interest. Also the substance requirements has weakened, it needs to be sufficient to fulfil the company goals.

https://www.loyensloeff.com/be/en/n...-escaping-the-claws-of-the-cayman-tax-n19888/If you know dutch: https://www.tiberghien.com/images/700ABF4F.pdf

An example given is: they won't require 10 people and an office for a holding company. 1 person without an office can be sufficient if the only company goal is to own shares in other companies for example. If you are actively trading these shares 1 person might not be sufficient. It all depends on the situation.

 

[JustAnotherNomad]

Ah, sorry, I thought you meant the NL substance requirements for offshore companies