Offshore property investment

[Simple q]

Hi all, looking for some advice here as I’m unsure where I should be focussing my attention.

I’m an AU citizen who wishes to start purchasing properties in Eastern Europe, renovating them and then and listing via AirBnb (holy rental yields) most of the profit will be reinvested, however I would like to take out some amount to pay for living costs back home

In searching for a locale to incorporate I’ve hit a crossroads. As I’m willing to start the business with a few 100k I’m wondering if I’ll have any trouble opening a bank account / company in HK, or will I have to look to other jurisdictions such as the Seychelles. (I’ve heard HK banks can be notoriously difficult, though I’m happy to draft a clear business plan if that will help)

If I do need to head somewhere like the Seychelles, how much difficulty will I have connecting my business to a Georgian bank and the receiving payments from AirBNB? AirBNB’s main payout method is PayPal however they do offer support for Payoneer and wire transfer

Cheers
M

 

[Martin Everson]

You may as well use an AU company. AirBnB is reporting income to peoples home countries and countries will be fishing for their citizens there also. If you have a strategy of re-investing income and hence showing no profit each year then tax is not a concern. So grow your rental business, stick some corporate income in your Superannuation and apply max deductions you will be fine and all legal.

Are Airbnb 'landlords' facing a huge tax bill?

 

[fshore]

The income will be taxable in the countries where the properties are, so using an offshore company will make it much more complicated. The company might have to setup a branch or at least register for a local tax number. I'd suggest register the company in the country where the property are.

 

[Simple q]

You may as well use an AU company. AirBnB is reporting income to peoples home countries and countries will be fishing for their citizens there also. If you have a strategy of re-investing income and hence showing no profit each year then tax is not a concern. So grow your rental business, stick some corporate income in your Superannuation and apply max deductions you will be fine and all legal.

Are Airbnb 'landlords' facing a huge tax bill?

As an Australian any offshore company is considered a separate entity to myself and only the only taxable event I’ll encounter is if said company pays me a wage or dividend. If company profits are retained and reinvested they won’t be taxed

If I were to have rent paid directly into an AU company then all profits will be taxed from the moment they are received at a rate that takes into account my other sources of income

 

[Simple q]

The income will be taxable in the countries where the properties are, so using an offshore company will make it much more complicated. The company might have to setup a branch or at least register for a local tax number. I'd suggest register the company in the country where the property are.

The country I’m looking at has a shambles of a tax system. No landlords I’ve spoken to pay income tax

 

[Martin Everson]

As an Australian any offshore company is considered a separate entity to myself and only the only taxable event I’ll encounter is if said company pays me a wage or dividend. If company profits are retained and reinvested they won’t be taxed

So how do you intend to make the foreign company non-resident in Australia for tax purposes. The issue is not about non-distribution of income and hence no tax but tax residency of the offshore company. If you opt for a traditional IBC then by default the tax residency is the place of operation or residency of director but its never the offshore country itself by default.

I am happy to see this discussion to its conclusion but any company you setup will be controlled by you and have its place of effective control and operation in Australia. If you opt to establish a real offshore presence for company and have control offshore then you the costs involved will make the whole project uneconomical.

 

[Simple q]

I have an unrelated existing business with a partner that’s registered in HK. As part of our fees we receive a ‘company secretary’ based in HK, hence our tax residency is HK and I’m not taxed on any income by the Australian government

What you’re saying is a Seychelles IBC offers nothing like this? What is the point of a Seychelles IBC if it is of no benefit to tax obligations?

 

[Martin Everson]

What you’re saying is a Seychelles IBC offers nothing like this? What is the point of a Seychelles IBC if it is of no benefit to tax obligations?

Seychelles IBC's are still relevant but are not to be used like you are planning as its 2019 not 2009 sadly.

 

[Simple q]

Interesting, I spoke to my accountant a few days ago and an offshore company was the exact route he suggested, are there other incorporation locations that are more suitable?

You spoke of re-investing profit as a method of paying no tax, however as far as I know that’s not possible as all income is taxable from the moment of receipt. Is there some method to doing so you’re aware of?

To answer your earlier question I paid about 50k in tax last year from stock profit and property rentals, I do need to find a solution that mitigates this in future

 

[Simple q]

Using an offshore secretary and registered corporate director in the Seychelles seems to be a solution no?

 

[Martin Everson]

I spoke to my accountant a few days ago and an offshore company was the exact route he suggested

In theory yes. Ask him about setting up an Australian company and then an offshore subsidiary. Offshore subsidiaries of Australian companies are not taxed and money can be remitted back home tax free I thought but I may be wrong.

You spoke of re-investing profit as a method of paying no tax, however as far as I know that’s not possible as all income is taxable from the moment of receipt.

You pay tax from moment of receipt? So your saying that in Australia when an Australian business sells one banana for 50c and makes 25c profit and re-invests that 25c to buy another banana to keep in stock during the tax year he owes taxes on the sale of the banana?

Using an offshore secretary and registered corporate director in the Seychelles seems to be a solution no?

So you want your company to be tax resident, operate and be controlled from Seychelles? You do know Seychelles has very high tax rate of 33% for tax resident companies right?

 

[Simple q]

You pay tax from moment of receipt? So your saying that in Australia when an Australian business sells one banana for 50c and makes 25c profit and re-invests that 25c to buy another banana to keep in stock during the tax year he owes taxes on the sale of the banana

Yes, the benefit of being offshore that I’m interested in is tax deferment, profits that can be reinvested indefinitely. We only pay tax when the money is brought back to Australia which isn’t going to happen as I’ll be a non-resident for tax purposes before any withdrawal.

 

[Simple q]

6 months living in a house OS and we are a non-resident for tax purposes

 

[bisk]

Interesting, I spoke to my accountant a few days ago and an offshore company was the exact route he suggested, are there other incorporation locations that are more suitable?

What country do you have in mind? You cannot buy real estate in European Union using classic offshore.

 

[fshore]

You pay tax from moment of receipt? So your saying that in Australia when an Australian business sells one banana for 50c and makes 25c profit and re-invests that 25c to buy another banana to keep in stock during the tax year he owes taxes on the sale of the banana?

This is how taxes works in accrual accounting, most commonly used in most countries. The bananas you buy are a deductible expense when you sell them (remove them from stock), not when you buy them.

 

[John Andrews]

This is bulls**t, it's an expense when you buy it. What about business travel then? And stuff you use for doing business? iphone, laptop?

 

[speedster]

This is how taxes works in accrual accounting, most commonly used in most countries. The bananas you buy are a deductible expense when you sell them (remove them from stock), not when you buy them.

I've done a bit of accounting in my time and it's never worked like this. Any costs incurred are immediately deductable from taxable income

 

[Spinat]

I've done a bit of accounting in my time and it's never worked like this. Any costs incurred are immediately deductable from taxable income

That is exactly how it works in most European countries. I can't see where you can save any money using a Offshore company for all of this. I think you will need to consult a tax advisor close to you and discuss your option if a business buy property (business you own) and what tax benefits it may have.

 

[speedster]

That is exactly how it works in most European countries. I can't see where you can save any money using a Offshore company for all of this. I think you will need to consult a tax advisor close to you and discuss your option if a business buy property (business you own) and what tax benefits it may have.

I don't know if this is applicable to the OP too, but in some CFC regulations all income of the CFC is taxable in that year. It is then possible to structure an offshore so that tax is only payable when disbursed from a company. E.g. consider a company with 100k profit and 50k disbursed and 50k retained. Under this CFC regulation all 100k would be taxed in that year, while in a correctly structured offshore only 50k would be taxed that year and so the tax on the other 50k is deferred.

 

[fshore]

This is bulls**t, it's an expense when you buy it. What about business travel then? And stuff you use for doing business? iphone, laptop?

It varies between what you buy. An expensive laptop might not be deductible the year you buy it, and must be deducted 20% over several years.
Stock for resale is different. The cost is deducted when sold.