The most efficient setup

[Morrad]

Hello.

I am new to this forum so please forgive me if I have posted this in the wrong section.
The idea of setting up an offshore company with an offshore bank account linked to it is something that I have tried to read alot about.
However, I haven't been able to come to a conclusion thus far.

I have some questions regarding a setup for the lowest tax rate possible. This is, of course, all hypothetical .

Let's assume that Person 1 lives in country A. Person 1 owns a business in this country but country A is heavily taxed (located in Europe).
If Person 1 decides to form an offshore company in country B (low tax rate) with an offshore bank account linked to this company, how is this (legally speaking) possible? Does Person 1 need to sign some legal documents saying that the business is now owned by the new offshore company in country B instead of Person 1 who lives in Country A?

Does anyone know a country with good recommendations regarding offshore companies and bank accounts in relation to moving income form already existing companies? I have read many posts about Cyprus but maybe someone can recommend anything else?

I have also been looking for different agencies that can help Person 1 with setting up an offshore company with an offshore bank account. However, many of these sites cannot be found on sites like Trustpilot. Are there anyone who has some good experience with an agency ?

I have also been reading on The European Union Tax Haven Blacklist. However, I don't really understand if this list is used for anything. I have read that the EU wants to plan some sanction in relation to this but this might take place in late 2020 or sometime in 2021.

I have read alot of threads but it doesn't seem like I have found a clear answer - maybe I just don't get it yet.

Thanks in advance!

 

[JustAnotherNomad]

If you run the operation from country A, then you have to pay the taxes for country A. It does not matter where the company is registered.

The only way around that is to make sure the company is actually run from country B. That means local director, office, employees etc. - which might cost more than what you would save in taxes in country A.

Or you could set up the company in country B and try to hide the fact that you own/manage it. That’s obviously illegal and when/if you get caught, it might land you in jail. And with the fight against tax evasion getting worse and worse every year, it’s very likely that you will be caught eventually.

Unless you make enough money to make it worthwhile to set up proper operations in country B, your best option is to move to a country with lower taxes and live without having to worry about jail time.

 

[Outlander]

The only way around that is to make sure the company is actually run from country B. That means local director, office, employees etc. - which might cost more than what you would save in taxes in country A.

The other (illegal) way around is to obtain residency in country C, while living in country A. Then form the company in country B, open the bank account in country D, but inform B and D that you actually live in C - do not mention A to anybody, nor use you debit card in A.

 

[JustAnotherNomad]

Which is what I meant by “try to hide the fact that you own/manage it.”

But it’s not something I’d recommend. You will always have to look over your shoulder, always have to hope there isn’t some new regulation in place that will expose you. Better to just do it the legal way than your kids having to visit you in jail.

 

[Morrad]

Which is what I meant by “try to hide the fact that you own/manage it.”

But it’s not something I’d recommend. You will always have to look over your shoulder, always have to hope there isn’t some new regulation in place that will expose you. Better to just do it the legal way than your kids having to visit you in jail.

I understand - which is why this is all hypothetical. I just want to know how this is all possible .

Let's assume that an offshore company in country B is formed, the owner lives in country C that pays 0% tax. Does the offshore company in Country B need to claim some kind of ownership of the already existing company in Country A, before the company in Country A is eligible for 0% tax?

 

[Outlander]

I understand - which is why this is all hypothetical. I just want to know how this is all possible .

Let's assume that an offshore company in country B is formed, the owner lives in country C that pays 0% tax. Does the offshore company in Country B need to claim some kind of ownership of the already existing company in Country A, before the company in Country A is eligible for 0% tax?

I don't get it. If the company is in country B which has no tax and owner lives in C with no tax either, then what's the issue?

 

[Morrad]

I don't get it. If the company is in country B which has no tax and owner lives in C with no tax either, then what's the issue?

The problem is that there are two companies. There's the offshore Company in country B with the owner living in Country C.
Then there's the Company in Country A paying high taxes. If this Company wants to Play 0% tax through the offshore company in Country C, then I guess the offshore Company has to claim ownership of this Company located in Country A, I Guess?

 

[JustAnotherNomad]

No. Who owns a company is irrelevant. What is important is from where it is managed and where operations take place.
You could try to shift profits from the high-tax company to the offshore company (for example by charging for services), but there are of course lots of rules in place for preventing that you save taxes. For example, if both companies have the same owner, you would have to prove that you're not "overpaying" for services. That's called transfer pricing. You would have to prove that there are good reasons for all transactions and that you didn't just set it up like that to save taxes.
Etc. etc.
You'll want to talk to a tax lawyer for such things.

 

[Outlander]

If you are new to this, and run a legitimate business, your best options for lowering your tax burden are either 1) relocating yourself to a country with lower taxes, or 2)moving your company to a lower tax country which is not a tax haven and that has a treaty with your current country.

 

[Morrad]

No. Who owns a company is irrelevant. What is important is from where it is managed and where operations take place.
You could try to shift profits from the high-tax company to the offshore company (for example by charging for services), but there are of course lots of rules in place for preventing that you save taxes. For example, if both companies have the same owner, you would have to prove that you're not "overpaying" for services. That's called transfer pricing. You would have to prove that there are good reasons for all transactions and that you didn't just set it up like that to save taxes.
Etc. etc.
You'll want to talk to a tax lawyer for such things.

Okay. Do you, by any chance, know what kind of services might best to use or what kind of services that are most Common?

 

[JustAnotherNomad]

No. It would depend on your business. But you can bet that a simple “marketing service fee” or “consulting service fee” will be a massive red flag. There has to be proper justification for the transaction from a business perspective, the tax savings must be a mere side-effect. You can google “transfer pricing,” there are some YouTube videos about that.
You can have things like intellectual property licensing, loans etc., but you should really talk to an experienced tax lawyer about those things. The safest option would be to actually move a part of your business to another country. When you want to hire new staff, don’t hire them in the high-tax country. Hire them in the low-tax country. Actually give them something productive to do. Then charge your own company for those services at the market rate.

 

[karishi]

So I have a friend who has a business in a high tax country. Business is not brick and mortar, but software, which makes everything easier as, without having an office, it's much harder to prove that business is managed in one country, although he do has most of his client in his high tax country. What he did is that he created a company in Estonia, which holds the intellectual property, and he moved to Thailand ( something he already wanted to do ) with a student visa. Thailand doesn't know anything about his Estonian company, he can keep money in the Estonian company as money which is not distributed is not taxed, and his home country can't do much as Estonia is not a tax haven ( tax rate is 20%, with the difference that only money taken out of the company is taxed ) and my friend is not resident in his home country anymore.
This isn't a perfect setup, but it's solid enough if you are talking about 100k a year. My friend on 100k a year saves 45k in taxes, which makes a real difference. The problem will arise if and when he will come back to his home country, as he will not be able to spend money he has hidden abroad to buy a house, but since his family has plenty of houses, that's not an issue. He also doesn't have a wife or kids, which makes everything easier.
This is to say that there is no "best" setup, it all depends on what your business is, and how long your business has been run in an high tax country, how much money you are currently paying in taxes to the tax authority, and so on.

 

[JustAnotherNomad]

@shikari That setup sounds completely fine and legal. It doesn’t matter where the customers are located. If he had set up the company somewhere else, he could even have reduced his taxes to zero. As far as I know, he could also bill his Estonian company or pay out a salary, then there would be no taxes.
The only risk is that his home country has some rules against moving abroad. Like “If you move abroad, you still have to pay taxes in your home country for X years - reducible by tax treaties.”
That would mean that unless you pay tax in a country his home country has a DTA with, he would still have to pay taxes in his home country. But not all countries have such laws.

 

[JohnLocke]

My friend on 100k a year saves 45k in taxes, which makes a real difference.

How is he doing it, I mean, is it a legit setup or something gray zone he is doing?

 

[karishi]

How is he doing it, I mean, is it a legit setup or something gray zone he is doing?

So I think it's mostly legit, but some parts are gray, as he basically owns the intellectual property on the software the company sells, so basically the company pays him a royalty. That's how he gets paid by the company. The intellectual property is held in a company in Estonia. He lives in Thailand where my understanding ( which means what i found reading around ) is that there are no cfc rules, you are taxed on what you bring in Thailand. Thailand is not on the blacklist of my home country, so his move is not suspicious, and he is actually really living in Thailand 10 months a year. So my home country can't do anything.
The gray area is that I think that he is not paying any tax in Thailand as of now, as he is there on a student visa and he put the money he takes out of the country on a N26 account which has him as resident in Italy. I don't know the legal implications of owning a passive company in Estonia which is managed in Thailand, Estonia does have a 20% tax rate ( although only on money you pay out ) so I feel that Thailand shouldn't consider Estonia a tax haven, in any case in this setup I feel there is no way for Thailand to know about the company, especially if my friends keeps a low profile. Things of course would be different if he wanted to buy a house in Thailand, but he, like me, thinks that ownership is a big burden these days, it's better to rent everything, and have as little as possible.

 

[JustAnotherNomad]

To me that sounds perfectly fine, but I wouldn’t use a country that has 20% tax.
What about the Netherlands or Ireland + some tax haven, similar to what Microsoft, Google, Apple and so on are doing? Certainly there must be a simpler structure if you don’t have lots of developers in the US.

 

[Outlander]

To me that sounds perfectly fine, but I wouldn’t use a country that has 20% tax.
What about the Netherlands or Ireland + some tax haven, similar to what Microsoft, Google, Apple and so on are doing? Certainly there must be a simpler structure if you don’t have lots of developers in the US.

Well if he's actually living in a non CFC country like Thailand, he could've even gone for a company in Seychelles or Belize with 0% tax and still be fine. I think he opted for Estonia for the legitimacy and ease of doing business in the EU.

 

[JustAnotherNomad]

Well, if you go for a company in some other EU country (like Ireland), you would also have the good reputation and the tax savings would probably easily cover the cost of an accountant to take care of everything for you...

 

[Morrad]

By the way, I have read about the EU Tax Haven Blacklist. Is this list used for something? Is countries in the EU using this list to completely deny companies from these countries to do any business in the EU?

 

[Azari]

Interesting thread. What about if someone wanted to setup an online services business in a tax heaven. No staff needed and the business can be managed from anywhere in the world via the internet and services could be provided in any country in the world. Any advice for such a setup ?