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Offshore Company Formation: Tax haven rankings

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Offshore Company Formation: Tax haven rankings

Offshore Company Formation: Lox-tax countries in the EU/EEA

Country

Corporate tax

Tax at source for distribution of dividends abroad*

Remarks

Madeira

5%

Depending on respective double taxation agreement

Stipulations in regards to employees and investments

ZEC, Canary Islands Special Zone

5%

Depending on respective double taxation agreement

Stipulations in regards to employees and investments

Malta

5% with the Malta Holding Model, Tax Refund

On principle no tax at source

Required are Malta Trading Company and Malta Holding

Gibraltar

10%

On principle no tax at source, with Holding 1%

Gibraltar does not belong territory under the turnover tax law

Hungary

10%

Depending on respective double taxation agreement

 

Bulgaria

10%

Depending on respective double taxation agreement

 

Ireland

12,5%

Depending on respective double taxation agreement

 

Cyprus

12,5%

Generally no tax at source

 

Liechtenstein

12,5%

Generally no tax at source

 

* Deviating from above, when making use of the EC parent subsidiary directive, no tax at source, provided that parent subsidiary joint-stock companies are in the EU, the subsidiaries are active, the minimum holding period is visibly at least a year and the capital ownership is at least 10%.

-Malta

5% income tax (Malta Trading Company and Malta Holding), regardless of profit. Profit distribution is not taxed in the case of foreign shareholders. Holding companies are tax exempt.

  • EU Freedom of Establishment: Yes
  • DTA: Yes, with most countries
  • EU Parent-Subsidiary Directive applicable: Yes
  • Holding company privileges: Yes
  • Banking secrecy: High
  • Nominee relationships allowed: Yes

-Cyprus

12,5% income tax, regardless of profit. Profit distribution is not taxed in the case of foreign shareholders. Holding companies are tax exempt.

  • EU Freedom of Establishment: Yes
  • DTA: Yes, with most countries
  • EU Parent-Subsidiary Directive applicable: Yes
  • Holding company privileges: Yes
  • Banking secrecy: High
  • Nominee relationships allowed: Yes

Advantage: EU Freedom of Establishment as well as DTA, very low taxes compared to the rest of Europe, dividend payouts to non-Cypriots are tax exempt (otherwise subject to 15% defense tax). Holding companies are completely tax exempt.

-Bulgaria

10% income tax rate, independent of profits, no taxation of distribution of profits, EU company: EU freedom of establishment applicable, therefore EU directive on parent companies and their subsidiaries, DTA concept)

-England

21% for small to medium-sized companies (up to GBP 300,000 in profit), thereafter gradual increase up to 30% VAT registration required only upon reaching GBP 60,000 (approximately EUR 100,000). Very liberal attitude toward offshore companies, maintains a DTA with the Isle of Man.

  • EU Freedom of Establishment Yes
  • DTA: Yes, with most countries
  • EU Parent-Subsidiary Directive applicable: Yes
  • Holding company privileges: No
  • Banking secrecy: High
  • Nominee relationships allowed: Yes

Advantage: EU Freedom of Establishment; also DTA, low tax rates for small to medium-sized companies compared to the rest of Europe

-Ireland

  • ˇ EU Freedom of Establishment: Yes

  • ˇDTA: Yes, with most countries

  • ˇ EU Parent-Subsidiary Directive applicable: Yes

  • ˇHolding company privileges: Depending on type of formation

  • ˇBanking secrecy: High

  • ˇNominee relationships allowed: No

Ireland has a corporate tax rate of 12.5%. Disadvantages include a high income tax rate of 20-60% for natural persons and the fact that nominee relationships are either prohibited or practically impossible. Suitable for “actual company relocation."

-Portugal/Madeira

Short summary of advantages:

  • EU membership, EU Freedom of Establishment and EU Parent-Subsidiary Directive applicable
  • Portugal/Madeira belong to the VAT Zone (the Canary Islands and Canary Island Special Zone (ZEC), for example, do NOT); no import sales tax on the import of goods into the EU, 6th EU Directive applicable

Taxes:

  • Type I: Completely tax exempt
  • Type II: Tax rates of 4 % until 2012 and 5 % until 2020 guaranteed  

Tax exemption or reduced taxation are subject to requirements such as creation of jobs and establishment of a commercial business operation. Our office in Madeira is equipped to meet the necessary requirements (normally only suitable for actual corporate relocation or establishment of an actual business in Madeira.) However, even in the case of no actual business establishment, our partners can help you meet the requirements for tax exemption or reduction. This requires the contractual employment of local citizens in the company (at EUR 400/month) and the leasing of an office. Monthly costs apply in this case.

Offshore Company Formation: Non-EU, but with DTA

From the point of view of most countries, the recognition of a permanent establishment requires establishment of a commercial business operation in the country of residence. The financial authorities in your home country may require proof of residency from the foreign country's financial authority. If no commercial business operation is established, the domiciling of the company via a Business Center with 10 hours of monthly office space use is usually sufficient. The nominee General Manager may act as a permanent employee, in which case his compensation must be "regular." 

-Switzerland: Tax rates vary by canton, as the total tax liability equals the federal tax (8.5%) plus the cantonal tax. An income tax rate of 15.5% is achievable (in Zug). Special conditions: Tax payments are considered business expenses, which correspondingly reduces tax liability as of the second year.

  • EU Freedom of Establishment No
  • DTA: Yes
  • EU Parent-Subsidiary Directive: Switzerland has subscribed to the EU Parent-Subsidiary Directive; bilateral recognition agreements are in place
  • Banking secrecy: Very high
  • Nominee relationships allowed: Yes
  • Bearer stock: YES

Advantages: Low tax liability, easy access to cash, banking secrecy.

Special terms regarding branch offices of EU foreign companies: These are treated as Swiss corporations without the initial CHF 20,000 capital stock investment requirement; commercially established business operation not required. Tax liability under domicile privileges only 8.5%.

-Dubai: ZERO taxation, except for oil companies, chemical companies and banks.

  • Low tax country as per the German Foreign Transactions Act (AStG): Yes
  • Applicability of Section 8 of the AStG (CFC taxation in the case of dominant influence by a German national): YES
  • EU Freedom of Establishment No
  • DTA: Yes
  • EU Parent-Subsidiary Directive applicable: No
  • Banking secrecy: Very high
  • Nominee relationships allowed: Yes

Advantages: No taxes. If adequately structured, so-called “white income” (i.e., tax free income in Germany) may be divertible to Germany.

Disadvantage: Very high capital stock required in comparison to other legal structures, high formation and licensing fees, at least 51% of the shares of the company must be held by local citizens except in Free Trade Zones, nominee solution is an option. The “Dubai Offshore Company” allows for the establishment of a legal corporate structure without capital stock.

-UAE, Exempted Companies

  • EU Freedom of Establishment No
  • DTA: Yes, with most countries
  • EU Parent-Subsidiary Directive applicable: No
  • Banking secrecy: High
  • Nominee relationships allowed: Yes

Advantages: No taxes. If adequately structured, so-called “white income” (i.e., tax free) can be channeled outside the country.

Singapore

  • EU Freedom of Establishment No
  • DTA: Yes, with almost all countries
  • EU Parent-Subsidiary Directive applicable: No
  • Banking secrecy: Extremely good
  • Nominee relationships allowed: Yes

Singapore is known, not inaccurately, as the “new Switzerland.” Foreign income is not taxed. Domestic income is taxed at 18%; the first 200,000 Singapore dollars are tax-free.

-USA: Tax liability depends on the individual state and the "object of taxation." An income tax rate of 15% is achievable. Normal tax rate: 30%.

  • EU Freedom of Establishment No
  • DTA: Yes, with almost all countries
  • EU Parent-Subsidiary Directive applicable: No
  • Banking secrecy: Average
  • Nominee relationships allowed: Yes
  • Bearer stock allowed: No, but shareholders are not entered in the commercial register

Advantage: The "Inc" is the pure form of incorporation, and is a good structure for capitalization, no capital stock investment required, generally low costs in comparison to other corporate structures, one-person formation possible. Shareholders are not listed in the commercial register.  Most US states have no sales tax.


Offshore Company Formation: Non-DTA countries

  • ˇ EU Freedom of Establishment: No

  • ˇ DTA: No

  • ˇ  EU Parent-Subsidiary Directive applicable: No

  • ˇ  Banking secrecy: Very high

  • ˇ Nominee relationships allowed: Yes

  • ˇPublic commercial register: generally none

  • ˇ Bearer stock allowed: Yes, bearer stock is allowed in most offshore countries In general, no nominee shareholder is required.

  • ˇ  Taxes: In most countries, Exempted Companies (those that only generate income outside the country of residence) are not subject to taxes. Isle of Man imposes a flat tax of GBP 450. Liechtenstein offers no tax exemption, depending on corporate structure and sales

  • ˇ   Sales taxes:  Typical offshore countries (Seychelles, Mauritius, Hong Kong, British Virgin Islands (BVI), Bahamas, Nevis, Dominica, St. Vincent, Belize) have no sales tax.

Countries include:

  • Asia & Pacific: Seychelles, Mauritius, Hong Kong
  • British Virgin Islands (BVI), Bahamas, Nevis, Dominica, St. Vincent, Isle of Man
  • Latin America: Panama, Belize
  • Liechtenstein (AG, GmbH, Trust, Anstalt [institution], Stiftung [charitable foundation])
  • Isle of Man: GBP 450 annual flat tax for foreign income. Is a member of the EU VAT Zone.

When establishing offshore companies, the client should be aware of the political and economic stability of the country.

Advantages: Generally no or low taxes, no public commercial register, no international law enforcement treaties or fiscal extradition agreements with other countries.

Disadvantages: See above.

What?

Who offers it

Excellent bank secrecy

Andorra, Bahamas, Cayman Islands, Isle of Man, Mauritius, Panama, Singapore, Nevis, BVI

Suited for holding companies

Cayman Islands, Hong Kong, Isle of Man, Vanuatu, UAE

Zero-tax-haven Exmp. Status

Belize, Cook Islands, Grenada, Mauritius, Seychelles, BVI, UAE

No income taxes from foreign sources

Costa Rica, Hong Kong, Seychelles, UAE

No taxes on capital gains

Andorra, Bahamas, Cayman Islands, Vanuatu, UAE

Captive Insurances 

Bahamas, BVI, Cayman Islands, Hong Kong, Isle of Man, Mauritius

Ship’s register and administration

Bahamas, BVI, Cayman Islands, Mauritius, Panama, Vanuatu, Singapore, Hong Kong

Individuals:

 

No income taxes

Andorra, Bahamas, Cayman Islands, Vanuatu, UAE

Low income taxes

BVI, Hong Kong, Isle of Man, Mauritius

No inheritance tax

Andorra, Bahamas, Cayman Islands, Isle of Man, Mauritius, Panama, Singapore, Nevis, BVI

Bearer shares

Bahamas, BVI, Cayman Islands, Mauritius, Panama, Vanuatu, Singapore, Hong Kong

Offshore Company Formation: Advantages and Disadvantages of Tax Locations in the Caribbean and the Bermudas  

Country

Advantages

Disadvantages

Taxes

Bahamas

Bank secrecy regulated by law, no automatic information exchange in tax matters with EU states.

Since 2006 Mutual Legal Assistance in tax matters, however not automatic, rather only upon request. Taking up residence: At least 150,000 B$ must be invested in the country

No income taxes, corporate income tax, capital gains tax, withholding tax, gift or inheritance tax on individuals and companies

BVI

Bank secrecy regulated by law, no automatic information exchange in tax matters with EU states.

Cost of Living corresponds with the US Level.

Income tax 3-20%, corporate income tax 15%, foreign proceeds are tax free

Cayman Islands

Bank secrecy regulated by law, no information exchange in the event of tax offences, seventh largest banking center worldwide, high political stability 

In the case of taking residence an investment of at least 180,000 USD is required, Cost of living approx. 18% higher than the USA

Pure Zero-Tax-Haven

Dutch Antilles

DBA with the Netherlands permits the transfer of profits to the Antilles at a favorable tax rate, no extradition treaties for fiscal offences

Information exchange agreement with OECD, no statutorily regulated bank secrecy, high taxation of residing legal entities

Non-Residents pay for all revenue generated on the Antilles approx. 3% income tax, no property tax, no inheritance tax, no withholding tax on dividends and interest. Offshore companies pay until 2020 5.5%, in addition tax privileges for certain companies exist

Bermudas

Tax haven for companies

No statutorily regulated bank secrecy, residence permit for foreigners is practically not possible, purchase of real property not possible, extremely high cost of living. 

No income, corporation or withholding tax

Barbados

No currency restrictions, preferential custom's tariffs

Information exchange agreement with OECD

Non-Residents pay income tax of 1-2.5%, no capital gains tax, inheritance, gift, property or withholding tax on dividends and interest. An IBC pays, provided 100% is held by a foreign entity, 2.5% corporation tax. Domestic companies pay no taxes.

Offshore Company Formation for legal reduction of corporate taxes and limitation of liability: DTA

International tax laws in almost all countries differentiate between DTA and non-DTA relationships. A Double Taxation Agreement (DTA), correctly described as an agreement on the prevention of double taxation, is an internationally recognized agreement between two countries that regulates to what extent taxation laws affect the parties to the agreement with regard to income earned within their territories. The DTA is designed to prevent the double-taxation of natural persons and legal entities who earn income in both countries. A DTA also describes the conditions for setting up a permanent establishment in the home country and/or the foreign country.

Excerpt of Article 5 of a DTA:

ARTICLE 5

PERMANENT ESTABLISHMENT

(1) For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

(2) The term "permanent establishment" includes especially :

(a) a place of management ;

(b) a branch ;

(c) an office ;

(d) a factory ;

(e) a workshop ; and

(f) a mine, quarry or any other place of extraction of natural resources.

(g) A building site or construction or installation project constitutes a permanent establishment only if it lasts more than twelve months.

(3) the term "permanent establishment" shall be deemed not to includE:

(a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise ;

(b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery ;

(c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise ;

(d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for the enterprise ;

(e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character ;

(f) the maintenance of a fixed place of business solely for any combination of activities mentioned in sub-paragraphs (a) to (e) of this paragraph, provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.

(4) Notwithstanding the provisions of paragraphs (1) and (2) of this Article, where a person - other than an agent of an independent status to whom paragraph (6) of this Article applies - is acting on behalf of an enterprise and has, and habitually exercises, in a Contracting State an authority to conclude contracts on behalf of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph (4) of this Article which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph.

For most of our clients, this means that they are protected by an existing Double Taxation Agreement prior to setting up a Permanent Establishment in the home country (client's country of residence), as long as only a representative office, an advisory office (for support activities) or a storage warehouse is established in the home country. In contrast, most countries stipulate that in cases where no DTA exists, a representative office, a storage warehouse or an advisory office does constitute a Permanent Establishment in the home country. This would mean that global taxation or primary taxation of the foreign company would not take place in the foreign country at all but in the client’s home country, even if the “place of management” is located in the country of residence (i.e., in the foreign country).  The formation of a true offshore company (with no DTA) must be carefully considered in light of these factors.

As most countries have DTAs with Cyprus, Switzerland, Singapore or the United Arab Emirates (UAE), the benefit of forming a true offshore company in these countries is often clear. Cyprus taxes active companies at a rate of only 10%. As a member of the EU, it also benefits from the EU Freedom of Establishment law.

Singapore does not tax foreign-earned income, and the UAE imposes no taxes on any income whatsoever. In Switzerland (Zug), the total tax burden for active companies equals about 15.5%. It is also possible to form a foreign company under a DTA scenario in which the company is subject to little or no taxes.

If, due to other considerations, an offshore company is nevertheless required, it should be structured as strictly as possible with regard to the law, and no representative or advisory offices or storage warehouses should be established in the client's home country. Offshore companies do generally offer certain benefits: No international law enforcement treaties, no fiscal extradition agreements with other countries, generally no public commercial register, and Exempted Company status (for companies that only generate earnings outside the country of residence).  

 

 

 

 

 
 
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