Choosing a jurisdiction offering low or no taxation and some flexible rules might be sometimes tricky. There are many things to be taken into considerations, such as: the business activity of the company, tax residency of the owner of the company, anti-avoidance rules, substance requirements, tax risks, etc.
One thing for sure: forget offshore! This is the most common mistake that digital nomads and entrepreneurs do. Making a research on the internet among hundreds of ‘advisors’ proposing registration of companies offshore is (in most of the cases) a huge mistake. There are plenty of reputable onshore jurisdictions, like Cyprus, Estonia, Georgia, Lithuania, Malta, UAE, Singapore and many others that are white-listed, and offer very low (or even zero) taxation.
Important thing to consider when choosing a jurisdiction are potential tax risks. It is important to distinguish the tax risks on two levels: corporate and personal. Let’s start with corporate: Tax residency of the company, Management and Permanent Establishment – these are the most important elements when considering the tax risks.
The personal risks relate mainly to the tax residency of the Ultimate Beneficial Owner.
Depending on the location of your personal tax residency, you must consider if there in your country exist rules that prevent doing business in low/no-tax jurisdictions. First, you should consider CFC (Controlled Foreign Company) rules, GAARs (General Anti Avoidance Rules) and other anti-avoidance legislations. Consider also who is a director of the company and how do you do business via the company. In many cases these can create a huge risk on a corporate level.
Double Tax Treaties (DTTs) are another piece of legislation you should be aware of, when going cross-border. Having no DTT between the country of your personal residency and the country of the residency of the company might have serious tax risks (e.g. double taxation), so it is (almost) always wise to choose doing business between countries that have DTTs signed.
Banking and opening of bank accounts for non-residents and companies owned by non-residents might be a tricky & often bureaucratic process, so it is another factor to be considered when choosing jurisdiction to register your company. There are many alternatives like opening a bank account in different jurisdictions or using Electronic Money Institutions (like Revolut). However, banking should be always on the ‘tick’ list when choosing the best place for your business and residency.
The last (but not least) advice is to get a professional advice from a lawyer/tax advisor/professional firm. There are plenty of bloggers across the Internet who have no idea about tax, and they sell advice on where to register a business, where to relocate and where to pay tax. Ideally these should be people with experience in international matters and at least a basic knowledge of regulations and consequences of scenarios that they offer. In addition to that, you should always get a professional advice in the place of your tax residency and check if it makes sense to relocate abroad or setup a business abroad from the legal and tax perspective.
We almost forgot about one more benefit of going abroad. In addition to low taxation and friendly business environment, you could enjoy a nice warm weather, relaxed atmosphere, nice food, interesting people and cultures.
Is choosing tax residency for yourself and your company easy? It is not, but it is possible to be done effectively and to bring great results when doing this properly and investing in real substance. The times have changed. Governments are now fighting for their taxpayers and for the last years global organisations have been introducing new rules and forcing transparency. Therefore, entrepreneurs and businesses must adapt to the new conditions and focus on building strong structures.
Need more information? Feel free to reach us at CDX Trust. We will help you to plan your personal or business relocation in tax-efficient, safe manner and to secure your assets, so that you can enjoy travelling and doing things they way you like!