Typically, the following types of companies or corporate entities are used to structure international business for tax planning purposes:
“Low or Zero Tax” Offshore Companies Located in “Tax Haven” Jurisdictions
These are very low or zero tax offshore companies incorporated in jurisdictions often described as tax haven islands. Examples of the types of companies that can be formed for tax planning purposes are available in several offshore company formation centers, such as the British Virgin Islands (BVI), Belize, the Seychelles or Brunei.
“Offshore” Companies Benefiting from Favorable Tax Regulation
Offshore companies may be incorporated in jurisdictions which offer both offshore companies and onshore companies and which may benefit from favorable offshore taxation and/ or special offshore company regimes. For example:
Mauritius has two types of companies that are used for international and offshore business tax planning. The Mauritius GBCII Offshore Company is, effectively, a tax haven company and, therefore, pays zero tax. This is similar in many respects to a BVI Company, whilst the Mauritius GBCI Company is tax resident and typically utilized for double tax treaty and international tax planning.
Hong Kong, although not typically regarded as a tax haven, has a favorable tax regime which effectively means that correctly structured, managed and administered Hong Kong companies can be utilized for undertaking offshore business and international business without paying taxes in Hong Kong, provided that any profits arising are not made in Hong Kong. This type of tax regulation is known as “territorial taxation.”
Offshore planning and operations are often quite complex. Offshore businesses can take advantage, not only of tax havens, but also of onshore, high-tax countries that attempt to attract international companies and individuals using special offshore taxation incentives. These offshore taxation incentives are used for a wide variety of tax planning business, such as:
• Double tax treaty planning relating to dividends, interest and royalty payments
• Establishment of holding companies with international headquarters located to avoid U.S. taxes
• Specialty businesses, dealing, for instance, in leasing or wealth management and tax planning
Many countries have tax regimes that are, by statute, tax advantageous for specific international purposes. These companies are often referred to as “Onshore Companies.”
In fact, almost all countries offer tax incentives of one kind or another to encourage local investment.
International tax advisers have long been aware of the opportunities that exist for avoiding higher tax rates by using the special, low-tax incentives offered by high-tax countries seeking to encourage international business. However, successful application of such strategies is often dependent on a wide variety of issues relating to matters such as tax avoidance, double tax avoidance, controlled foreign company and management and control tests and provisions, transfer pricing, thin capitalization, participation exemptions, capital gains tax and other similar regulations. In addition, taxation may be affected, either beneficially or adversely, by enactment of exchange of information treaties and provisions.
Our expertise is advising clients in the selection of the best offshore onshore company jurisdiction for offshore taxation and tax planning purposes. We assist clients with the process of establishing the most suitable company or trust structure, and we can provide a full range of management services to meet the relevant statutory requirements. We are also available to undertake the administration of the structure on an ongoing basis.
Our complete range of business services is designed to ensure a robust and comprehensive solution to meet your international tax planning requirements.