Powerfull Team

10 Most Common Mistakes When Forming an Offshore Company

How to choose your offshore company?

12 October 2020

Low tax or no tax?

What is the difference between zero tax and low tax jurisdictions?

No tax sounds good, but it does not always work, especially where the company is actively trading in high tax areas. Zero tax companies (often IBC's) are better utilised as a discreet asset holding vehicles or for private consultancy services. By contrast, low tax jurisdictions can often be zero tax with a little bit of extra work, whilst at the same time providing respectability needed for the business.

Zero tax jurisdictions

Commonly referred to as IBC's ( International Business Companies) and best used for asset holding and offshore consultancy. This category includes Seychelles as well as RAK in the UAE. They are all broadly similar & therefore, the choice of jurisdiction is one of perception & price. Wyoming LLC, USA is slightly different in that it is liable to tax in theory, however, if the company does not have US members and does not trade in the USA it will be effectively tax free with minimal bureaucracy.

Common features are: 

• zero taxation and no audit;

• no accounts filing;

• minimal information on the public register;

• corporate directors are allowed although this can make bank account opening problematic.

IBCs are generally NOT able to take advantage of DTA* (Tax Treaties). Some EU countries apply withholding taxes against sometimes arbitrary list zero (and even low tax jurisdictions). 

* DTA Tax treaties 

There are many advantages to utilising and benefiting from double tax treaties (DTA's). This is a complex area and needs careful consideration to avoid additional work and costs.

Low tax jurisdictions 

When trading internationally, particularly into Europe, it is often better to use a "low tax" rather than a zero-tax jurisdiction. Depending on the clients' precise requirements Singapore, Hong Kong, Cyprus, Ireland and even the UK are good choices.

For EU trading, and thus requiring VAT registration, Cyprus and Ireland are two jurisdictions to consider - the UK has a much higher VAT registration (£85,000 in any one year) threshold and is also more difficult to register for a VAT number. 

The primary consideration is VAT, and possible withholding taxes imposed by your EU based trading partners. Where the majority of trading takes place in the EU, it is always better to set up a company in the EU. Generally, we can arrange VAT registration for clients. From our experience, Cyprus is the easiest jurisdiction in which to register for VAT. 

Who will run the company?

The concept of "management & control" is the basis on which many tax authorities determine whether the company is a tax resident in their jurisdiction.