in Business Tax

International tax planning considerations

There are a multitude of tax systems worldwide. Each jurisdiction’s tax system is different because, unlike any business or legal systems, tax is a government’s primary means of raising revenue and any fiscal policies adopted by a government will be based on political and economic motives. However, a sovereign government’s ability to collect taxes is limited in two ways – to the collection of taxes from its residents and to the collection of taxes from income derived from its country’s sources.

It is this rule of law that is the essence of international tax planning – that is, an individual or a business may change its residence and its geographic source of income for the benefit of minimising tax paid through the use of offshore structures.

Types of tax incentives

One of the easiest and simplest ways for a country to attract foreign investment, particularly investments from developed economies, is to offer a competitive tax environment.

The types of tax incentives offered by countries vary greatly, with some offering more attractive incentives than others. The following sets out some examples of tax incentives.

Many tax jurisdictions and offshore financial centres do not impose income tax or tax on profits at all eg, Vanuatu, BVI and a host of others;

Some key trading economies provide tax concessions for foreign companies or double tax agreements may serve to lower taxes paid in those countries eg, Australia;

Other jurisdictions draw a distinction between foreign-owned resident companies and foreign-owned resident international business companies (IBCs), with incentives being offered to the latter eg, Malta; and

In key trading economies, incentives are provided if the business sets up its overseas headquarters or holding company in the jurisdiction eg, France.

In addition to the above, most countries offer foreign direct investment grants and concessions to foreign businesses for which an application must first be made before such grants and concessions may be obtained.

International tax planning

Businesses may use an offshore structure as part of their international business development strategy for tax planning purposes. In this regard, the global financial crisis had prompted many businesses to consider international tax planning as part of their risk mitigation and cost-savings strategy.

For example, businesses may be looking at establishing an offshore structure for any or all of the following reasons:

  • asset and investment holding;
  • treasury management;
  • administrative and service centre;
  • intellectual property licensing;
  • executive or expatriate recruitment

Business owners and private individuals

As part of our services, we also assist business owners and other high net worth individuals to establish an offshore structure as part of their international tax planning strategy. We have assisted such individuals to enhance investments, reduce inheritance taxes, asset protection, provide a suitable structure for succession planning and so on.

It is important to note that establishing an offshore structure does not necessarily mean that you are relieved of your liability to pay tax on assets transferred and/or held by the offshore structure in your country of residence. It does mean however, that, if structured correctly, you are legally entitled to pay less tax on such assets, thus increasing the value of your portfolio of assets and investments.