Forward-thinking entrepreneurs look for which countries offers good business conditions, transfer functions and use benefits from tax treaties, check alternatives if there are too many regulations and taxes, and invest where authorities are less strict. If country A offers a variety of benefits but charges high taxes, and country B offers fewer benefits for fewer taxes, it makes sense to receive benefits in country A and pay taxes in country B. However, high taxes do not automatically mean high benefits.

 

Regarding tax laws, there is a hierarchy that should regulate the relocation / internationalization strategy:

 

National tax law that takes into account the taxation of international activities.

Double Taxation Treaties (DTTs) are bilateral agreements that restrict the taxation rights of contracting states. This limitation depends, if the DTT is applicable, on how this agreement defines residence and permanent establishment (tie breaker rule: stronger than the national definition) and how countries regulate taxation rights for different categories of income. Almost all DTTs can be found on the Internet.

Multilateral agreements which usually cover a few topics for a group of participating countries. Examples are the EU Directives (the Merger Directive, the Parent-Subsidiary Directive, the Interest and Royalty Directive or the ATAD – Anti Tax Avoidance Directive), the BEPS (Base Erosion Profit Shifting) or the Instrument Multilateral.

 

 

Most double taxation treaties follow the model of the text of the OECD Model, which covers specific topics. Usually, active income is taxable in the state of origin (earned income, business profits, etc.), while short-term earned income and passive income such as dividends, interest or royalties are taxed by the state of residence. , but there may be a withholding tax in the other state as well.

 

International tax planning involves steps to maximize total net income. Consider the possibilities offered by the laws of different countries. Hence, you can use the regulations of double taxation agreements, but also benefit from the differences in company laws or national tax laws.

 

In order to consider local laws and anti-abuse legislation, Taxofia coordinates work with clients’ tax and legal advisors and adds to their service.

 

To find out more, write to info@taxofia.com

 

An ideal tax planning process works like this:

Definition of existing business processes and relevant tax subjects (who must pay taxes and where), tax objects (what taxes must be paid for), tax base and tax rates.

 

Possible scenarios that include the transfer of functions:

– Benefit from liberal trade regulations

– Benefit from lower wages

– Benefit from a lowering of the tax base (deductions and exemptions allowed)

– Benefit from lower tax rates

 

Taxation and social security contributions:

– Tax on corporate profits

– Dividend tax

– Withholding tax

– Social charges on income from dependent and self-employed work

– Capital Gains Tax

– Inheritance tax

– Property tax

– VAT

– Attitude of the tax authorities (degree of “form over substance”)

– Reliable publications by the tax authorities and possibility of ruling

– Degree of centralization and service of the tax authorities

 

 

Private taxation:

– Taxation of dividends

– Wealth tax

– Capital Gains Tax

– Pensions and retirement systems

– Inheritance and gift taxes

– Investment schemes

– Proper tax planning and facility planning process is the first step, followed by registering a company in the correct jurisdiction.

 

Tax planning offers opportunities, but it requires effective implementation. Not the model, but this implementation is the real success factor. Whoever neglects it behaves like a boxer without cover: sooner or later, a punch knocks him down!

 

In any case, everything must pay off, your additional benefit must outweigh all the costs including your time and tax advice.

 

For more informations write to info@taxofia.com

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