How to Avoid Tax Legally With Offshore Companies
The question I want to explore is how to avoid tax legally with an Offshore Company in the 2020s.
It can be tricky. It requires careful planning and depends on your country of residence and who owns the Offshore Company.
Most large countries have rules requiring disclosure of controlled corporations. These are known as CFC rules. In essence you have to disclose the Offshore Company on your tax return. Rather than avoid tax with an offshore company you’re likely to be taxed on the income of the Offshore Company as if it were personal income.
Don’t worry, though. There are many solutions to this problem. We can use offshore trusts and nominee shareholders and directors to cloak your involvement. Every situation is different. You can still avoid tax legally with an offshore company.
So, the bottom line is , yes , you can effectively cut your tax rate to zero and avoid tax with an Offshore Company but it requires careful planning.
Decide on the jurisdiction for your Company.
There are multiple choices here.
You will want a Country with minimal filing requirements and a zero tax rate. Or, at least, a zero tax rate for profits generated outside the jurisdiction.
Belize, Hong Kong, Antigua or Ireland might fit the bill.
You will want your Company to have a bank account in a jurisdiction outside your home country.
There are fewer and fewer banks accepting clients remotely nowadays.
If you want to bank in Hong Kong, for example, you will have to travel there. There are a few jurisdictions, such as Belize, where with the right bank contacts you can do it remotely.
Many vendors sell Offshore Companies but are completely inept at helping with opening bank accounts.
This is an important point. Your offshore vehicle is pretty useless without a functioning bank account. You want to bank in a world class jurisdiction without the risk that your banking secrets will be shared with the tax authorities in your home country under CRS or FATCA.
Now that you have your Offshore Company and your bank account set up you’ll want to structure your affairs so that you have income coming into your Company.
That depends on your business. Can you move your whole operation to a tax friendly jurisdiction?
Otherwise you will look at other strategies such as having the Offshore entity owning trademarks or brands and charging royalties to your onshore vehicle. In this way you can generate profits for your offshore company, while reducing profits in your onshore operation. In this way you can avoid tax with an offshore company.
This, again requires careful planning to be effective but at the end of the process you will have a structure that will save you thousands annually.
How do I spend money accumulated in the Offshore Company?
You might want your overseas Company to invest the accumulated profits tax free.
For example you can buy real estate overseas or open a brokerage account in the name of the Company and make investments either in your home country or overseas.
You will also have a debit card from your overseas bank that you can use in the same way you use any other card. You might even want to travel to exotic locations for your board meetings or to investigate investment opportunities.
If you take money from your Offshore Company as a loan on commercial terms rather than income, it won’t be taxable.
An Offshore Company, structured correctly, will open up a world of opportunities, save significant taxes and give you more privacy. It’s worth taking the first steps to establish your offshore company to avoid taxes today.