These Countries Will Not Tax Income in Offshore Companies
What are Controlled Foreign Corporation (CFC) Rules?
Most high tax countries have CFC rules. But countries without CFC rules are more common than you might imagine. CFC rules seek to tax income in offshore companies as if it were domestic income. These rules are put in place to ensure that it’s difficult for people and corporations to set up companies in low rax countries to avoid tax in high tax regions.
All countries with CFC rules have different definitions of what a controlled foreign corporation is. The UK defines a foreign corporation as one that’s managed from the UK. The US defines it as a corporation where US residents control more than 50% of the shares. Countries like Germany and France base it on how much less tax the company is paying in the overseas country than it would be paying in those countries.
CFC rules are complex. It’s the one thing that ends up tripping many people up when thy incorporate offshore but stay in a high tax country. It’s not possible to legally reduce or avoid taxes in countries like the US or UK simply by incorporating in the BVI or Panama. Many other steps are necessary to achieve this without running into difficulties.
Fortunately, the majority of countries in the world do not have CFC rules. Here are 7 countries without CFC rules:
Switzerland does not have any CFC rules. Any income accrued in offshore companies controlled by Swiss residents will not be subject to Swiss taxes. Switzerland can be a good base to control a tax free network of companies. It’s also possible to have Swiss based nominees manage your offshore company.
Panama also has no CFC rules. Residents of Panama can manage corporations inany jurisdiction and not be subject to local taxes. As a territorial tax country any income from overseas would not be taxable in Panama in any case.
Costa Rica is another territorial tax country without CFC rules. Any income earned in overseas companies controlled by residents of Costa Rica will be free of taxes.
Thailand is also a country without CFC rules. Thailand has the excellent Thai elite visa that allows anyone to become a tax free resident in the Asian country. Any income accrues in overseas countries will be free of taxes for residents of Thailand.
While Monaco is a traditional tax haven for individuals, this is not the case for Monaco companies. Monaco companies are taxed on their income outside Monaco. This is to avoid Monaco companies doing business in France and having an advantage over their highly taxed French counterparts.
That said, Monaco has no CFC rules. Monaco residents frequently use offshore companies and trusts. Undistributed income from overseas companies is not taxed. As a zero tax haven any dividends paid to individuals would be tax free in any case.
Liechtenstein is one of Europe’s more tax friendly countries. It’s also without CFC rules. Lichtenstein residents will be taxed on dividends received from overseas companies. But if the profits remain in the legal entity there’s no tax on profits made by overseas companies. Lichtenstein can be an excellent place from which to manage overseas companies and foundations.
Singapore is fast becoming a global wealth haven. Residents of Singapore will not face any inquisitions from the tax authorities in Singapore about overseas companies they control. Singapore does not have controlled foreign corporation rules.
The reality is that CFC rules exist primarily in high tax countries. The majority of countries in the world are still without CFC rules. If you want to reduce your taxes legally it’s important to pay attention to this area. I’ve seen a few articles around the internet with highly inaccurate information about countries without CFC rules. This is not something that you can afford to get wrong and take advice from people who don’t know what they’re talking about.
But the best strategy is always to locate yourself in a country without CFC rules or other rules that threaten your liberty.
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