These 7 Countries Have No CFC Rules
What are CFC Rules?
Controlled Foreign Corporation (CFC) rules exist in most high-tax countries. CFC rules are implemented to prevent individuals and corporations with tax-free overseas companies from avoiding local taxation.
It’s a common myth that anyone can set up an offshore company in a tax-free jurisdiction like the Cayman Islands or the BVI while continuing to live in a high-tax country like the UK or the USA and keep the income earned in the tax-free company without paying taxes. CFC rules are designed to stop people from doing this.
Of course, like all government regulations, loopholes and workarounds make it possible to plan your affairs to use offshore structures to avoid tax. But there are still countries that don’t have CFC rules.
That means that you can live in any of those countries and operate an overseas company with no risk of the income from the company being taxed. The right setup would allow you to live in an otherwise high-tax jurisdiction like Switzerland while paying minimal taxes.
Here are 7 European countries that don’t have controlled foreign corporation rules:
Switzerland
Switzerland has both federal and cantonal taxes which can add up to a relatively high overall tax burden. It’s possible to make special deals with the Swiss government if your income is earned outside the country. However, as Switzerland doesn’t have CFC rules, you can operate a tax-free overseas company without hindrance.
Jersey
Jersey is the largest of the Channel Islands. It’s a self-governing territory with low taxes compared to the UK. Jersey does not have wealth, corporate, inheritance, or capital gains tax. It has a maximum income tax rate of 20%. Jersey does not have CFC rules.
Serbia
Serbia taxes worldwide income, but at relatively low rates of between 10 and 20%. However, Serbia does not have CFC rules so it could be a useful location to establish a business base as overseas corporate income will not be taxed.
Georgia
Georgia is one of the few countries in Europe that has a territorial tax system. That means that only income that’s earned in Georgia is taxed. The country has no CFC rules.
Lichtenstein
Lichtenstein is famous for its private banks and private foundations for asset protection. The small European country doesn’t tax income from outside Lichtenstein. It does not have CFC rules.
Isle of Man
The Isle of Man, located in the Irish Sea offers low taxes and tax-free offshore companies to foreigners. The territory does not have CFC rules.
Monaco
Monaco is Europe’s last remaining tax haven for individuals. Monaco does tax the foreign income of companies incorporated in the Principality. However, Monaco does not have CFC rules.
Conclusion
Living in a country without CFC rules is advantageous. It means that your overseas business dealings will not be subject to scrutiny there. You will also be able to receive loans from the offshore company to pay local expenses while accumulating capital tax-free overseas. This is a strategy that’s often used to minimize or eliminate taxes.
