Going offshore still carries some controversial connotations in public perception. This is mainly due to the fact that until 2014, many tax-harbored assets were known to be mystically hidden in tax havens. Hence, the public image of an offshore was often misinterpreted as an instrument for tax evasion or corrupt schemes.
Contrary to many people’s perceptions, the offshore world of tax havens (or secrecy jurisdictions) comprises some of the world’s biggest economies.
Typically, no one ever considered the ratio of “honest” capital compared to that received by questionable methods, whereas it would be practicable to perform such assessment before inducing the governments of countries with optimized taxation models to revisit their legal frameworks.
Changes in international corporate and tax laws have led to a situation where it became unsafe to store funds in offshore countries, particularly for the following reasons:
- The automatic exchange of financial information, which according to the latest data for 2018-2019 has already been implemented among 94 countries worldwide, opens up opportunities for tax authorities to conduct checks on previously submitted income statements for both legal entities and individuals. The rules and procedures for the exchange of information are embodied in international arrangements, which sometimes convey a distorted picture for certain companies and even entire business sectors. Normally, this leads to excessive control and increases the risk of errors and misinterpretations on the part of tax authorities, which invariable has negative impact on business performance.
- Changes in corporate law in most tax residences referred mainly to the issue of maintaining share registers in these countries. The intricacy of the process consists in the fact that in some locations the registers of shareholders and key management personnel are partly closed to the general public, while in some countries they are made fully available and accessible, including for various claimants and creditors. Accordingly, the risks of being subject to claims through the seizure or obstruction of foreign assets have also increased.
- Changes in international banking legislation. The point here is that the entire financial and banking system is becoming transparent to the tax authorities. Even countries such as Switzerland were forced to accept the rules of the game of international regulators, in which there is practically no room for bank secrecy. Moreover, banks all over the world have ultimately taken the role of agents and have become accountable structures in relationship with their domestic fiscal and judicial bodies. This situation invariably leads to higher risk and insecurities in terms of setting up and conducting business in countries with classic offshore legislation framework. Furthermore, there have been cases when payments exchange between the banks of these countries and jurisdictions with a higher tax burden were often delayed or even canceled without providing any valid justification for such impediments to the transaction parties.
This denotes only one undisputable fact: it is practically impossible to conceal criminally or illegally acquired resources in the so-called offshore jurisdictions. On the other hand, if you are legally engaged in international business and comply with all the legislative and regulatory requirements of the countries in which you work and live, it would be unreasonable not to benefit from the tax and corporate opportunities presented various countries of the world, which often provide the most favorable conditions for both taxation and for overall business operations.
In this article, we would like to particularly deliberate on the asset protection strategy in 2020 using the difference in the corporate law of offshore countries.
Nothing is more detrimental to the social welfare than a tax system which is excessively stringent in terms of progressively high tax rates for higher levels of incomes, more specifically by imposing disproportionately high taxes on income. This can have an inherently negative impact on the economy at large, as people with high incomes will increasingly prefer to take them abroad – to a country where tax policies are not as stringent and burdensome.
Moreover, in such countries, the motivation to earn more in the long run is not the same as before. It turns out that in such a country everyone gradually feels less incentives to develop and think about their future in a positive sense as they see no sustainable perspectives. Many people believe that high taxes on wealthy individuals discourage them from working and investing as much as they might at lower tax rates. Increased taxes could result in a reduction of these two activities—working and investing—and remove their benefit to society. Benefits include advances in technology, medicine and other areas that improve living standards for everyone.
To overcome these bottlenecks, people prefer transferring their wealth to countries with less stringent tax requirements, and increasingly more prospects for better opportunities to develop their business projects. Foreign offshore companies are one of the tools for exporting assets abroad.
Evidently, there is nothing illegal in setting up an offshore company aiming to structure your wealth for maximum protection. Some may question the ethics associated with this issue, as supposedly not everyone is the right fit for doing business. While this may be true, yet practically everyone can become a highly paid specialist, including people with disabilities and the elderly, and there are many examples in proof of this theory.
Regardless of which theory resonates with you, it is practically inarguable that tax rates affect the wealthy’s decisions about where and how to live, work and invest, with optimal tax rates on individuals.
Protecting your assets is common-sense choice
Everyone who owns a fortune and can think rationally, would like to protect their wealth from inadequately excessive taxes. Regardless of whether you are a highly paid employee, or a self-employed business owner, or an investor, or an individual who has inherited a fortune on the family line, you would reasonably wish to make sure that you save as much of your funds as you have at your disposal .
Any competent economist will tell you that taxation of wealth is not a reasonable mechanism from the point of view of economic development. Whenever you pay a tax on your assets after you have earned income, this means that you pay to the government budget from your own pocket, i.e. from your share of net profit. Taxation of wealth for entrepreneurs through property taxes is an additional abuse for doing business in the country.
If we take a look at tax rates in some of the Western economies, we can see that the income tax rate in the United States is remarkably high and ranges from 10% to 37%. In Canada, the rate can go up to 33%, while in some European countries the income tax rate can go up to 50% of your annual income.
Let’s look at an example of an individual with a high income, e.g. Individual A, who earns 300,000 USD a year, has already paid almost 30-50% of his income in taxes. These losses will range from 100,000 to 150,000 USD in taxes and will far exceed incomes of people receiving an average annual salary of 25,000-50,000 USD.
Now, if Individual A would wish to act prudently in the process of how and where he spends his money, he would ultimately face more taxes. Let’s say, as a prudential businessperson, he may choose to invest most of his funds in long-term, reliable assets that create wealth and welfare for others, rather than spend it on meaningless expenses on short-term benefits. For example, he may wish to invest his free funds in creating a new business that will in turn establish new jobs for other people in the country.
In the event of the decease of Individual A, his wealth may be subject to additional property taxes of up to 30-50% depending on his net worth, as well as taxes and/or fees in effect at the time of inheritance taking effect.
As a consequence, we face a tax regime, which is punitive for high net worth individuals who prefer to wisely dispose of their monetary resources by robust financial planning; and on the contrary, it rewards people who have developed a consumer-only approach, who fritter away all their earnings without contemplating around others’ welfare or creation of more jobs. And this category of people, ironically, enjoys social security benefits and lightweight taxation. This is practically one of the main reasons why Western economies find themselves in an ever-growing debt cycle.
In this context, it will be more efficient for the government of any state to adopt a regressive taxation scale under which the more you earn, the lower the tax rate and the lower relative amounts you would pay to the budget from your income. In combination with a zero tax on minimum wages, this would be not only viable approach in the longer run, but also directly beneficial for the public welfare at large.
It might be useful to also link the tax rate to the type and level of education: the more educated you are, the less taxes you pay. Such incentives would contribute to higher motivation among younger generation to pursue their personal and professional development and trigger their willingness to do business, to create their own enterprises and partnerships, to open more workplaces, to contribute to public welfare.
Accordingly, there would be no point in hiding your income from taxation. On the contrary, a reasonably calculated regressive scale would stimulate the declaration of income, which in turn would increase the absolute figures of taxes collected and contribute to the prosperity of people and the country as a whole.
Offshore tax havens
However, regressive taxation is used only at the provincial level in some US states. Therefore, offshore companies used under the current legislation to protect and accumulate wealth will be an effective tool in the hands of competent entrepreneurs in the 21st century. To accomplish this, they will be required to establish offshore companies that operate in countries offering a range of fiscal benefits, known as tax havens.
A growing number of potentially profitable offshore destinations is becoming popular among businesspeople because of their low or even zero tax rate, as well as the facilitated procedures of registering an offshore company and conducting international business.
Gibraltar is one such destinations, especially in terms of doing business in the EU countries. This is a small and financially independent territory, consisting of one port city. It is located in southern Spain, surrounded by the Mediterranean Sea from three sides and connected to Spain by land in the north.
The port city is one of the overseas territories that are part of the UK. However, the territory is independent and has its own laws. Gibraltar has a corporate income tax rate of 0%. More importantly, there is no property tax, capital gains tax, real estate tax, sales tax or VAT. Businesses based in the area and residents of Gibraltar can use various tax incentives to reduce their tax liability.
Gibraltar is especially popular among online gambling and international trade businessmen with the European Union, where logistics is built using sea container shipping lines. See more in our article about How to open a company in Gibraltar in 2020? all specifics of registering offshore companies in Gibraltar
Gibraltar is most certainly a favorite tax saving destination for many businesses. It offers numerous opportunities to individuals, companies, and enterprises that seek to benefit from the free tax regime.
The population speaks two languages: English and Spanish, as well as some other European languages.
No currency control is implemented in Gibraltar. Global currency rates USD / Euro / GBP / RU are independently controlled by the market, without government intervention.
Gibraltar has a reputable standing with all European countries, when it comes to opening an account with a foreign bank. The country is also known for its excellent infrastructure: road network, electricity and communications – all are constructed and planned to follow the highest quality standards.
Gibraltar tax laws are based on common English law. However, they differ significantly from legal systems in the US and the UK. In Gibraltar, a tax exemption regime was introduced much earlier than in other regions. Despite the fact that there is an internal tax policy for local residents, the tax rate has been reduced to 0% for companies registering their operations here. Therefore, in terms of taxes, Gibraltar is one of the best offshore territories in Europe.
You can start a business here in various industries, including insurance, banking or fund management. There are no export tariffs or VAT, and new businesses can benefit from a supportive environment that includes tax cuts.
For financial calculations, the British Pound (GBP) is used. The tax rate on personal income is 20% of annual income up to GBP 25,000. Income up to GBP 100,000 is taxed at 29%. A tax rate of 35% applies to individuals with an income of more than GBP 100,000.
Benefits of doing business in Gibraltar
The main advantage of moving your wealth to Gibraltar is your business tax exemption, and it is here that you can get the most benefit. The following types of companies are not required to pay taxes:
- real estate management holdings. Here you can register a business that collects rents for real estate in different countries. An individual with shares of such a company bears liabilities on the income generated by the business in Gibraltar, and not in the country where the property is located, as Gibraltar has a territorial taxation principle, as opposed to residential principle. Since the property belongs to a business in Gibraltar and the rent is paid to the company, the individual is not liable for tax in his country;
- investment companies. These include companies that hold investments in foreign stock markets which offer confidentiality of investment. Since capital gains are not taxed by income tax in Gibraltar, companies making such investments will not have to pay any taxes.
In conclusion, we would like to remind you that protecting your assets can come in many different forms and protecting your assets from unfair tax burdens is just one of many things that you should take into consideration.
For example, the opening of a foreign company does not imply that you are relieved of the requirement to report on the profit derived from its activities in the country where you are a tax resident; especially if you control more than 25% of the capital of an offshore company. However, on the pages of our portal you can find many recommendations on how to ease the burden of international business development and protect your assets.
We offer professional consulting support for corporate and banking legislation around the world. We have successfully established and are maintaining long-standing and effective collaboration with the registration authorities and financial organizations worldwide. With our support, you will make the optimal choice of country for registering your new foreign business and open a foreign bank account.
Contact us by email to receive your first free consultation on selecting a country for registering a company or opening a foreign account. Our contact email is email@example.com; or, alternatively, you may send your request to us by filling in the contact form on this page .
We will be happy to start building our long-term mutually beneficial relations with you, aiming to contribute to development of your international business. Read more of our articles on benefits and opportunities of establishing a company in Gibraltar.
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