A Tax Avoidance Guide: Using Foreign Corporations to Lower Taxes

One of the most significant advantages of going offshore are the tax minimization potentials that incorporation has to offer. In a world where governments are looking to clamp down on business profits, offshore incorporation offers a haven against any state-sanctioned oppression.  As a financial libertarian, I believe that all business owners should go out of their way to maximize their profit potentials through any means necessary. Even though there’s a lot of bad rap surrounding offshore incorporation, there really isn’t anything wrong with the exercise and everyone should consider such a move.

Although everyone knows the term offshore, there is very little that people fully understand about offshore tax havens and incorporation’s. There’s a lot of misunderstanding surrounding the idea of offshore incorporation and how it really works—so I write this article to help people understand how they can lower their tax using Foreign Corporations.

How Does Foreign Incorporation Work?

Have you ever wondered why we pay the government taxes and what that achieves? As oppressive as this idea sounds, the state essentially rents you the space you occupy. You pay taxes because by virtue of your status as a citizen, you must give back so that the government can continue providing you the privileges you enjoy. For business owners, your privilege is the opportunity to make profits from your business activities and you must pay for that right. Taxes are the payments charge for that right. With tax revenues, the state offers its judicial systems, legal protection and carries out many other social/political actions. 

Sometimes, these payments can be so high that there’s no point in running a business anymore. Considering the high taxes in countries like the United States, Europe and generally throughout the world, business activities are now rather costly. The average business owner pays a quarter of their profits back as taxes, which are essentially wasted. As a result of high tax payments, you have less money to pay yourself with, manage company expenses and less capital to invest.

Not all countries charge very high taxes though. There are plenty of countries that charge absolutely no taxes on offshore corporations.  These countries include Vanuatu, Panama, Belize and the Cayman Islands. Any company that brings its profits into the country gets to enjoy the full extent of its profits. 

The only way you can bring profits into the country is if your business is registered in the offshore tax haven. Once you register your country as a native of the tax haven, it is treated according to the tax law of the nation—therefore you pay less taxes. Don’t think that you’ll have to maintain all of your operations in the country as well, but rather only set up a headquarter in the tax haven.

Many business owners set up their operations and sales in countries where they can maximize their revenues while reducing the taxes they have to pay. As your tax payments fall in proportion to your earnings, then you automatically generate higher profits. 

The next question evidently becomes where you should set up your offshore corporation. Of course, there are plenty of tax havens around the world, but you can create combinations of advantages that include tax benefits and business potentials. 

Let’s discuss some other benefits of going offshore. 

Advantages of Foreign Incorporation

The location of your foreign corporation depends on what your overarching business goals are. Each location offers unique advantages and you should assess your decision to go offshore based on these advantages. I’ll identify some countries that offer tax advantages and business benefits. 

Financial Services

Many countries offer financial services that are indigenous only to these countries. Switzerland, for example, offers the most comprehensive set of financial privacy services in the world. The entire financial system is based on discrete banking systems that protect your money from any type of intrusion in your financial matters. Similarly, Singapore is one of the most well-known financial centers in the world offering the best financial consultancy services. Setting up your corporations in in Singapore will give you the opportunity to raise more capital through the wealth management services that Singapore is famous for.

Considering the low corporation taxes charged in either of these locations, you can go to either Singapore or Switzerland to maximize financial returns. Through both a low tax and the specialist financial consultancy services, you can effectively multiply your earnings. 

New Business Opportunities

Vanuatu and Panama are two countries which offer business opportunities rarely found anywhere else in the world. Vanuatu is on the verge of becoming one of the most famous holiday destinations in the world and is currently home to a very profitable real estate market.  With the increase in the number of tourists to the country and the incentives the government offers in hotel investments, there’s no telling how much money you can make. Vanuatu is also one of the few countries in the world that charges a negligible corporate tax rate.

Panama is home to a burgeoning teak trade industry ever since Myanmar refused to export anymore teak. With the surge in South Asian real estate markets, both India and China demand more teak than ever from Panama. Panama also has a very low tax rate and you can cater to two of the largest teak markets in the world if you invest in teak forestry in the country. 

Dual Citizenship

Cyprus comes to mind as one of the lowest tax charging economies in the world. The country offers citizenship in return for investing in businesses in the country. Although the minimum investment amounts are a little steep, the country has a thriving tourism and shipping sector where you can make a lot of money. Additionally, the passport gives you access to all of Europe and visa-free access to nearly 150 countries. 

Conclusion

I hope you enjoyed reading this article: A Tax Avoidance Guide: Using Foreign Corporations to Lower Taxes. Before you choose a location for your new foreign corporation, you must assess what places you can go to and what you get out of it besides the tax advantages. Always remember that an astute business decision maximizes on all the potentials available to you and foreign incorporation decisions should be treated with the highest considerations.

For further information regarding going offshore, please read The Ultimate Guide to Going Offshore. It has all the answers you need.

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