I am an EU National with Irish non-dom residence and I recently started to think about how to exploit my remittance based tax regime to make profit helping realtors to reduce their tax burden.
I focused on Real Estate as the standard transaction size and the profit margins are high: fewer deals, more margin, less headaches.
I am considering two different schemes.
Both schemes require my client to be resident in a state with no gift tax (e.g. Austria, Israel, Liechtenstein, Hong Kong, Macao etc, see here: Inheritance and gift tax rates).
Scheme 1: No holding company
The entrepreneur in a country, namely Israel, finds the following real estate deal:
200k to purchase the land
50k for refubishing
He is confident of selling for 300k, netting him a 50k profit margin
He usually pays whatever tax amount, say 30%, on the 50k, that's 15k taxes.
To relieve his tax burden, he gives me the details of the operation beforehand, and I option the 200k property from the original seller for 200k, with a downpayment of 5k and 195k later.
To complete the deal, the entrepreneur from Israel now has to purchase my option on the land. I sell the option for 50k, so now his costs have raised:
195k for the property
50k for my option
50k for refurbishing
Property sold at 300k, at a 5k profit margin
He pays 30% taxes for 1,5k
I now have 45k on my personal bank account: I bought an option for 5k and sold it for 50k, making myself a capital gain outside of any business activity. No regulations, no registers, no notary, no nothing: just purchasing an option and selling it.
Of the 45k I net as non dom, i pay 0% tax rate.
I then donate 38k to the entrepreneur and keep 7k for me.
The entrepreneur receives a donation of 38k at an 0% donation tax he will pay in Israel.
His tax burden is down from 15k to 1.5k with a 7k for me: 6.5k he spares.
The greater the numbers, the greater the reward.
Scheme 2: With holding company
Same above mentioned scenario: property for sale at 200k, 50k of refurbishing costs, 300k resale price.
I create a Gibraltar LTD company and inject 250k of capital.
The company purchases the Israel property for 200k bearing the renovation costs of 50k.
Instead of selling the property, I then resell the shares of the holding company to the final buyer, at 300k, with a capital gain of 50k.
In Gibraltar, capital gain tax is at 0%, so no taxes arising in Gibraltar.
As the holding company in Gibraltar remains the owner of the property, no capital gain tax would arise on the real estate in Israel: the final customer would own the property indirectly through the holding company.
The holding company may be kept dormant or liquidated at a later stage.
After i get the capital gain, the scheme 2 works just as scheme 1: I donate the majority to the entrepreneur at a 0% tax rate, and I keep a commission for myself.
Solution 1 looks simpler, but it has a lesser degree of separations between me and the transactions. Under a liability point of view, I'd prefer option 2, although it may make sense only for bigger operations (> 50k profit margin).
Still, it seems too easy.
Does it make any sense to you?
Criticism appreciated
I focused on Real Estate as the standard transaction size and the profit margins are high: fewer deals, more margin, less headaches.
I am considering two different schemes.
Both schemes require my client to be resident in a state with no gift tax (e.g. Austria, Israel, Liechtenstein, Hong Kong, Macao etc, see here: Inheritance and gift tax rates).
Scheme 1: No holding company
The entrepreneur in a country, namely Israel, finds the following real estate deal:
200k to purchase the land
50k for refubishing
He is confident of selling for 300k, netting him a 50k profit margin
He usually pays whatever tax amount, say 30%, on the 50k, that's 15k taxes.
To relieve his tax burden, he gives me the details of the operation beforehand, and I option the 200k property from the original seller for 200k, with a downpayment of 5k and 195k later.
To complete the deal, the entrepreneur from Israel now has to purchase my option on the land. I sell the option for 50k, so now his costs have raised:
195k for the property
50k for my option
50k for refurbishing
Property sold at 300k, at a 5k profit margin
He pays 30% taxes for 1,5k
I now have 45k on my personal bank account: I bought an option for 5k and sold it for 50k, making myself a capital gain outside of any business activity. No regulations, no registers, no notary, no nothing: just purchasing an option and selling it.
Of the 45k I net as non dom, i pay 0% tax rate.
I then donate 38k to the entrepreneur and keep 7k for me.
The entrepreneur receives a donation of 38k at an 0% donation tax he will pay in Israel.
His tax burden is down from 15k to 1.5k with a 7k for me: 6.5k he spares.
The greater the numbers, the greater the reward.
Scheme 2: With holding company
Same above mentioned scenario: property for sale at 200k, 50k of refurbishing costs, 300k resale price.
I create a Gibraltar LTD company and inject 250k of capital.
The company purchases the Israel property for 200k bearing the renovation costs of 50k.
Instead of selling the property, I then resell the shares of the holding company to the final buyer, at 300k, with a capital gain of 50k.
In Gibraltar, capital gain tax is at 0%, so no taxes arising in Gibraltar.
As the holding company in Gibraltar remains the owner of the property, no capital gain tax would arise on the real estate in Israel: the final customer would own the property indirectly through the holding company.
The holding company may be kept dormant or liquidated at a later stage.
After i get the capital gain, the scheme 2 works just as scheme 1: I donate the majority to the entrepreneur at a 0% tax rate, and I keep a commission for myself.
Solution 1 looks simpler, but it has a lesser degree of separations between me and the transactions. Under a liability point of view, I'd prefer option 2, although it may make sense only for bigger operations (> 50k profit margin).
Still, it seems too easy.
Does it make any sense to you?
Criticism appreciated