UAE + Singapore and HongKong (Non-Resident 0% tax company)

[Soundpeats]

Hello guys

Relatively simple question here.

Imagine you are a tax resident in UAE, living and working from there, and you create an Offshore company in either Singapore or Hong Kong (You are the only shareholder). Lets say you manage to set things up so you can settle a 0% corporate tax by claiming these companies are not-resident of either Singapore or Hong Kong as there is no substance (This is a perfectly valid thing to do).

The question is, if the companies are not resident of HK/SG, where are they actually a tax resident from ? Is It UAE (Even if the UAE has no CFC Rules) ? Are you suppose to be reporting this to the UAE ?

 

[Marzio]

Both companies would be considered resident in Dubai because the place of management is Dubai

 

[Soundpeats]

What about the jurisdictions of the company ?

Are they considered residents or only tax residents ? Does tax residency has any effect beyond just taxes ?

Example: Dubai claims that owning a company that trades with cryptocurrencies is not permitted, so instead its done through the HK/SG companies (Countries where it perfectly allowed for companies to do this). to "legalize" this process and earnings are received through dividends

In the event these 2 companies ended up being considered UAE Tax Residents, does that also affect the "jurisdiction" to enforce UAE laws just as if the company was incorporated in UAE. Or are these 2 separate matters ?

Thanks

Last edited: Mar 17, 2022

 

[thirtyniner]

What is the point (other then diversifing risk) to have an offshore when you are already resident in an offshore country? Ok, you will answer diversify risk!! 😀

 

[Marzio]

Soundpeats said:
In the event these 2 companies ended up being considered UAE Tax Residents, does that also affect the "jurisdiction" to enforce UAE laws just as if the company was incorporated in UAE. Or are these 2 separate matters ?
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Both will be considered UAE tax resident so UAE laws will apply.

 

[Soundpeats]

thirtyniner said:
What is the point (other then diversifing risk) to have an offshore when you are already resident in an offshore country? Ok, you will answer diversify risk!! 😀
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Yes, correct. In principle that is probably the main reasoning.

It is well known that creating a single-shareholder offshore company while not creating PE/Substance will make that company tax resident of whichever country you are on. But what about the jurisdiction, is it just tax resident or resident ?

I do believe I know the answer but would really like someone else confirmation

Can you exercise activities that are deemed "illegal" in your country through an offshore company (that dont consider said activities illegal in their jurisdiction). EVEN If that offshore company ends up b being tax resident of your own country.

marzio said:
Both will be considered UAE tax resident so UAE laws will apply.
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Just to confirm this.

UAE tax laws only or UAE laws as a whole ?

 

[Marzio]

Soundpeats said:
UAE tax laws only or UAE laws as a whole ?
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I'm pretty sure only tax laws because the company will still be a HK/SG company but tax resident in another jurisdiction.

 

[Don]

marzio said:
I'm pretty sure only tax laws because the company will still be a HK/SG company but tax resident in another jurisdiction.
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This is also the reason why offshores are used sometimes, even when theres zero tax benefits just because one would have much harder time suing such companies.

 

[Sols]

Look into how tax residence for companies is determined in the jurisdictions you're interested, and assess how that plays out in your situation.

Singapore uses a pretty basic control and management concept, which would make your company non-resident.

Hong Kong has a looser concept of tax residence, and the company might be tax resident by being incorporated in Hong Kong (and/or by being controlled and managed from Hong Kong). In Hong Kong, the focus is more on where the income derives, since they use a territorial tax system.

Soundpeats said:
It is well known that creating a single-shareholder offshore company while not creating PE/Substance will make that company tax resident of whichever country you are on. But what about the jurisdiction, is it just tax resident or resident ?
Click to expand...

Just to be clear, this question does not make sense. There is no such thing as ordinary residence for companies. They are either tax resident or tax non-resident. What are you looking for exactly?

Toggle signature
This is the probably the answer to your question.

 

[Soundpeats]

Sols said:
Look into how tax residence for companies is determined in the jurisdictions you're interested, and assess how that plays out in your situation.

Singapore uses a pretty basic control and management concept, which would make your company non-resident.

Hong Kong has a looser concept of tax residence, and the company might be tax resident by being incorporated in Hong Kong (and/or by being controlled and managed from Hong Kong). In Hong Kong, the focus is more on where the income derives, since they use a territorial tax system.


Just to be clear, this question does not make sense. There is no such thing as ordinary residence for companies. They are either tax resident or tax non-resident. What are you looking for exactly?
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The first part is clear, thanks.

Simply asking whether tax residency affects also the jurisdiction of the company.

For tax purposes a company in SG may end up being (non-resident) and in this particular example tax resident of UAE (just as you point out in the first point)

what I am asking is: Even if the company is SG non-resident, it still is a SG company bound by the rules and laws of SG and not by the country it is a tax resident on ?

In a nutshell, this SG company in the eyes of the law may be a tax resident of UAE (where tax paying will occur) but regardless of that is it still is a SG company ? Lets say pharmaceutical products selling is legal in SG but illegal in UAE, so you use the SG company to sell pharmaceutical products even if you pay in UAE so there is no foul being made legal-wise because a SG entity is managing something that is legal in SG (even if "taxes are to be paid/declared in UAE where pharmaceuticals selling is illegal") ?

 

[Sols]

Soundpeats said:
what I am asking is: Even if the company is SG non-resident, it still is a SG company bound by the rules and laws of SG and not by the country it is a tax resident on ?
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OK, I'm with you now.

A company is answerable to applicable laws. What's applicable normally comes down to where the company is incorporated and where the company does business. Or, failing that, the directors or people themselves are subject to the applicable law.

So if you run a Singaporean company from UAE that does things that violate UAE law, you could find yourself in legal trouble in UAE.

Likewise, if you run a Singaporean company from UAE that does things that violate Singaporean law (but not necessarily UAE law), you could find yourself in legal trouble in Singapore.

Toggle signature
This is the probably the answer to your question.

 

[Soundpeats]

Sols said:
OK, I'm with you now.

A company is answerable to applicable laws. What's applicable normally comes down to where the company is incorporated and where the company does business. Or, failing that, the directors or people themselves are subject to the applicable law.

So if you run a Singaporean company from UAE that does things that violate UAE law, you could find yourself in legal trouble in UAE.

Likewise, if you run a Singaporean company from UAE that does things that violate Singaporean law (but not necessarily UAE law), you could find yourself in legal trouble in Singapore.
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Thank you very much! I don't believe this is popularly known.

 

[johndunham]

Thank you very much! I don't believe this is popularly known.
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You don't believe it is public knowledge that you get in trouble if you break the law in a country?

 

[Soundpeats]

johndunham said:
You don't believe it is public knowledge that you get in trouble if you break the law in a country?
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I am not sure how you managed in this equation to go from 2+2 = 4 to 4 = 4

I don't believe its popularly known that if you incorporate an offshore company in Country A while managing it/residing from Country B , the rules and laws of B will affect/apply to A (And I am not talking about tax laws exclusively) but the applicable law of Country B could apply to offshore company in Country A.

The first (tax laws generally applying to where you run the company from) is actually not all that known by the average person/novice that don't understand PE/CFC and others, hears about offshore companies and think they can setup an offshore company and it'll be taxed there.
The second part (applicable law from the place of management applying over the offshore company) Id venture to say its a lot less known fact. .

Without going any further, all you need to do is look at 2-3 of the replies above which give the feeling users seem to think that while tax residency (and therefore tax laws from the managing country) will apply on the offshore company (which is true), this does not mean the applicable law from the managing country will also apply to the offshore company (which apparently isn't true and they may actually apply). Frankly I cannot blame them because as I've said. I don't think this is popularly known, In fact I cant say myself I know for sure, I am currently researching it.

Last edited: Mar 18, 2022

 

[startfleetio]

Soundpeats said:
Hello guys

Relatively simple question here.

Imagine you are a tax resident in UAE, living and working from there, and you create an Offshore company in either Singapore or Hong Kong (You are the only shareholder). Lets say you manage to set things up so you can settle a 0% corporate tax by claiming these companies are not-resident of either Singapore or Hong Kong as there is no substance (This is a perfectly valid thing to do).

The question is, if the companies are not resident of HK/SG, where are they actually a tax resident from ? Is It UAE (Even if the UAE has no CFC Rules) ? Are you suppose to be reporting this to the UAE ?
Click to expand...

Singapore territorial tax system is not really a territorial tax-system. If you read the guidelines from IRAS, you will find that it is quite difficult to design a totally 0% tax non-resident company. Even if you can, the company will have a lot restrictions.

As for HK, it is better than Singapore in this regard. But the problem is, this is something that you need to apply for, i.e. the Offshore Tax Exemption. You will need to engage auditors to do this after your first tax return. Just get ready to pay a lot to the auditors and expect a lot of questions from the IRD, and it is not guaranteed.

there might be conflict of interest of me saying this. But just go for a UAE + US LLC structure, a lot of our customers are super happy with this structure. read my signature to learn more.

 

[Soundpeats]

startfleetio said:
Singapore territorial tax system is not really a territorial tax-system. If you read the guidelines from IRAS, you will find that it is quite difficult to design a totally 0% tax non-resident company. Even if you can, the company will have a lot restrictions.

As for HK, it is better than Singapore in this regard. But the problem is, this is something that you need to apply for, i.e. the Offshore Tax Exemption. You will need to engage auditors to do this after your first tax return. Just get ready to pay a lot to the auditors and expect a lot of questions from the IRD, and it is not guaranteed.

there might be conflict of interest of me saying this. But just go for a UAE + US LLC structure, a lot of our customers are super happy with this structure. read my signature to learn more.
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What happens in the case of no double tax treaty between UAE and US

If someone had a (i) US LLC (ii) US C Corp

 

[startfleetio]

Soundpeats said:
What happens in the case of no double tax treaty between UAE and US

If someone had a (i) US LLC (ii) US C Corp
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tax treaty is not a must. if you are designing a US LLC structure that is not taxable federally, tax treaty wouldn't be so important anyways, since there's no double-taxation to avoid.

If its a C-Corp well, the situation will be different. But again, it depends on your nature of business and what you are doing with the US company.

 

[bigbite100]

marzio said:
Both companies would be considered resident in Dubai because the place of management is Dubai
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Hi Marzio, in our other conversation in a different thread you said that the SG company will be subject to taxes.
" Second if the SG company invoices the US LLC you are auto confirming that the SG company is the one doing the work for which is getting paid from the US LLC so obviously it will be taxed in SG."

How come that in this situation its not subject to taxes in SG but in Dubai?

 

[Marzio]

bigbite100 said:
How come that in this situation its not subject to taxes in SG but in Dubai?
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Because it's where you are managing the company from.