Retained profits offshore and tax liabiltiy?

[coromandel]

If you live in a country that taxes worldwide income and own a company offshore what is the situation regarding the company and retained profits?


Let's say I didn't declare any dividends and just kept the money in account, used for future business investment.


Is there any liability at home?

 

[JohnLocke]

Yes the liability is "at home" so you will be liable for tax. There are circumstances and ways where you can avoid to pay tax on all income / profits the company generate.

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[coromandel]

What if the earnings are simply retained in the company and not distributed as dividends?

 

[Zqq]

It depends on your local tax laws.


In some countries, you can earn however much money you want and remit it to yourself as dividends or salary and pay zero tax. In some countries, any money that you have control over is considered taxable. Then there are plenty of gray areas there between.

 

[hugger]

coromandel said:
If you live in a country that taxes worldwide income and own a company offshore what is the situation regarding the company and retained profits?
Let's say I didn't declare any dividends and just kept the money in account, used for future business investment.


Is there any liability at home?
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I am assuming that you took my previous advise and established an offshore Hong Kong company. If you do not "declare any dividends and just kept the money in account, used for future business investment" , you have NO tax liability at home.


The offfshore Hong Kong company is a totally separate legal entity.

 

[Zqq]

hugger said:
I am assuming that you took my previous advise and established an offshore Hong Kong company. If you do not "declare any dividends and just kept the money in account, used for future business investment" , you have NO tax liability at home.
Click to expand...

Do you know where coromandel lives? Are you familiar with the local tax laws?


I think you'd be surprised by the tax laws in some countries, which sometimes go as far as considering any assets a person controls (be it in his own name or through companies for which he counts as a direct or indirect beneficial owner) are liable for tax. Interest paid by an offshore bank to an offshore company could in such jurisdictions be considered taxable income.

 

[coromandel]

I did take the advice and am in the process of setting up the bank account (takes time as been Chinese New Year and also setting up bank account remotely has been an issue)


As for where I live, I am in the EU and my country taxes worldwide income. If it's only tax offshore interest on the principal then that is acceptable but if it's tax on the retained earnings, this is an issue.

 

[hugger]

Zqq said:
Do you know where coromandel lives? Are you familiar with the local tax laws?
I think you'd be surprised by the tax laws in some countries, which sometimes go as far as considering any assets a person controls (be it in his own name or through companies for which he counts as a direct or indirect beneficial owner) are liable for tax. Interest paid by an offshore bank to an offshore company could in such jurisdictions be considered taxable income.
Click to expand...

If set up as shown in some of my other posts on this forum, then beneficial ownership (either direct or indirect) can NOT be conclusively proven.


And that is assuming that they can pierce the veil of privacy of the Seychelles company. (And you would need to be a HUGE fish being sought by your countries authorities for that to happen)

 

[JohnLocke]

You will want to study the double tax treaty rules if they apply for your situation! Also it is advisable to consult a local tax adviser for your needs, it seems you really need one.


Just for the record, all what is posted here on this forum can't be taken as legal or tax advise, use suggestions, comments and information at your own risk.

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[Zqq]

hugger said:
If set up as shown in some of my other posts on this forum, then beneficial ownership (either direct or indirect) can NOT be conclusively proven.
And that is assuming that they can pierce the veil of privacy of the Seychelles company. (And you would need to be a HUGE fish being sought by your countries authorities for that to happen)
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Then - just to be clear - it's tax evasion, which is a criminal offence in many jurisdictions. You are right that you need to be a big, or small and very stupid, fish to get caught but that doesn't mean it's a legitimate structure offering a legal way to reduce or avoid taxes.

 

[hugger]

Zqq said:
Then - just to be clear - it's tax evasion, which is a criminal offence in many jurisdictions. You are right that you need to be a big, or small and very stupid, fish to get caught but that doesn't mean it's a legitimate structure offering a legal way to reduce or avoid taxes.
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I would NEVER advocate tax evasion.


It is a legitimate structure offering a legal way to reduce taxes.


And if you can show where the structure is not legal in ANY jurisdiction, I would like to see it. (please show the country and relevant tax code.)

Last edited by a moderator: Feb 19, 2013

 

[hugger]

Zqq said:
Then - just to be clear - it's tax evasion, which is a criminal offence in many jurisdictions. You are right that you need to be a big, or small and very stupid, fish to get caught but that doesn't mean it's a legitimate structure offering a legal way to reduce or avoid taxes.
Click to expand...

I would NEVER advocate tax evasion.


It is a legitimate structure offering a legal way to reduce taxes.


And if you can show where the structure is not legal in ANY jurisdiction, I would like to see it. (please show the country and relevant tax code.)

 

[Zqq]

hugger said:
I would NEVER advocate tax evasion.
It is a legitimate structure offering a legal way to reduce taxes.


And if you can show where the structure is not legal in ANY jurisdiction, I would like to see it. (please show the country and relevant tax code.)
Click to expand...

I never said the structure itself would be illegal. I said that it is risky to tell someone what is or isn't legal way to reduce taxes, especially when some countries have extremely convoluted tax laws. Income from the structure you propose may be liable for tax in tax aggressive jurisdictions. Failing to report such income and pay tax may in turn be a criminal offence to not pay (evade) those taxes.


I am of course not going to quote any tax codes. I'm not a qualified lawyer or accountant. That's why I instead talk to lawyers and accountants when I need information. I just happen to be familiar enough with the industry to be aware of just how aggressive jurisdictions can be.