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Low-tax jurisdictions

Countries offering low taxation in gear with classic offshore countries are of great importance for tax planning. Low-tax jurisdictions are used for working out optimal business schemes to reduce taxation. The term “Low-tax jurisdiction” applies to a country or territory that provides foreign investors with zero or low taxation if their companies do not run onshore business.

At first sight it seems that registration of a company in a low-tax jurisdiction is not reasonable, because there are classic offshore countries with zero taxation.

But classic offshores have a range of disadvantages:

  • Low respectability. Before starting business it is necessary to ask your partners if they agree to work with a company registered in a classic offshore country;
  • It can be difficult to get a tax residency certificate that can be required if you open a branch, a representative office or a subsidiary in other countries;
  • Classic offshore countries do not have signed double tax treaties with other countries;
  • Most classic offshore countries are included into the “black list” of the Central Bank of the Russian Federation and “black lists” of other countries;
  • Offshore countries are often viewed as a direct instrument for “money laundry”, that is why many respectable international banks refuse to open accounts for offshore companies;
  • World economy is always fighting against “tax havens”.

Advantages of low-tax jurisdictions

In their turn low-tax jurisdictions are considered respectable. Though the countries have high income tax rates, requirements on financial accounts and audit reports, at the same time they provide special tax benefits. Tax privileges apply to the companies of certain types, including holdings, financial and trade companies. Tax rates for outflow and repatriation of dividends, bank interests, roalty, rewards and some other profits are commonly decreased. Liberal regime of financial transactions also distinguishes this group of countries.

The mentioned facts determine specialization of subsidiary companies, situated in low-tax jurisdictions. Subsidiaries not so much run their own businesses (though it also happens in practice) as they are responsible for transaction of goods, capital and income flows. Such companies serve businesses of others. That is why, when you chose a jurisdiction for your subsidiary company, in most cases it is worth to give preference to a low-tax jurisdiction.

In spite of general high tax rates in the countries, a range of tax exemptions is offered to foreigners who are ready to invest their capital. By some operation factors taxation with moderate system is close to conditions of „tax havens“. As a case in point we can give an example of domicile companies in Switzerland, where tax rate is reduced up to minimum if companies do not run onshore business. In this instance they are similar to companies in classic offshores.