Where can I set up my business to improve the taxation of my company? What aspects do I have to consider? What are the pros and cons of fiscal havens?
One of the long unresolved matters in business is the optimization of taxation, which often when attempted without legal advice can seriously damage the company. It is for this reason that we shall focus on this issue for this article, focusing on the use of tax havens as a tax improvement tool.
When we speak about tax havens we are referring to those territories in which their fiscal systems offer low or zero taxation, often especially favouring none-resident citizens and companies. They are characterized for the possession of flexible mercantile and financial legislation due to the legal, banking and commercial protection in place, as the fiscal havens deny informing and collaborating with many countries.
One of the many advantages is the speed in which it takes to create businesses, banks, insurance companies, and many other legal forms – quite the opposite to the inflexible requirement driven legal processes in Spain. Other characteristics that Tax Havens provide include political, economical and social stability, a network of communications and a developing banking/financial sector to benefit Havens for both legal and natural entities alike.
One of the most commons fallacies in international fiscal planning is that using fiscal havens presupposes illegal or fraudulent activity; however the reality is that the proliferation of money laundering or fiscal fraud is normally due to the bad communication between the countries.
Nationality and territory are basic aspects in setting up your company in a fiscal haven. In this sense, the relocation of the fiscal residence is an important point to take into account. That is to say that when a taxpayer is considered a fiscal resident of a particular territory, they must change fiscal status to another territory. This can be done by either individuals or companies and we must keep in mind that for each situation the law changes.
In Spanish law, corporation tax establishes the criteria to determine the residence of a legal entity with the purpose of determining their personal contribution obligations. The use of fiscal havens by companies occurs mainly through the establishment of new companies, as their does not exist a way in which to relocate the headquarters of an existing company. For individuals, they look for countries where there are no or low taxes, or territories in which the fiscal system is based on the principle of territory, with the purpose of only assessing income that is internally produced, and not those from outside of said territory. This works as a mechanism for tax avoidance, and is usually applied by people with high incomes such as elite athletes, international artists and shareholders of big companies.
Nowadays relocation is common practice, so certain countries have normalized a set of measures to prevent/discourage the change of residence for possible elusive or evasive motivations.
Countries like Switzerland and Liechtenstein all permit non-resident to carry out operations (off-shore societies), as does Monaco who by not assessing the incomes or present exemptions helps to avoid assessments. On the other hand, countries like Honk Kong or Panama only bear in mind the incomes from the taxee’s principle territory.
In short, the taxation of companies in particular is a difficult task that without professional help can be harmful; therefore if your goal is to invest offshore, set up a company, open a bank account abroad, or improve your taxation in Spain, don’t hesitate to contact a lawyer specialised in this field, you’ll certainly need their help! Contact us directly by comunicaciones@lexland.es or +34952778899 for assistance with your tax planning today!