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What is tax optimisation and how to use it for personal and corporate benefits

PUBLISHED: 27 May 2020
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It is possible nowadays to legally optimise and reduce tax burden both for your business and personal finances. Not everyone would agree to use tax optimisation tools, because it often requires registering a company abroad and becoming tax resident of another country. Besides, some politicians and mass media argue that tax optimisation equals tax avoidance. However, this is far from the truth; the former is very different from the latter.

4 key differences between tax optimisation and avoidance

  1. Optimisation is 100% legal as it involves correct tax planning in strict compliance with law.
  2. Tax optimisation is built on different tax laws in various countries as well as legal benefits and loopholes; the principle is simple, what is not prohibited is allowed. Besides, profits and income are not hidden unlike when people are trying to avoid taxes.
  3. Tax avoidance happens after taxes have arisen. Tax optimisation, on the other hand, is proactive; it is a careful planning and analysis before a tax is due.
  4. End result is different as well. By optimising you reduce or defer your expenses. By avoiding you breach laws and could face civil penalty or criminal prosecution.

Tax optimisation for international business

If you decide to open a branch of your company abroad in order to access export markets, tax optimisation will come as an extra bonus. The thing is, national budget of some European countries relies on income from small and medium businesses, therefore governments are very keen to develop and support it by offering tax benefits to law-abiding entrepreneurs.

Moreover, many foreign jurisdictions are considered tax havens due to their relaxed taxation laws that look like specially designed for international companies. For example, a company registered in the Caribbean but trading abroad does not pay taxes on its foreign profits. Companies registered in Malta must pay only 5% corporation tax on their foreign profits.

Оптимизация налогов для международного бизнеса

Tax optimisation in Cyprus

Let’s have a look what the Republic of Cyprus can offer to you and your business.

  • One of the lowest corporation taxes – 12.5%.
  • No capital gains tax on the sale of securities or dividends received outside Cyprus.
  • Double taxation agreements signed with 40 countries.

There are many tools to save money on taxes as well as many countries offering such tools. Choosing a jurisdiction with corporate and tax laws that would meet your needs best of all is not easy. If you do not trust yourself to make the right choice, talk to professional consultants that have been doing for years.

How to optimise personal taxes

There is no universal solution, same as with corporate taxation. There are three important factors that must be considered, how far a jurisdiction is from your home country, tax residency requirements and your personal circumstances.

If you are a fan of conservative solutions, Cyprus and Malta can become your second home and an opportunity not to pay taxes on worldwide income. Both countries operate special residence by investment programs that offer you residence and then second passport in return for your investment. You would be able to legally live in either country for more than 183 days a year.

Check out Caribbean jurisdictions for personal taxation purposes. Dominica, Saint Lucia, St. Kitts & Nevis and also Antigua and Barbuda impose no taxes on wealth, capital gains, inheritance and gifts. Last two have no income tax either.

First step to becoming Caribbean tax resident is obtaining second citizenship through one of the citizenship by investment programs. A Caribbean passport would cost you much less than a European passport though it is going to offer you almost the same benefits of worldwide mobility, business opportunities and lifestyle.

Tax benefits in Antigua and Barbuda

In most countries, to become a tax resident you must live there for a certain period. You might not have that time no matter how alluring a tropical paradise is. However, Antigua and Barbuda offers flexible terms; stay there for only 30 days and you will be considered tax resident. But you must pass due diligence procedures and comply with other requirements:

  1. Buy or rent a property for at least $400,000.
  2. Your annual income is not less than $100,000.
  3. Pay a fixed annual charge of $20,000.

Оптимизация налогообложения в Великобритании

Tax optimisation in the UK

Let us put theory into practice and give you an example of tax optimisation in one of the most popular immigration destinations, United Kingdom.

UK tax laws say that tax residents must declare and pay taxes on their worldwide income irrespective of its source. Therefore, our expert advisers from Imperial & Legal insist on consulting our clients on their tax matters and preparing their assets long before they arrive to the UK.

Important!

Any money earned before you become UK tax resident is your clean capital and is not taxed in Great Britain. Therefore it is important to turn your tangible assets into money. Besides, it is better to open a separate bank account for new income such as dividends or capital gains from stock trading and do not let it mix with clean capital.

How to determine your UK tax residency status

HM Revenue and Customs, British tax authorities, have come up with a special test to help you identify whether you are tax resident in the UK or when you will become one. However, our team has used that HMRC test to develop an intuitive online tax residency test that is easy and takes only a few minutes to take.

Remittance

Non-domiciled UK tax residents have a tool available to them that enables them to legally save money on taxes. It is called remittance. You still must declare all your income but pay taxes only on that part that was received in or remitted to the UK. Please pay attention that after 7 years of residence (7 out of the last 9 tax years) you will have to pay to use remittance. The charge starts at £30,000 a year and goes up to £60,000. All things must be factored in to identify whether remittance is still working to your benefit or you are better off with the arising basis of taxation. Figure it out yourself or talk to your tax adviser.

UK tax laws are strict but fair and they offer a lot of opportunities for tax optimisation. To use them right, talk to a professional finance and tax adviser. Correct planning will save you money on income tax, property tax or inheritance tax.

Qualified lawyers at Imperial & Legal provide advice on immigration, business and tax matters and will help you find a tailored solution for tax optimisation and planning and prepare assets for relocation abroad.

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