International tax planning. Seven Strategies
1. Tax residency
If an entrepreneur is planning to move to another country, the issue of tax residency must be resolved in advance - before they begin relocating their business there. It is precisely this resident status that determines where and under which laws they will have to pay tax on their personal income. In many countries, this automatically extends to the profits and assets of other companies.
The established structure will most likely need to be reorganised if you proceed in the reverse order: first registering a company in the new jurisdiction, transferring funds there and starting to work with international clients, and only then resolving the issue of personal tax status.
That is why relocation and international expansion are planned strictly in tandem. First, you determine where you will pay tax as an individual, and only then do you decide where to set up a company, how to structure asset ownership and how to distribute profits.
There are no one-size-fits-all solutions here. For one entrepreneur, relocating will genuinely change their tax burden; for another, it will make almost no difference. It all depends on the jurisdiction, sources of income and the structure of the business itself.
If an entrepreneur is planning to move to another country, the issue of tax residency must be resolved in advance - before they begin relocating their business there. It is precisely this resident status that determines where and under which laws they will have to pay tax on their personal income. In many countries, this automatically extends to the profits and assets of other companies.
The established structure will most likely need to be reorganised if you proceed in the reverse order: first registering a company in the new jurisdiction, transferring funds there and starting to work with international clients, and only then resolving the issue of personal tax status.
That is why relocation and international expansion are planned strictly in tandem. First, you determine where you will pay tax as an individual, and only then do you decide where to set up a company, how to structure asset ownership and how to distribute profits.
There are no one-size-fits-all solutions here. For one entrepreneur, relocating will genuinely change their tax burden; for another, it will make almost no difference. It all depends on the jurisdiction, sources of income and the structure of the business itself.
2. Jurisdiction and company structure
Where should you register a company? Every country has its own rules. In some places, it is easier to set up and run a company; in others, taxes on certain types of income are lower; and in others still, it is more advantageous to receive dividends from subsidiary companies.
One business may need a standard operating company. Another may require a holding company to own several subsidiaries. A third may need a separate company to manage intellectual property or investments.
An offshore company with a zero tax rate that has no office simply cannot operate today. Banks will refuse to open accounts, counterparties from the EU or the US will be unable to make payments, and the tax authorities in your country of residence will declare the company a ‘shell’ and levy the full amount of tax.
A cheap company on paper turns into the most expensive asset: you won’t save on taxes, but you’ll spend months trying to get around the restrictions. The jurisdiction must suit your sales model, not some abstract idea of registering where it is ‘cheaper’.
And if the company’s operations require complex reporting, expensive administrative services and constant assistance from local advisers, the initial savings can quickly evaporate.
3. Operational business and assets
It is not necessary to hold all assets and the entire business within a single company. It is better to separate the operational activities by registering a company that will handle sales, enter into contracts with clients and hire staff. Meanwhile, property, equipment or intellectual property may be owned by another company.
This approach allows assets to be separated from the day-to-day risks of the business.
If the operating company encounters financial or legal problems, the assets owned by the other company will not automatically be caught up in the same situation.
Where should you register a company? Every country has its own rules. In some places, it is easier to set up and run a company; in others, taxes on certain types of income are lower; and in others still, it is more advantageous to receive dividends from subsidiary companies.
One business may need a standard operating company. Another may require a holding company to own several subsidiaries. A third may need a separate company to manage intellectual property or investments.
An offshore company with a zero tax rate that has no office simply cannot operate today. Banks will refuse to open accounts, counterparties from the EU or the US will be unable to make payments, and the tax authorities in your country of residence will declare the company a ‘shell’ and levy the full amount of tax.
A cheap company on paper turns into the most expensive asset: you won’t save on taxes, but you’ll spend months trying to get around the restrictions. The jurisdiction must suit your sales model, not some abstract idea of registering where it is ‘cheaper’.
And if the company’s operations require complex reporting, expensive administrative services and constant assistance from local advisers, the initial savings can quickly evaporate.
3. Operational business and assets
It is not necessary to hold all assets and the entire business within a single company. It is better to separate the operational activities by registering a company that will handle sales, enter into contracts with clients and hire staff. Meanwhile, property, equipment or intellectual property may be owned by another company.
This approach allows assets to be separated from the day-to-day risks of the business.
If the operating company encounters financial or legal problems, the assets owned by the other company will not automatically be caught up in the same situation.
‘Profit shifting’ and ‘revenue shifting’. Behind these dry terms lies the key change of the last ten years: a low tax rate no longer guarantees savings.
You might choose a country with an attractive tax rate, relocate your business there, and only then discover that you will have to pay tax in another jurisdiction, submit reams of reporting, and urgently change your company’s structure and review your cash flows. And instead of the expected savings, the business ends up with additional costs.
In international business, the tax rate is merely a figure in a calculation. And when considering relocating or moving your business to another country, it is important to understand how this figure will play out within your specific structure.
This is precisely why international tax planning today begins long before a company is registered or profits are transferred. What taxes will need to be paid, where and in what amounts? What reports need to be submitted? What additional obligations might arise, and in which countries? The specialists at Eifos Hub have identified seven key strategies worth considering when establishing a business in new jurisdictions.
You might choose a country with an attractive tax rate, relocate your business there, and only then discover that you will have to pay tax in another jurisdiction, submit reams of reporting, and urgently change your company’s structure and review your cash flows. And instead of the expected savings, the business ends up with additional costs.
In international business, the tax rate is merely a figure in a calculation. And when considering relocating or moving your business to another country, it is important to understand how this figure will play out within your specific structure.
This is precisely why international tax planning today begins long before a company is registered or profits are transferred. What taxes will need to be paid, where and in what amounts? What reports need to be submitted? What additional obligations might arise, and in which countries? The specialists at Eifos Hub have identified seven key strategies worth considering when establishing a business in new jurisdictions.
4. Banks and compliance
Nowadays, banking compliance authorities scrutinise businesses just as closely as the tax authorities. It is important for a bank to understand the entire chain: who the ultimate beneficial owner is, where the funds come from, where the counterparties are located, and what the economic rationale behind the transactions is.
There will be more questions if a company is registered in one country, the owner lives in another, and clients are scattered across the globe. In such cases, the bank and the tax authorities look not at the statutory documents, but at the actual geographical distribution of the processes.
Any discrepancy between the place of registration, the actual business processes and personal residency will have to be constantly substantiated with documentation and paid for out of your own pocket.
Therefore, it only makes sense to open accounts where the company has a connection to the business that is clear to the bank. Otherwise, any payment from clients turns into an endless back-and-forth with the compliance department.
5. Source of income
Entrepreneurs often assume that the income of a company registered abroad is automatically considered foreign income. This is not always the case. It is not only where the company is registered that matters, but also the source of that specific income.
Different rules apply to different types of activity: the sale of goods, services, property, or the licensing of intellectual property - the criteria may vary in each case.
Transferring a contract or intellectual property to another country does not, in itself, change the source of the income. Therefore, it must be checked separately each time. This is particularly important if the company operates in different countries. Otherwise, any tax savings will remain merely a calculation on paper.
6. The territorial principle of taxation
The territorial system of taxation allows certain income earned outside the country to be exempt from local tax. However, the problem is that the distinction between domestic and foreign income is often blurred.
Different countries have their own assessment criteria. Factors that may be relevant include: where the service was physically provided, where the client is located, where the work was carried out, and through which accounts the payment was made. There is no universal rule - what one country recognises as foreign income, another may consider to be domestic.
7. Plan ahead
Most decisions relating to international tax planning are easier to make before a business starts operating in several countries. Whilst a company is still entering a new market, it is relatively easy to change its structure. You can choose the country of incorporation, determine where staff will be based, who will own the assets and how profits will be distributed.
It is much more difficult to do this once the business is up and running. The company already has existing contracts, bank accounts, staff, subsidiaries and obligations to the tax authorities. Changing the structure may take time and incur additional costs.
The same applies to the sale of a business. If an exit strategy is not built into the structure from the outset, the sale of shares or assets could wipe out all previous savings.
The true cost of low tax rates
Paradoxically, a high tax rate can sometimes work out cheaper for a business. A company might choose a jurisdiction with a 10 per cent corporation tax rate, expecting significant savings. But it may then turn out that, to operate in that country, it needs to maintain a fully-fledged office, submit complex financial statements, undergo an annual audit and justify every internal transaction.
International tax planning is not simply a matter of finding a country with low taxes. It involves trying to work out in advance how the business will operate and how much the entire tax optimisation process will cost.
Eifos Hub conducts audits of corporate structures: it assesses the geographical distribution of payments, verifies the classification of income and adapts the tax model to the requirements of specific jurisdictions. The strategy is developed taking into account double taxation agreements, banking restrictions and the specific nature of business processes.
Nowadays, banking compliance authorities scrutinise businesses just as closely as the tax authorities. It is important for a bank to understand the entire chain: who the ultimate beneficial owner is, where the funds come from, where the counterparties are located, and what the economic rationale behind the transactions is.
There will be more questions if a company is registered in one country, the owner lives in another, and clients are scattered across the globe. In such cases, the bank and the tax authorities look not at the statutory documents, but at the actual geographical distribution of the processes.
Any discrepancy between the place of registration, the actual business processes and personal residency will have to be constantly substantiated with documentation and paid for out of your own pocket.
Therefore, it only makes sense to open accounts where the company has a connection to the business that is clear to the bank. Otherwise, any payment from clients turns into an endless back-and-forth with the compliance department.
5. Source of income
Entrepreneurs often assume that the income of a company registered abroad is automatically considered foreign income. This is not always the case. It is not only where the company is registered that matters, but also the source of that specific income.
Different rules apply to different types of activity: the sale of goods, services, property, or the licensing of intellectual property - the criteria may vary in each case.
Transferring a contract or intellectual property to another country does not, in itself, change the source of the income. Therefore, it must be checked separately each time. This is particularly important if the company operates in different countries. Otherwise, any tax savings will remain merely a calculation on paper.
6. The territorial principle of taxation
The territorial system of taxation allows certain income earned outside the country to be exempt from local tax. However, the problem is that the distinction between domestic and foreign income is often blurred.
Different countries have their own assessment criteria. Factors that may be relevant include: where the service was physically provided, where the client is located, where the work was carried out, and through which accounts the payment was made. There is no universal rule - what one country recognises as foreign income, another may consider to be domestic.
7. Plan ahead
Most decisions relating to international tax planning are easier to make before a business starts operating in several countries. Whilst a company is still entering a new market, it is relatively easy to change its structure. You can choose the country of incorporation, determine where staff will be based, who will own the assets and how profits will be distributed.
It is much more difficult to do this once the business is up and running. The company already has existing contracts, bank accounts, staff, subsidiaries and obligations to the tax authorities. Changing the structure may take time and incur additional costs.
The same applies to the sale of a business. If an exit strategy is not built into the structure from the outset, the sale of shares or assets could wipe out all previous savings.
The true cost of low tax rates
Paradoxically, a high tax rate can sometimes work out cheaper for a business. A company might choose a jurisdiction with a 10 per cent corporation tax rate, expecting significant savings. But it may then turn out that, to operate in that country, it needs to maintain a fully-fledged office, submit complex financial statements, undergo an annual audit and justify every internal transaction.
International tax planning is not simply a matter of finding a country with low taxes. It involves trying to work out in advance how the business will operate and how much the entire tax optimisation process will cost.
Eifos Hub conducts audits of corporate structures: it assesses the geographical distribution of payments, verifies the classification of income and adapts the tax model to the requirements of specific jurisdictions. The strategy is developed taking into account double taxation agreements, banking restrictions and the specific nature of business processes.
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