International tax planning means the development of the fairest tax regime for the taxpayer. Globalization brought new opportunities for resident and non-resident natural and legal persons. Based on our practical experience, the following are useful tips for those who want to save on taxes.
How to reduce your taxes
First, there are a number of standard tax planning principles you should never neglect yourself. All of them are quite applicable at the national and international level of tax planning. Tips include:
- Reduce your income to reduce tax amounts. One of the best recommended ways is to save for retirement.
- Consider exempt income categories such as life insurance, gifts-bequests and inheritances, health insurance, employer reimbursements, scholarships, etc. However, remember that it is the recipient who gets them tax free.
- Make the most of deductions. The most important ones are usually mortgage interest, state taxes and donations to charities.
- Take advantage of tax credits: They don’t reduce your taxable income, but they do reduce your actual tax liability.
- Try to get a lower tax rate when possible.
- Consider deferring the payment of taxes; this may be reasonable in many cases.
- Transferring income to other taxpayers, for example, giving away high-value assets to children.
Aspects to determine your tax liability
In addition to the general rules listed above, consider each and every one of the following aspects that may ultimately require notable changes to your company’s structure.
Object of Taxation. Each tax is related to its own independent object of taxation. They can be real estate, goods, services, works and/or their realization as well as income, dividends, interest. Changing the taxable object can lead to a better tax regime. For example, the sale of equipment is often replaced by its lease.
Tax Subject or Taxpayer. It is a natural or legal person obliged to pay taxes with their own funds. By changing its legal form, the company can obtain a more favorable tax regime. A classic example is a business originally established in the form of a US corporation transformed into a limited liability company (LLC) that has a tax stream regime and therefore eliminates the federal corporate tax bracket.
tax jurisdiction. You are free to choose your tax jurisdiction. Use the benefits of low tax centers abroad as well as the beneficial features of tax regimes in high tax countries. Several jurisdictions welcome investments from non-residents in exchange for a full tax and reporting exemption. Some countries favor particular types of activities that attract investment in specific industries.
Choosing among low tax centers, seeking a favorable offshore jurisdiction for trade and professional services. dominican gold seychelles First, for financial holding companies and insurance business, consider BVI, Cyprus, Panamafor ship management and maritime operations – Cyprus, Dominica, Nevis or Panamafor licenses and franchises – Cyprus, Gibraltar, Panama, and so. It is very likely that you will find a suitable option for you among the existing offer. But keep in mind that some companies are not really mobile in terms of changing jurisdictions.
Location of the company and its address and administration. They also call it a “mind and management” test. This may be the key factor in determining the tax residence of the company. It totally depends on the tax policies of the countries involved, but the company may be required to pay tax in the country where its “mind and management” is located.
Double taxation
Potential double taxation This happens when one country claims the right to tax income based on the residence (or citizenship) of the taxpayer and the other country, on the basis of that source of income. On certain occasions it happens because both countries claim that the taxpayer is their resident or the income comes from their sources.
Avoid double taxation through possible fiscal credit, Tax deduction Y tax exemption options. Most existing double taxation treaties between countries normally follow the OECD model tax treaty and cover income and capital taxes in any form. The choice of jurisdiction under the “Tax Jurisdiction” paragraph above can often depend on the availability of the appropriate tax agreement between two countries.
In addition to tax treaties, several developed countries have established special tax rules allowing the credit of the foreign tax paid even without the corresponding tax treaty in force between the countries involved.
Double taxation may also have a place within the company’s income distribution processes. It can be taxed first as company profits and then as dividends to shareholders subject to withholding at the time of distribution. Consult the related local legislation to find a possible remedy for this case.
Practical tips
- It is more beneficial for avoid tax resident status in the country of the highest profits trying to limit it to withholding taxes.
- Is better defer withdrawal of funds of business and repatriation of profits. On certain occasions the deferral is equivalent to a tax exemption.
- Asset transfer is more preferable as capital movement rather than the movement of income or profit.
- When comparing the tax regimes of different jurisdictions, attention is paid to the process of formation of the tax base in addition to the tax rate figures.
Issues that you must resolve in the final stage of tax planning, such as the proper tax distribution of assets and profits, are not directly related to the calculation and liquidation of taxes. However, the development of priorities in the accommodation of profits, the repatriation of capital and the investment policy provides additional tax benefits and some refund of taxes paid.