International tax planning means developing 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 helpful tips for those who want to save on taxes.
How to reduce your taxes
First, there are a number of standard principles of tax planning you should never neglect. All of them are quite applicable at the national and international level of tax planning. Tips include:
- Reduce your income to lower your tax amounts. One of the most recommended ways is to save for retirement.
- Consider exempt income categories, such as life insurance, gift-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 are usually mortgage interest, state taxes, and donations to charities.
- Take Advantage of Tax Credits – They don’t reduce your taxable income, but they reduce your actual tax liability.
- Try to get a lower tax rate whenever possible.
- Consider deferring paying taxes; this can be reasonable in many cases.
- Transferring income to other taxpayers, for example, gifting high-value assets to children.
Determination of the aspects of your fiscal responsibility
Aside from the general rules listed above, discuss each and every aspect below that may ultimately require noticeable changes in the structure of your business.
Tax Object. Each tax is related to its own independent tax object. They can be real estate, goods, services, works and / or their realization as well as income, dividends, interests. Changing the taxable object can lead to a better tax regime. For example, the sale of equipment is often replaced by leasing it.
Tax Subject or Taxpayer. It is a natural or legal person who has the obligation 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 created in the form of a US corporation transformed into a limited liability company (LLC) that has a tax flow regime and therefore eliminates the federal level of corporate tax.
Tax jurisdiction. You are free to choose your tax jurisdiction. Take advantage of the benefits of low tax centers abroad as well as the beneficial features of tax regimes in high tax countries. Several jurisdictions accept investments from non-residents in exchange for full tax exemption and reporting. Some countries favor particular types of activities that attract investment in specific industries.
Choose between low tax centers, look for a favorable offshore jurisdiction for the verification of business and professional services Dominica gold Seychelles First, for financial holding companies and insurance companies, consider BVI, Cyprus, Panama, for the management of ships and maritime operations – Cyprus, Dominica, Nevis or Panama, for licenses and franchises – Cyprus, Gibraltar, Panama, and so on. 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 management and administration. They also call it a “mind and management” test. This can be the key factor in determining the tax residence of the company. It depends entirely on the tax policies of the countries involved, but the company may be forced to pay taxes in the country where its “mind and management” is located.
Potential double taxation occurs when one country claims to have the right to tax income based on the taxpayer’s residence (or citizenship) and the other country, based on that source of income. On certain occasions it occurs 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 and tax exemption options. Most of the existing double tax treaties between countries normally follow the OECD tax convention model and cover income and capital taxes in any form. The choice of jurisdiction under the paragraph “Tax jurisdiction” 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 regulations allowing the credit of foreign tax paid even without the corresponding tax agreement in force between the countries involved.
Double taxation can also have a place within the company’s income distribution processes. It can be taxed first as company earnings and then as dividends to shareholders subject to withholding at the time of distribution. Consult the related local legislation to find a possible solution for this case.
- It is more beneficial avoid tax resident status in the highest earning country trying to limit it to withholding tax.
- Is better defer withdrawal of funds business and repatriation of profits. On certain occasions, the deferral amounts to a tax exemption.
- Asset transfer is more preferable capital movement rather than income or profit movement.
- When comparing the tax regimes of different jurisdictions, pay attention to the taxable income formation process in addition to the tax rate figures.
The issues that you must resolve in the final stage of tax planning, such as the appropriate tax distribution of assets and profits, do not directly relate to the calculation and settlement of taxes. However, the development of priorities in the accommodation of profits, the repatriation of capital and the investment policy provides for additional tax benefits and some refund of taxes paid.