Can You Establish an Offshore Company and Operate Tax-Free?
Is an offshore company truly tax-free? When it comes to company formation in an offshore jurisdiction, the choice of where you incorporate has significant implications. Fortunately, for those of you keen on choosing wisely, we’ve got what you need to grasp the consequences for a better-informed decision.
Do offshore companies pay tax?
Much of this depends on the jurisdiction. In the offshore company space, there’s an association of paying tax and, as a result, greater prestige for the jurisdiction. What does that mean? Certain offshore jurisdictions that claim to be completely tax-free mean that in exchange for no tax, you will sacrifice your reputation. That means traditional jurisdictions popular with business people for offshore tax-free savings imply that you may not get access to banking in other countries. Many of these classic offshore company jurisdictions have lost their allure as global bodies tighten their Economic Substance Requirements and countries like the UAE toughen their rules as a result.
For example, even if you see the promise of entirely tax-free operations, it may be in your best interest to go with incorporating in a country with a lower tax rate so you can access other markets. Whilst many offshore company destinations may not necessarily wear the “tax-free” moniker of the past, that small amount of tax can go a long way in having the backup you need to do business in top destinations.
Tax-exempt offshore companies
As we’ve seen with the challenge of finding a tax-free offshore company destination that offers you banking and operations in a tax-free fashion, the idea of tax-exempt offshore companies seems scarce. Luckily for you, the UAE has a wealth of Free Zones that offer you the benefits of an offshore company with savings stemming from operating in a tax-free context. You can use the UAE as your home base to serve the rest of the Middle East and North Africa through robust technology, logistics, and a location at the nexus of a top population centre. Free Zone company owners in the UAE do not have to pay corporate or income tax. The dozens of Double-Taxation avoidance treaties grant you the flexibility to enjoy an offshore bank account and business operations that are tax-free.
Should you choose to live in the Emirates, the tax burden stems from a five per cent value-added tax (VAT) and municipal and real estate taxes. Foreigners that operate offshore companies receive a total tax exemption and the flexibility they need to bring all their profits and paid-in capital back home.
The other piece regarding maintaining an offshore company to examine is the question of offshore accounts. Choosing the proper offshore bank account can ensure you can further optimise your tax burden because the appropriate banking will do wonders for your long-term business goals. Fortunately for you, our team of offshore, tax-free company formation and banking experts at Europe Emirates Group will assist you in guaranteeing the most optimised tax burden for your needs as possible. This approach will offer you the savings coming from incorporating in an offshore, low-tax or tax-free jurisdiction. If you’d like to know more, contact us today.
Written by
Adrian Oton
CEO, Europe Emirates Group