Deoffshorization, i.e. alteration of the laws of the country for reduction of possibilities of facilitating offshore companies for tax optimization purposes, is a permanent global trend. Recent years in number of counters have been marked by enforcement of a number of measures for deoffshorization of economics and business.
What are the available options to address this issue? Does that mean that it is impossible to use tax optimization tools?
Before we answer to this question, a clear distinction should be drawn between lawful and not quite lawful ways of using offshore.
Controversial solutions in terms of status include solutions designated only for reduction of taxes. Such tools and options have been prohibited in most countries of the world, especially in recent years, and countries have enacted a number of laws to restrict use of such options.
At the same time there have always been other options that are not designated only for tax optimization and are comprehensive and lawful. Furthermore, such options allow to achieve the target.
In order to avoid it being treated as option used purely for tax optimization purposes and, accordingly, being treated as unlawful within the scope of deoffshorization and applicable laws, it shall be characterized by the following:
- Availability of real office, production facility, warehouse, etc. - depending on the type of business.
- Management of the company shall be carried out in jurisdiction of registration, i.e. the director of the company shall be a resident of the country of incorporation.
- Performance of real business, confirmed by relevant documents.
- Availability of economic reasons for operations of such company.
If the aforesaid aspects are fulfilled, the company is not deemed an offshore company, and it constitutes a valid company operating abroad. Such company may be incorporated as independent company or as a subsidiary.
Such company with regard to its objectives may convey different tasks and functional purposes and objects, such as:
- Performance of activities within the scope of large production chain.
- Separate operations within the framework of the business.
- Central office for management of group of companies.
- Company for provision of services within current group of companies.
- Fully independent company having any business profile - production, logistics, services, etc.
Most of you, having read the aforesaid, will say that in such case the company will be treated as operating in the jurisdiction of registration and, subsequently, will have to pay taxes in such jurisdiction.
Such opinion is quite reasonable. However, it should be noted that there are countries with friendly or tax free regimes for businesses, performed on the territory thereof.
One of such countries is the United Arab Emirates. Upon compliance with all requirements for ensuring non-offshore status, the company will not incur the risk relating to payment of taxes in the UAE. Furthermore, it may not be treated as breaching new regulations related to deoffshorization, whilst allowing to reduce tax assessments significantly.
Should you have any queries relating to registration of companies in the UAE and taxation thereof, please email us - our consultants are at your disposal to provide all relevant information on incorporation of business in the UAE and commencement of business thereof.