Offshore Company Formation- International tax planning
The subsequent examples are based on the assumption that the company of the client is installed in the EU, in our example in Sweden, and that the company to be installed for reduction of domestic tax load is also a company in the European Union, in our example an English Limited company.
The freedom of establishment in the European Union is applicable as legal consequence, there are double taxation agreements between the countries, and the EU directive on parent companies and their subsidiaries is to be applied. The examples may also be implemented with e.g. a Danish Limited company and a Cypriot Limited company.
1. The Swedish entrepreneur has a total tax load of approx. 60%. He would like to reduce the tax load as far as legally possible. The entrepreneur offers services in the area of web design.
Proposed solutions: The Swedish entrepreneur founds an English Limited company with sole tax permanent establishment in England. The permanent establishment concept is legally defined according to the double taxation agreement:
1. Place of management: An English person must hold the general management of the company, at least on the outside. The entrepreneur may either shift his centre of life to England, or he may employ an English person as director, or one of our English attorneys will act as nominee director of the Limited company (to the outside), and internally transfers all rights and obligations to the actual beneficiary/founder.
2. Regular registered office in England: A mailbox does not constitute a regular registered office. On the other hand, the English Limited company does not require any office in England because of the freedom of establishment in the European Union, and does not have to demonstrate that the Limited company transacts active business in England. We will install the regular registered office: company sign, availability by telephone, deliverable postal address.
3. Shareholder circumstances: Either we provide the nominee shareholder of the Limited (a legal person resident in England acts as shareholder to the outside), or the Swedish entrepreneur becomes shareholder himself, whereas the Articles of Association stipulate that all relevant business decisions are made at shareholders’ meetings, which exclusively take place in England, and at which the Swedish shareholder must be present (place of management).
Therefore the clients conclude any contracts with the English Limited company, and make payments to the English Limited company. In Sweden only consulting takes place, so according to the double taxation agreement this does not constitute a permanent establishment according to taxation law.
Legal consequence: Only England is entitled to the right of taxation, Sweden will miss out. This procedure is usually possible for all services, since it cannot be determined where the service is rendered. In addition, according to the double taxation agreement, services do not result in a permanent establishment according to taxation law in the home country, which is Sweden in this example.
2. As under 1., however, the Swedish entrepreneur exports business items, which – according to the double taxation agreement – result in a permanent establishment according to taxation law in Sweden, for example industry or retail shops.
In such a case, there are different proposed solutions:
2.1. The English Limited company with permanent establishment in England sends invoices to the Swedish company, so that profits in Sweden are reduced.
2.2. The English Limited company acts as a Holding, and/or is shareholder of the Swedish company. Legal consequences: The profits of the Swedish company flow into the Limited company. Due to the European directive on parent companies and their subsidiaries, no withholding tax is imposed in Sweden, and the inflow into the English Limited company remains tax-free (distributions of profit between Limited companies). Within the framework of the Holding, the English Limited company may send additional invoices to the Swedish company before determination of profits.
Offshore- Gesellschaften gründen