Countries without exit tax

[Don]

Which are countries that let you start a business there, grow it and move it to another country in future without paying departure tax on increase in value of business?

There are some ways you can potentially avoid exit tax.

To avoid exit taxation, the following measures are conceivable, for example in Germany:

• Effective domicile and residence management maintains unlimited tax liability in Germany. For tax purposes, therefore, there is no departure at all - no departure taxation without a departure.
• An upstream gratuitous share transfer to natural persons prior to the departure may also be considered if, in any case, such a transfer is planned for the short- or medium-term.
• Anyone who sells their shares before departing must pay tax on the capital gain. However, exit taxation is then of naturally ruled out.
• In addition, an upstream gratuitous transfer of shares to a family foundation which serves to provide for the founder and/or his family is conceivable. Because the taxpayer does not hold shares in "their" foundation, § 6 of the Foreign Transaction Tax Act (AStG) is meaningless.
• Furthermore, a conversion of the investment company into a partnership (e.g. a GmbH & Co. KG or a dormant partnership) can be considered. However, numerous special features have to be taken into account here. For example, care must be taken to ensure that no alternative disjunction taxation is initiated in the event of a move abroad.
• Other solutions

 

[baio12]

He will then be responsible on his own to not manage the company from another country, either with economic substance or by not being resident anywhere else.

What does this criteria accomplish?

Anyone who sells their shares before departing must pay tax on the capital gain. However, exit taxation is then of naturally ruled out.

That is same thing? Exit tax is just capital gain tax when you exit. Country with no exit tax is if they don't tax capital gain if you sell after you stop to be resident.

 

[Don]

That is same thing? Exit tax is just capital gain tax when you exit. Country with no exit tax is if they don't tax capital gain if you sell after you stop to be resident.

Exit tax can actually mean different things.
For example in Estonia or Cyprus "exit tax" is regarded as the Income tax that is charged on the difference between the market value and the book value of assets taken out of Estonia/Cyprus at the time of exit if a resident company transfers these assets to a permanent establishment in another country provided certain conditions are met.

But in Germany, when the exit tax is triggered, the taxpayer is taxed as if he had sold his investment, while he hasn't.

 

[baio12]

For example in Estonia or Cyprus "exit tax" is regarded as the Income tax that is charged on the difference between the market value and the book value of assets taken out of Estonia/Cyprus at the time of exit if a resident company transfers these assets to a permanent establishment in another country provided certain conditions are met.

How they establish market value and who is responsible to do it?

What are the conditions for Estonia and Cyprus?

 

[Don]

How they establish market value and who is responsible to do it?

This is specific to the jurisdiction.

What are the conditions for Estonia and Cyprus?

Basically that assets become non-taxable in the country as a result of taking them out from there. Exit tax might not be triggered if the move is temporary

 

[JohnLocke]

I would like to see an example, if nothing else a theoretical example, that clearly shows one can establish a company, grow it to a million-dollar business, and then just move it out of a country without being taxed on the company.

It is unclear to me if the UBO (Ultimate Beneficial Owner) remains in the country from which the company is moved, or if he moves along. In both cases, I can't imagine one can avoid paying an exit tax! - But I hope we can see some examples.

 

[jafo]

I would like to see an example, if nothing else a theoretical example, that clearly shows one can establish a company, grow it to a million-dollar business, and then just move it out of a country without being taxed on the company.

It is unclear to me if the UBO (Ultimate Beneficial Owner) remains in the country from which the company is moved, or if he moves along. In both cases, I can't imagine one can avoid paying an exit tax! - But I hope we can see some examples.

I second John Locke's motion!

 

[wellington]

UK does have an exit charge on companies leaving the UK:

CG42370 - Migration of companies: exit charges - HMRC internal manual - GOV.UK

www.gov.uk

But the topic is quite interesting. I mean nobody wants to invest in a country that is leaving a bad impression when you leave, do you?

Has anybody checked Guernsey, Jersey, Hong Kong, Singapore etc.?

Defined as resident companies - not sure how that works if the directors are overseas operating a UK ltd that has no footprint in the UK

Defined as resident companies - not sure how that works if the directors are overseas operating a UK ltd that has no footprint in the UK

Come to think of it most digital Ponzis had a habit of having a UK LTD but operating from say Dubai or where ever - you never see HMRC go after them.

 

[daniels27]

Defined as resident companies - not sure how that works if the directors are overseas operating a UK ltd that has no footprint in the UK

The law is about companies that cease to be paying taxes (i.e. transiting from resident to non-resident). Hence, if your company is not tax resident in the UK, they are currently not paying taxes in the UK and thus there also is no exit tax on hidden reserves. You only need to pay exit tax once and if your company never was subject to tax, there also cannot be any hidden reserve or goodwill that previously was not "hidden" from taxation.

Come to think of it most digital Ponzis had a habit of having a UK LTD but operating from say Dubai or where ever - you never see HMRC go after them.

It is like with FBA sellers IRS is also not chasing them. Why? Because there is nothing to get.

 

[baio12]

You only need to pay exit tax once and if your company never was subject to tax, there also cannot be any hidden reserve or goodwill that previously was not "hidden" from taxation.

I also hope there is example because countries that were taxing a company expect to get tax when you leave. They will not let another country get the tax of value you gained in their country.

 

[Don]

I also hope there is example because countries that were taxing a company expect to get tax when you leave. They will not let another country get the tax of value you gained in their country.

Requires some creative thinking

 

[baio12]

Requires some creative thinking

Those option aren't avoiding exit tax. It is either paying the tax before exiting or converting to other structure in same country or expecting you to come back so there is no real exit.

 

[Xshore]

I would like to see an example, if nothing else a theoretical example, that clearly shows one can establish a company, grow it to a million-dollar business, and then just move it out of a country without being taxed on the company.

It is unclear to me if the UBO (Ultimate Beneficial Owner) remains in the country from which the company is moved, or if he moves along. In both cases, I can't imagine one can avoid paying an exit tax! - But I hope we can see some examples.

Shouldn't this be possible in Singapore? They have some exit tax on certain pension type accounts, but not on the company and company shares as far as I know. The company can move out of SG and cease to be a SG tax resident if managed from another country. There must be many other low tax countries where this is possible also.

 

[daniels27]

Shouldn't this be possible in Singapore? They have some exit tax on certain pension type accounts, but not on the company and company shares as far as I know. The company can move out of SG and cease to be a SG tax resident if managed from another country. There must be many other low tax countries where this is possible also.

Yes, and they even offset your exit tax you paid elsewhere as tax credit when the gains are realised.

Hong Kong is another example where there is no exit tax. Guernsey, Jersey, Isle of Man are imo also not subject to any such tax.

I think the main question is how much the government taxes/valuates goodwill in such as case. Of course they will most likely come after hidden reserves etc. Also, you may be more likely to have a tax audit to check for any other sort of reserve, undervalued stock, etc. This is because your profit is calculated on the companies assets at the end of the year - at the beginning of the year. While it balances out over the years (paying less in 2023 will make you pay exactly the same more in 2024), there is no following year to pay more this time. Hence, they will check in more detail.

 

[uplana]

So we have:

• Hong Kong
• Singapore
• Bahamas
• Bahrain
• Czech Republic
• Seychelles
• Belize
• Guernsey
• Jersey

Are these all countries we can come up with?

 

[daniels27]

Are these all countries we can come up with?

I am pretty confident about Isle of Man, Kuwait, Qatar, etc. Also, most of the Caribbean's will fall under this. Then, probably most African, Central Asian, Caucasian countries will probably not have clear exit tax laws and worth looking into.

Just be warned, that if you cannot find a real law, it does not mean that they cannot and will not tax your hidden reserves, I am quite confident that most countries will. Also, they may introduce such law at any time in the near future. But in general zero tax countries are the choice number one.

 

[Xshore]

In the countries that has a corporate exit tax (or similar regime), I assume this is still only relevant for some types of companies? If for example you have a simple ecommerce drop shipping company that doesn't own any physical assets, what would be the capital gains that the company is taxed on? Maybe a domain name could be viewed as having increased in value and taxed. In that case maybe it could work if you personally own the domain name and lease it to the company, as you wouldn't be personally taxed on the domain appreciation (in some countries).

 

[daniels27]

In the countries that has a corporate exit tax (or similar regime), I assume this is still only relevant for some types of companies? If for example you have a simple ecommerce drop shipping company that doesn't own any physical assets, what would be the capital gains that the company is taxed on? Maybe a domain name could be viewed as having increased in value and taxed. In that case maybe it could work if you personally own the domain name and lease it to the company, as you wouldn't be personally taxed on the domain appreciation (in some countries).

They typically tax:

• goodwill, in your case it is the brand name, returning customer value, shop reputation, etc. basically what you would ask somebody else to pay when you want to sell
• hidden reserves (can be on stock but also for upcoming taxes which won't materialise, etc.
• any equity etc. that you own and have not yet sold will typically be treated as sold at that time (for capital gains) -- this won't apply to most setups