BVI vs UAE (Freezone)

[offshoreavatar]

Even if someone actually implements a structure that has the licensing option, my question is what about UBO and bank accounts. Ultimately I will be the UBO and funds will end up in an account controlled either directly by me or through a trust. That means the licensing aspect will be of no use, and the caymans company will also come under CFC rules. After CFC, economic substance and CRS, accountants aren't just ready to work with offshores. Its very difficult now and race against time, one by one all the countries will get into CRS. The only option is to physically relocate.

Yes that’s what I’m doing. I’m physically locating to a country with no CFC rules (Thailand).
They probably will implement them one day but by then yes someone will have worked out how to legally by pass them. Governments will always be one step behind in my humble opinion.
(Also Nevis doesn’t have Economic Substance reporting).

 

[JustAnotherNomad]

Hi JustAnotherNomad, appreciate the response but I’m pretty sure everything you described is CFC. Place of management is what CFC is about. Where the company is controlled from.

You are really quite something.
Good luck, you will need it.

 

[JustAnotherNomad]

Even if someone actually implements a structure that has the licensing option, my question is what about UBO and bank accounts.

If a country has no CFC rules, it shouldn’t be a problem to be the UBO of the “licensing” company, as long as you don’t make payments to yourself. It’s not illegal to own a business in another country. So you could use the company as a piggy bank and cash out later. For example, I think this should work as a tax resident of Switzerland since Switzerland has no CFC rules and no exit tax for individuals. However, it’s of course extremely hypothetical, as you’d probably need a ton of substance for a structure like this to be accepted by the tax authorities.
I was just trying to explain the difference between CFC rules and permanent establishment/corporate tax residency.

 

[offshoreavatar]

You are really quite something.
Good luck, you will need it.

I don't understand sorry? Was I wrong?

 

[JustAnotherNomad]

I don't understand sorry? Was I wrong?

I literally explained to you the difference between CFC rules and permanent establishment/corporate tax residency.

CFC rules are some sort of “catch all” rule, “if none of our other rules apply to you, then at least we will get you with this one.”
CFC rules are about corporate ownership, not about where the company is managed, since that’s already covered by other rules.

I always pick Switzerland as an example because it should be so obvious: Switzerland doesn’t have CFC rules, but if you manage your offshore company from Switzerland or if you do other work for it from Switzerland, it will still have to pay Swiss corporate income tax. If this wasn’t the case, every single Swiss entrepreneur would just register their company in the BVI and not pay Swiss corporate income taxes.
The same applies to all other countries in theory. But some countries take a very, very relaxed approach to these rules. So even if you live full time in a country, as long as you only deal with foreigners for example, they may still consider your income “foreign-sourced” and not subject to tax. But this really depends on the country. In the above example, even if you had a BVI company that only sold to customers outside Switzerland, it would be considered a Swiss company if you manage it from Switzerland - even though Switzerland does not have CFC rules.
When you look at CFC rules, you will also often see that they only apply to passive investment companies, such as licensing companies.

 

[CaptK]

The bare bones of it is that in every single country including the tax free ones you are obligated to declare. The rules then define where you are due for tax.

Even at 0% tax is still due all be it 0% of the profits. Then all other factors from territorial, citizenship, DTA, DTT, CFC, PE, OECD and FACTA come into play.

 

[JustAnotherNomad]

To give you another example:
Let’s assume you register a UK Ltd. company “@offshoreavatar’s Fish&Chips Ltd.”
Now this UK Ltd. rents a building in Bangkok, you stand in the kitchen all day, selling fish and chips to Thai guests.
Do you think the Thai authorities will say: “Oh, he doesn’t have to pay any tax, it’s a UK company and we don’t have CFC rules!”
Obviously that’s not the case.
Now imagine that instead of a restaurant it’s a consulting business that serves foreign clients. But it’s still operating out of Bangkok. Is it a local or a foreign business?
That is the risk you’re taking with countries that apply territorial taxation, such as Thailand.
It has nothing to do with CFC rules, CFC rules are only an “anti-avoidance safety net” when they couldn’t get you with any other rules. The point with CFC rules is mainly to make it unattractive to shift profits into tax havens, that’s all.

 

[offshoreavatar]

A

I literally explained to you the difference between CFC rules and permanent establishment/corporate tax residency.

CFC rules are some sort of “catch all” rule, “if none of our other rules apply to you, then at least we will get you with this one.”
CFC rules are about corporate ownership, not about where the company is managed, since that’s already covered by other rules.

I always pick Switzerland as an example because it should be so obvious: Switzerland doesn’t have CFC rules, but if you manage your offshore company from Switzerland or if you do other work for it from Switzerland, it will still have to pay Swiss corporate income tax. If this wasn’t the case, every single Swiss entrepreneur would just register their company in the BVI and not pay Swiss corporate income taxes.
The same applies to all other countries in theory. But some countries take a very, very relaxed approach to these rules. So even if you live full time in a country, as long as you only deal with foreigners for example, they may still consider your income “foreign-sourced” and not subject to tax. But this really depends on the country. In the above example, even if you had a BVI company that only sold to customers outside Switzerland, it would be considered a Swiss company if you manage it from Switzerland - even though Switzerland does not have CFC rules.
When you look at CFC rules, you will also often see that they only apply to passive investment companies, such as licensing companies.

Ah ok sorry. I’m not saying you don’t know what you’re talking about I probably just don’t understand what you’re saying well enough.
Because where I’m from CFC rules are for where a company is managed. As in the main reason. Saying “controlled” foreign company rules are more about ownership than management is also contradictory in its literal sense. Which makes me think it’s universal meaning is actually in fact not what the term means literary. Seen as it sounds like you have experience.

 

[offshoreavatar]

To give you another example:
Let’s assume you register a UK Ltd. company “@offshoreavatar’s Fish&Chips Ltd.”
Now this UK Ltd. rents a building in Bangkok, you stand in the kitchen all day, selling fish and chips to Thai guests.
Do you think the Thai authorities will say: “Oh, he doesn’t have to pay any tax, it’s a UK company and we don’t have CFC rules!”
Obviously that’s not the case.
Now imagine that instead of a restaurant it’s a consulting business that serves foreign clients. But it’s still operating out of Bangkok. Is it a local or a foreign business?
That is the risk you’re taking with countries that apply territorial taxation, such as Thailand.
It has nothing to do with CFC rules, CFC rules are only an “anti-avoidance safety net” when they couldn’t get you with any other rules. The point with CFC rules is mainly to make it unattractive to shift profits into tax havens, that’s all.

That’s a good example thank you. I’ll have to think about that! Cheers

 

[JustAnotherNomad]

CFC rules are not about where the company is managed, they are about ownership. Just read the CFC rules for your country and you will see they contain the word “own”.
Then read the rules for corporate tax residency and you will see they contain the word “managed”.

But the details aren’t so important. What’s important is for you to understand that “no CFC rules” does not necessarily mean “no tax”. See my example with Switzerland above. It is absolutely possible that you won’t have to pay taxes as a tax resident of Thailand, yes. But it is also possible that you will have to pay taxes, even in the absence of CFC rules. So you should talk to a Thai tax lawyer if you want to be sure, and not make assumptions.

 

[boomy]

Ultimately I will be the UBO and funds will end up in an account controlled either directly by me or through a trust.

you mix apple and bananas here! Trust is a legal body and you are a legal body! You can't use the to words in the same sentece and ask generally if you or a Trust will be reported.

Either it is the Trust or you, make your choice?

 

[sonato]

the same apply regardless if it is BVI or UAE company - I mean CFC kicks in regardless of which place you setup your business right?

 

[sinos]

the same apply regardless if it is BVI or UAE company - I mean CFC kicks in regardless of which place you setup your business right?

The only option as I found out would be to go for a second passport. Apart from that there is no other way to bypass CFC.

 

[CaptK]

Lets be honest there is no real legitimate way of circumventing CFC unless you live and control the company from a tax free state.
The rest are between you and your conscious..................

 

[JustAnotherNomad]

The only option as I found out would be to go for a second passport. Apart from that there is no other way to bypass CFC.

CFC is usually about tax residency, not about your passport.

 

[JustAnotherNomad]

Lets be honest there is no real legitimate way of circumventing CFC unless you live and control the company from a tax free state.

Switzerland is a tax free state?

 

[sinos]

CFC is usually about tax residency, not about your passport.

True, but looking it from another way, instead of relocation its a better bet IMHO. I think in a subtle way you chose not to inform and close to zero probability of your resident country finding it out. You take a whole new identity, tax wise.

 

[exprtadvisrdev]

True, but looking it from another way, instead of relocation its a better bet IMHO. I think in a subtle way you chose not to inform and close to zero probability of your resident country finding it out. You take a whole new identity, tax wise.

If it's the same name, same birth date, etc then I think the resident country will know about the new passport sooner than later

 

[sinos]

If it's the same name, same birth date, etc then I think the resident country will know about the new passport sooner than later

Trick is not to use the second passport in your resident country, not even through airport - this part is tricky.

 

[JustAnotherNomad]

I’ve heard that Panama for example publishes the names of new citizens, and the foreign embassy workers study those publications carefully.