Corporate tax residency rules - using Jersey as an exxample

[WorldCitizen99]

Let's use a Jersey holding company used for passive investment with a single shareholder as an example
Jersey is advantageous as it has no personal or corporate capital gains tax, and 0% corporate income tax (unless you are a utility or type of financial services company)
(I'm aware of the 20% tax on distributions but let's ignore that for now)

Their corporate residency rules:

In general, all companies incorporated in Jersey are considered resident.
However, a company incorporated in Jersey is considered nonresident if
a)the company’s business is centrally managed and controlled outside Jersey AND
b)in a country or territory where the highest rate at which any company may be subject to tax on any part of its income is 10% or higher AND
c)if the company is tax resident in that country or territory.

Let's say you don't like living in Jersey but you want the benefits of a Jersey company.
If any one of those criteria (a-c) are not fulfilled, and the company was incorporated in Jersey, it should be considered a Jersey tax resident.

So I want to figure out examples of how to deal with each criteria
a)
i)you could live elsewhere and fly in, say, 6 times a year for "board meetings"
ii)you could appoint local directors and claim that they are the brains behind the strategic decisions of the company

b)
i) you could live in a low corporate tax country (<10%)

c)
i) you could live in country X if companies are tax resident in Country X only on the basis of place of registration and not M&C
e.g. Bulgaria as far as I can tell

d) you could live in a country that has a tax treaty with Jersey where that country wins the tiebreaker clause?

(Now depending on where you are tax resident, your Jersey company might get hit by local CFC rules, esp if it is generating passive income).

Anyone have any comments on the above?
Also, **please add to the list of countries under c) and d)**

 

[WorldCitizen99]

No takers?
Someone must know how this works

 

[Don]

No takers?
Someone must know how this works

You can operate as a Jersey branch of a foreign company.
Provided certain conditions are met, it might result in overall zero or close to zero taxes.

 

[WorldCitizen99]

You can operate as a Jersey branch of a foreign company.
Provided certain conditions are met, it might result in overall zero or close to zero taxes.

OK, so the foreign company owns the shares of the Jersey company
You make sure the Jersey company doesn't fall afoul of CFC rules in the foreign country
But aren't branches subject to the same residency rules as any other entity?
Which conditions do you mean?

 

[Don]

OK, so the foreign company owns the shares of the Jersey company

no, in such case its not Jersey company but a non-resident foreign company operating in Jersey as a branch

You make sure the Jersey company doesn't fall afoul of CFC rules in the foreign country
But aren't branches subject to the same residency rules as any other entity?
Which conditions do you mean?

if the foreign entity doesn't tax the profits arising from Jersey, and distributing that income to you is also tax-free, then no tax

What's interesting is that it's possible to have non-zero but close to zero tax in Jersey by having the majority of profits not taxed in Jersey since they are exempt, but separately having some taxable income, which could be property income subject to 20% CIT in Jersey. This basically opens up more possibilities for structuring since the income in Jersey is considered as "taxed" in such a case.

 

[WorldCitizen99]

no, in such case its not Jersey company but a non-resident foreign company operating in Jersey as a branch

if the foreign entity doesn't tax the profits arising from Jersey, and distributing that income to you is also tax-free, then no tax

What's interesting is that it's possible to have non-zero but close to zero tax in Jersey by having the majority of profits not taxed in Jersey since they are exempt, but separately having some taxable income, which could be property income subject to 20% CIT in Jersey. This basically opens up more possibilities for structuring since the income in Jersey is considered as "taxed" in such a case.

So if the foreign company doesn't own shares in the Jersey company then how do you structure it as a branch?
I thought for a company to be a branch of a parent company, the parent has to own the shares of the branch.

Can you use a real country as an example?
ForeignCo from country X
+ Jersey company

 

[Don]

So if the foreign company doesn't own shares in the Jersey company then how do you structure it as a branch?
I thought for a company to be a branch of a parent company, the parent has to own the shares of the branch.

Can you use a real country as an example?
ForeignCo from country X
+ Jersey company

A foreign branch is not a separate legal entity from its parent company. Instead, it is an extension of the main company operating in another jurisdiction. This means the parent company does not "own" the branch the same way it would own shares in a subsidiary. The foreign branch is part of the same legal entity, which carries out business in another country. Profits and losses from the branch are typically included in the financials of the parent company, and there is no separate shareholding structure like with a subsidiary or affiliated company.

 

[WorldCitizen99]

A foreign branch is not a separate legal entity from its parent company. Instead, it is an extension of the main company operating in another jurisdiction. This means the parent company does not "own" the branch the same way it would own shares in a subsidiary. The foreign branch is part of the same legal entity, which carries out business in another country. Profits and losses from the branch are typically included in the financials of the parent company, and there is no separate shareholding structure like with a subsidiary or affiliated company.

Ok thank you Don - so you just register the branch under the same name with whatever authority looks after business registration and there is no share structure. OK if that's right, then that makes sense. Can you give 1 or 2 countries in Europe from which you could achieve this low-tax branch sructure?

Are there any strategies from a-d in the original post that you think are at least as good as doing the branch arrangement?

 

[Don]

Ok thank you Don - so you just register the branch under the same name with whatever authority looks after business registration and there is no share structure. OK if that's right, then that makes sense. Can you give 1 or 2 countries in Europe from which you could achieve this low-tax branch sructure?

Are there any strategies from a-d in the original post that you think are at least as good as doing the branch arrangement?

It boils down to your personal residence and substance.

Estonia - Jersey structure could work actually, assuming some tax is paid in Jersey.
Provided you are a tax resident of Estonia and not Jersey, the dividends could also be exempt from almost all tax.

 

[JustAnotherNomad]

The rules of Jersey aren't really relevant, it's the rules of your residency country you should be worried about.
Most high-tax country would look at the effective place of management of the company, and consider the company tax resident in your home country.
As Jersey has few double taxation treaties, there could even be double taxation in such a case.

 

[WorldCitizen99]

The rules of Jersey aren't really relevant, it's the rules of your residency country you should be worried about.
Most high-tax country would look at the effective place of management of the company, and consider the company tax resident in your home country.
As Jersey has few double taxation treaties, there could even be double taxation in such a case.

I just left a high-tax country, so I wouldn't settle in another high tax country.

There are countries like Bulgaria, where corp residency rules do not mention M&C. I wanted to start a list of similar countries.
If you look at my original post, if you don't fulfill all 3 of Jersey's exclusionary criteria for non-residency, one of which is tax residency in the other jurisdiction, it should remain a Jersey company without doing anything extra, like hiring fiduciaries (if I understand correctly)

I wanted people to go through the criteria (a-d) in my original post and tell me which would work.

There are 27 treaties with varying degrees of scope - with a few places that I could live. Only the one with France would be of no help:

"Jersey has entered into double tax treaties with Australia, Cyprus, Denmark, Estonia, the Faroe Islands, Finland, France, Germany, Greenland, Guernsey, the Hong Kong Special AdministrativeRegion (SAR), Iceland, Isle of Man, Liechtenstein, Luxembourg, Malta, Mauritius, New Zealand, Norway, Poland, Qatar, Rwanda,Seychelles, Singapore, Sweden, the United Arab Emirates and theUnited Kingdom.
The majority of these treaties are limited in scope. The treaty with France addresses only the exemption of air transport and shipping profits. The treaties with Australia, Germany, Liechtenstein, Mauritius and New Zealand address only the avoidance of double taxation on individuals. The treaties with Denmark, the Faroe Islands, Finland, Greenland, Iceland, Norway, Poland and Sweden address the avoidance of double taxation on individuals and the exemption of air transport and shipping profits. The treaties with Estonia, Guernsey, the Hong Kong SAR,Malta, Qatar and the United Kingdom provide a credit for tax levied on all sources of income, excluding dividends and debenture interest in the UK treaty." --From E&Y tax summary

 

[Don]

I just left a high-tax country, so I wouldn't settle in another high tax country.

There are countries like Bulgaria, where corp residency rules do not mention M&C. I wanted to start a list of similar countries.
If you look at my original post, if you don't fulfill all 3 of Jersey's exclusionary criteria for non-residency, one of which is tax residency in the other jurisdiction, it should remain a Jersey company without doing anything extra, like hiring fiduciaries (if I understand correctly)

I wanted people to go through the criteria (a-d) in my original post and tell me which would work.

There are 27 treaties with varying degrees of scope - with a few places that I could live. Only the one with France would be of no help:

"Jersey has entered into double tax treaties with Australia, Cyprus, Denmark, Estonia, the Faroe Islands, Finland, France, Germany, Greenland, Guernsey, the Hong Kong Special AdministrativeRegion (SAR), Iceland, Isle of Man, Liechtenstein, Luxembourg, Malta, Mauritius, New Zealand, Norway, Poland, Qatar, Rwanda,Seychelles, Singapore, Sweden, the United Arab Emirates and theUnited Kingdom.
The majority of these treaties are limited in scope. The treaty with France addresses only the exemption of air transport and shipping profits. The treaties with Australia, Germany, Liechtenstein, Mauritius and New Zealand address only the avoidance of double taxation on individuals. The treaties with Denmark, the Faroe Islands, Finland, Greenland, Iceland, Norway, Poland and Sweden address the avoidance of double taxation on individuals and the exemption of air transport and shipping profits. The treaties with Estonia, Guernsey, the Hong Kong SAR,Malta, Qatar and the United Kingdom provide a credit for tax levied on all sources of income, excluding dividends and debenture interest in the UK treaty." --From E&Y tax summary

If you are Estonian resident, with an Estonian company that has a branch office in Jersey, then the profits from Jersey branch could be repatriated to Estonia, and to shareholders tax free if the profits of the PE were taxed, since dividends from resident company are tax free for Estonian residents on individual level.
Now the key is that the Jersey branch should pay some tax. Since most of the activities are tax free the PE should have some taxable income like rental income which is subject to 20% CIT in Jersey.
Now its quite flexible from Estonian point of view since tax residence don't require physical presence.

 

[WorldCitizen99]

If you are Estonian resident, with an Estonian company that has a branch office in Jersey, then the profits from Jersey branch could be repatriated to Estonia, and to shareholders tax free if the profits of the PE were taxed, since dividends from resident company are tax free for Estonian residents on individual level.
Now the key is that the Jersey branch should pay some tax. Since most of the activities are tax free the PE should have some taxable income like rental income which is subject to 20% CIT in Jersey.
Now its quite flexible from Estonian point of view since tax residence don't require physical presence.

The Estonia set-up is very interesting....

**The whole issue is that eventually I will get tired of travelling around and I would want to spend >6 mos in a place.**
But unless it has corp res rules like Bulgaria, if I spend >6mos in country X, I would be tax res there and the Jersey exclusionary rules would kick in.

Since Jersey tax residency only requires 1 night in an "available accommodation", I wonder if there is any need to put Estonia in the mix

I need to learn more about branches. Are branches subject to local corp res rules, or is that only subsidiaries?

 

[Don]

The Estonia set-up is very interesting....

**The whole issue is that eventually I will get tired of travelling around and I would want to spend >6 mos in a place.**
But unless it has corp res rules like Bulgaria, if I spend >6mos in country X, I would be tax res there and the Jersey exclusionary rules would kick in.

Since Jersey tax residency only requires 1 night in an "available accommodation", I wonder if there is any need to put Estonia in the mix

Well, in Jersey, personal income tax is 20%. If you like the island and don't mind paying 20% tax on your personal income, then, of course, go for it

I need to learn more about branches. Are branches subject to local corp res rules, or is that only subsidiaries?

The benefit of branches is that when the company would actually be tax resident somewhere else, it is excluded from economic substance rules.

 

[JustAnotherNomad]

If you are Estonian resident, with an Estonian company that has a branch office in Jersey, then the profits from Jersey branch could be repatriated to Estonia, and to shareholders tax free if the profits of the PE were taxed, since dividends from resident company are tax free for Estonian residents on individual level.

Did they get rid of the minimum tax rate for this? Or has that never applied to branches?
How will you make sure that the profits can be attributed to the branch and not the head office?

 

[WorldCitizen99]

Well, in Jersey, personal income tax is 20%. If you like the island and don't mind paying 20% tax on your personal income, then, of course, go for it

The benefit of branches is that when the company would actually be tax resident somewhere else, it is excluded from economic substance rules.

I should have mentioned, my only source of income would be capital gains which is 0% in Jersey, otherwise I wouldn't even look at Jersey with its 20% PIT since the availability and cost of housing is bad, the avg weather looks similar to miserable UK weather and it is small popn-wise - only 100K. My 2nd citizenship is UK so setting up in Jersey would be easy. That's the only reason I am considering it in the first place.

In my case, I WOULD want the branch to be tax-res in Jersey so that I could benefit from the 0% tax, otherwise I would have to find a 0% tax country to establish tax res in (let's call it country X) so that the branch would still be 0%.

If I live in Jersey, I am better off holding the assets personally bc I think having a corporate structure just for my investments would be redundant.
If I didn't want to live in Jersey, than having a Jersey company WOULD make sense if I could arrange things so that the company WAS tax-res there. That is why I asked about how to avoid the exclusionary criteria in my original thread.

You have suggested a branch, but wouldn't a branch still be tax res in country X if country X corp res rules say that it depends on location of M&C (or if CFC rules from X apply)? (not including your special example of Estonia)

I wouldn't want to live in Estonia. And even if I don't have to, I'd want to live somewhere for >6 months, so wouldn't that nullify any benefit from the Estonia set-up?

Help me understand - I feel like we are going in circles

Update: Ok I think I understand now. If the Jersey branch was tax resident in country X, it would be treated as a non-resident company in Jrsey (and would still pay 0% just like a resident company - and the advantage would be that there would be no economic substance req's and there is no branch remittance tax or withholding tax from Jersey). However, it would still require country X to not have applicable CFC rules or corporate tax, which reduces the choices. If one could avoid the Jersey exclusionary rules for corp res and have a jersey-resident company, you'd have more choices of where to live. I'm guessing hiring Jersey corporate fiduciaries is the answer, but I wanted to know if there were more possibilities.

Update#2: OK I went back and re-read all your answers and now it makes sense. I'm guessing Estonia is kind of a special case with the rule that if the Jersey PE pays some tax, then it is exempt from tax in Estonia. Are there many other countries that work that way?
Then you mentioned that you don't even have to live in Estonia for this arrangemenet to work, but it brings me back to the question that if I live in country X for >6 months, will it nullify the whole arrangement bc presumably I would now be bound by the tax res rules of that country? I can see how all this would work much more easily if you do the trifecta method of living 4 months in 3 countries, but that gets tiring after awhile.

 

[WorldCitizen99]

If you are Estonian resident, with an Estonian company that has a branch office in Jersey, then the profits from Jersey branch could be repatriated to Estonia, and to shareholders tax free if the profits of the PE were taxed, since dividends from resident company are tax free for Estonian residents on individual level.
Now the key is that the Jersey branch should pay some tax. Since most of the activities are tax free the PE should have some taxable income like rental income which is subject to 20% CIT in Jersey.
Now its quite flexible from Estonian point of view since tax residence don't require physical presence.

Wow - this post was the real money-shot. Thank you Don. That is incredible. All you have to do is
A)find some way to be taxed in Jersey on some amount of income
B)not run into conflict with your Estonian tax residency - I see from the E&Y summary that Estonia has about 63 double tax treaties. I assume most of the Article 4 tiebreaker clauses would run along the lines of the typical OECD structure of 'if a person is deemed to be resident in both countries, they are tax res where they have a permanent home available' - for this to work, you'd have to own property or have a 12-month lease in Estonia, and live out of hotels and airbnbs in the country you actually live in, (which has its plusses and minuses). It's doable although a little inconvenient.

 

[Don]

Wow - this post was the real money-shot. Thank you Don. That is incredible. All you have to do is
A)find some way to be taxed in Jersey on some amount of income
B)not run into conflict with your Estonian tax residency - I see from the E&Y summary that Estonia has about 63 double tax treaties. I assume most of the Article 4 tiebreaker clauses would run along the lines of the typical OECD structure of 'if a person is deemed to be resident in both countries, they are tax res where they have a permanent home available' - for this to work, you'd have to own property or have a 12-month lease in Estonia, and live out of hotels and airbnbs in the country you actually live in, (which has its plusses and minuses). It's doable although a little inconvenient.

Jersey real estate, including rental income, property development profits, and income from exploiting Jersey land (e.g. quarrying activities) is subject to tax at 20%. Companies involved in oil importation and supply are also taxed at 20%.

Having some taxable income in Jersey might be more complex part than having a permanent home available in Estonia, which is not even the worst option because:
1) there is no capital gains if you sell your property that is your residence in Estonia or abroad, and RE has been appreciating rather quickly (leading in EU over last decade, possibly because favorable tax treatment)
2) As a budget option, you can also rent a uranial for ~100 EUR/month (or buy a cheap run-down apartment for as low as 5k). It's a bit funny to see guys who pay 100 EUR/month rent while driving a car worth 200k, though.
Yes, that's correct real estate prices can be 5k EUR/sqm in some areas or you can even buy a whole apartment for 5k EUR.

 

[Barney2201]

As far as I’m aware Jersey and Guernsey are very similar… I think you would need some form of resident director (Ned) or fiduciary to give some substance. You could look at Sark (my current residency) you can rent for sub £10k a year, no minimum stay and easy to move to with a UK passport. There is no company registary in Sark and no CFC rules so you can run a company based anywhere you require. And of course 0% PIT…

 

[WorldCitizen99]

As far as I’m aware Jersey and Guernsey are very similar… I think you would need some form of resident director (Ned) or fiduciary to give some substance. You could look at Sark (my current residency) you can rent for sub £10k a year, no minimum stay and easy to move to with a UK passport. There is no company registary in Sark and no CFC rules so you can run a company based anywhere you require. And of course 0% PIT…

Interesting, Barney
I read a few articles on Sark since you posted
Seems too good to be true - no phys presence req, no PIT or CIT, no cap gains tax, just some misc property taxes.
What's the catch? Do all residents have a minimum number of sheep to shear and cows to milk?

What happened with the proposal to charge minimum personal tax of 10,500 GBP for residents who spend less than 90 days? Even if it passed, it's not bad for a minimum tax.
What is the personal capital tax? Does that apply to financial instruments that you would pay cap gains tax on?
It's bloody small and there is no airport. I wouldn't do the 90 days. But it is a very interesting idea worth looking into more. Thanks for suggesting