Should you start with international tax planning?

May 24, 2016 at 1:31 PM



Category: Estonian Taxes

Each person and company on this planet has a right to protect his/her property and cut expenses by following the law. Skilful international tax planning is one of the most popular ways to cut expenses by enabling individuals as well as companies to save on taxes and thus increase net income.

Tax planning is often one of the key reasons why the companies are registered in foreign countries. Tax laws are different by countries and thus business registration in the foreign country to decrease the tax burden is common practice. Thereby more and more countries offer the possibility for online business registration thanks to development of information technology. You can register a business in the foreign country and run it without entering it once.

Is international tax planning legal?

International tax planning is a legitimate activity when the low tax obligation is achieved in the way provided by law and without fictitious schemes. The situation where the tax liable persons pursue to organise their tax issues in the most favourable way for themselves is acceptable and common practice today. For example, you can choose a country for business registration by supplying goods from one country to another. If you though establish several buffer companies for that purpose, this is aggressive tax planning or tax evasion which is not accepted.

To combat tax evasion and aggressive tax planning the countries have increasingly closer cooperation, having created also several associations. The most important ones are:

  • Foreign Account Tax Compliance Act (FATCA) –  entered into force in principal part in July 2014 and the aim is to collect information on the US tax residents all over the world;

  • Organization for Economic Co-operation and Development’s (OECD) Standard for Automatic Exchange of Financial Account Information in Tax Matters – according to the standard established in cooperation with the European Union and G20 countries and published in 2014 the jurisdictions get financial information from their financial institutions and exchange it automatically with other members.

Several offshore-jurisdictions have been in the highlight of mass media, for example the leaked Panama Papers. By this way poor reputation is created for these jurisdictions to decrease the number of the persons registering their business activities there in the hope that more tax income remains in the countries with higher tax rate. However, the violation of law by one or several companies does not mean that the countries having established the laws are the guilty ones.

Although it is combated against international tax planning, this is a legitimate activity within the limits laid down in laws and without creating schemes which helps to cut expenses and increase income.

If you would like to know whether tax planning will be also profitable for you, contact us. See also: International tax planning with Estonian companies.

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