In today's issue, we look at a tax nightmare and how to avoid add-back taxation.
A foreign company that is classified under the CFC rules is subject to add-back taxation in the country of residence of the shareholder of this company.
As already explained, the profits of the foreign company are subject to income tax in the shareholder's country of residence for shareholders who are natural persons.
Our strategic consulting approaches for avoiding inbound taxation:
1. be sure to transfer the registered office of the senior management to the country in which your foreign company is based!
Not all decisions have to be made in the country of domicile, but the local director of your foreign company must be able to sign contracts for the company. Make sure that you are always present in the country of domicile and show that the overall management of the foreign company is carried out locally. Part-time employees should be given an official title, for example "Local Manager". There must not be a "place of management" in the country of residence.
2. no controlling influence: If you hold more than 50% of a foreign company, you have a controlling interest for the purposes of tax law. It is irrelevant whether a trustee manages the company. Your shareholding in a foreign company must therefore not exceed 50%. Family members (not related by marriage or marriage partners) who live outside the European Union can also hold at least 50% of the company shares in order to avoid add-back taxation. Account access can be used to ensure control of the company.
3. participation in normal economic life in the country of domicile:
If you sell or purchase products and services in the country in which your foreign company is based, participation in normal economic life is proven.
4. demonstrate economic reasons for the use of your foreign company:
If you import goods from China to our Hong Kong location, you can of course prove the necessity of using a foreign company.
5. generate active income! What is active income?
6. Provide evidence of a commercial establishment.
Physical office space or a production facility on site for at least 12 months is helpful. However, a registered office alone is not enough.
Local availability by telephone and local employees who are salaried or freelance avoid triggering add-back taxation.
With a view to the moderate expense of using our business addresses on 5 continentswe address entrepreneurs on their way to
global entrepreneurship. We create clarity through positioning.
If a foreign company is established, every entrepreneur will be informed by us, without being asked, of the requirement to
"building up substance".
We make it clear that many competitors completely neglect the issue of "building up substance" in the context of international tax law.
P.S. It follows: "The status of low-tax countries in the European Union from a German perspective."
How to set up a successful international company and do everything right from a multicultural perspective?
? How my team and I support your journey as a global entrepreneur?
➕ Location consulting
- Recording and analysis of the current situation
- Positioning your company
- Optimization of the company website
➕ NEW-WORK workshops and training courses
☑ Would you like to work with me and my team on your strategy for successful internationalization or use us for your company? Contact me
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