Letter and Pen

Advisory practice: What are the legal consequences of add-back taxation?

In today's issue, we look at the legal consequences of add-back taxation.

The demand for the establishment of foreign companies has increased considerably in recent years. When setting up a foreign company, care must be taken to ensure that this company is not subject to add-back taxation under the applicable foreign tax laws. Otherwise there will be considerable disadvantages.

There are extensive regulations in many countries. In Germany, regulation is governed by the Foreign Tax Act and in England, for example, there are Controlled Foreign Company Rules (CFC). Similar regulations also exist in other countries.

The following questions need to be answered during the consultation:

What are the legal consequences of add-back taxation?

The add-back taxation triggers the taxation of the operating profits of the foreign company in the shareholder's country of domicile. The profit of the foreign company is "added" to your income and taxed at the usual income tax rate.

It should be noted that a fictitious profit estimate is often used and not the actual profit of the company.

Who is affected by the legal consequences of add-back taxation?

1 . you are affected by the add-back taxation if you hold more than 50% of a foreign company. You are therefore controlling.

2. your foreign company cannot prove that it is active in the country of domicile.

3. your foreign company is located in a "low-tax country" .

It is irrelevant whether or not the shareholder's country of domicile (holding company's country of domicile or your country of residence) has signed a double taxation agreement (DTA) with the country of domicile of the foreign company.

With a view to the moderate cost of using our business addresses on 5 continents in currently 64 major cities, we address entrepreneurs on their way to global entrepreneurship. We create clarity through positioning.

When setting up a foreign company, every entrepreneur is made aware of the need to "build up substance" as part of our structuring advice without being asked. We make it clear that many competitors completely neglect the issue of "building up substance" in the context of international tax law.

In the next series, we will look at how to strategically avoid add-back taxation.

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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