How to SAVEONTAX?

Tax savings can be made by utilising offshore companies and offshore financial centres which have become more widely used in recent decades.  This due to easy accessibility, lower costs of company formation, and an increase in the number of offshore company formation providers. An ever-changing economic environment and the introduction of large on-line e-commerce operations have driven even more businesses to ‘go offshore and saveontax.

Globalisation has forced entrepreneurs, business persons and corporations to seek advantages over their competitors. After labour and administration costs, tax is one of the largest and most despised variable costs which many wish to rightly or wrongly minimise and avoid. 

Tax avoidance, is a legitimate term describing how individuals can saveontax by reducing tax liability. This can be achieved in a number of legitimate ways. To take an extreme example, several car manufacturers in Western Europe moved their entire operations to Eastern European countries who were offering various tax incentives including lower tax rates and tax holidays. An added incentive to relocate was the available semi-skilled workforce who were prepared to accept lower wages.

Tax evasion is a term which describes the deliberate attempt to evade tax by various illegal methods which may involve fraud, changing identities and using concealment. This, with the intention of reducing tax to the minimum or not paying any tax at all.

Individuals too can legitimately saveontax by reorganising their business affairs in such a way that their tax liability in their home country is reduced or eliminated altogether. 

Three basic changes to an individuals or a businesses tax situation can be made to using tax advantages offered through lower taxed jurisdictions or nil tax offshore centres. These are:

•    change of tax residence, 
•    re location of the geographic source of income
•    restructure by careful tax planning of the entire business operation

An offshore Financial Centre is usually a jurisdiction that imposes no Corporation tax, income tax, inheritance tax, capital gains tax, or wealth taxes on corporations and individuals. In conjunction with businesses located in on-shore or higher taxed countries, offshore centres such as Gibraltar can be used to minimise overall global taxation. This can be achieved in a number of ways, one of which is to use double tax treaties.

Cyprus has signed tax treaties with over 50 countries. Cypriot companies registered for tax and trading in Cyprus currently pay 10% corporation tax and can legally and transparently engage in trade all around the world making use of tax treaties to avoid double taxation. If trading in the EU Cyprus companies need to register for VAT and make quarterly VAT returns. For most smaller ‘would be’ entrepreneurs managing a Cyprus company is expensive requiring audited accounts and of course the payment of 10% of the company’s profits in tax to the Cypriot Authorities. 

Most smaller businesses and entrepreneurs favour Gibraltar as it is an offshore financial centre which is also a member of the European Union (like Cyprus) but outside the customs union and outside the scope of VAT. Gibraltar companies cannot register for VAT and administration is lighter with non-resident Gibraltar companies requiring only to submit a simple un-audited balance sheet to Companies House annually. 

Because of the OECD’s desire to create a level playing field and tax transparency throughout the world, Gibraltar is also engaged in arranging tax treaties with various countries. Gibraltar, in agreement with the EU, will in 2010 introduce a 10% Corporation tax rate band and companies that trade physically in Gibraltar are tax liable.
However, Non-resident Gibraltar companies, (or offshore companies) satisfying, non-resident rules will be exempt from Gibraltar taxation and will still enjoy zero taxation. 

Gibraltar is attractive to an increasing number of entrepreneurs and business people located in Northern Europe who wish to trade internationally from nearby jurisdiction. With low incorporation and annual running costs Gibraltar is a great location from where its possible to saveontax.

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Information about the USA and Tax Treaties and Agreements

August 2008
The U.S. and Malta signed a new tax treaty on August 8, 2008.
The treaty was signed by U.S. ambassador to Malta and Malta finance minister.
According to the U.S. treasury press room the agreement provides for elimination of tax withholding for cross-border dividend payment to pension funds.
The withholding tax rates for other dividends are 5%/15%.
The withholding tax rates for interest and royalties are 10%.
The treaty will enter into force after ratification by both countries.

December 2008
The U.S and New Zealand signed on December 1, 2008 a new protocol updating the tax current tax treaty between the two countries.
The protocol relates, inter-alia, to excluding U.S. social security and unemployment taxes from the "taxes covered" article 2 of the treaty.
The new tax withholding rate for royalties between the two countries will be reduced from 10% to 5%.
The protocol will enter into force after ratification by both countries.

February 2010
The U.S. and Hungary signed on February 4 , 2010 a new double taxation treaty replacing the previous 1979 treaty.
The new treaty includes , inter -alia , maximum rates of withholding taxes , 15% for dividends and interest , zero tax for royalties.
The new treaty is expected to enter into force on 1.1.2011 after being ratified by both countries.

June 2009
The U.S. and Luxembourg signed on May 21, 2009 a protocol amending the current income tax treaty between the two countries to allow for more robust tax information exchange.
The treaty which incorporates the OECD tax treaty standard on exchange of information for tax purposes will enable the U.S. to seek information from Luxembourg on federal taxes, and both civil and criminal matters , regarding taxable years beginning on or after 2009.

April 2009
The U.S. and Gibraltar signed on March 31, 2009 an agreement allowing for exchange of tax information between the two countries.
The Tax Information Exchange Agreement, TIEA , was signed in London ahead of G20 Leaders Summit.

The TIEA agreement provides the U.S. access to information needed to enforce U.S. tax laws, including information related to bank accounts in Gibraltar. The new agreement is in line with president Obama's 2010 budget calling for commitment to reduce international tax avoidance.

NOTE: Keylink Consutancy LLC in conjunction with a non resident Gibraltar company and other corporations advises its clients to open bank accounts in Malta who have not signed the TIEA agreement with the USA


January 2009
The U.S. and France signed on January 13, 2009 a protocol updating the current 1994 income tax treaty between the two countries.
The protocol has some significant changes to the current treaty, including, under certain terms, exemption from tax withholding of dividend and cross border royalty payments.
The protocol also provides for mandatory arbitration for cases not resolved by the two authorities within a specific period.
It also deals with preventing "treaty shopping", in case of inappropriate use of a tax treaty by third country residents.

August 2008
The U.S. and Malta signed a new tax treaty on August 8, 2008.
The treaty was signed by U.S. ambassador to Malta and Malta finance minister.
According to the U.S. treasury press room the agreement provides for elimination of tax withholding for cross-border dividend payment to pension funds.
The withholding tax rates for other dividends are 5%/15%.
The withholding tax rates for interest and royalties are 10%.
The treaty will enter into force after ratification by both countries. 

December 2008
The U.S. and Liechtenstein signed on December 8, 2008 an agreement to allow exchange of information of tax matters between the two countries.
The tax information exchange agreement, TIEA, will provide the U.S. with access to information needed to enforce U.S. tax laws, including information relating to bank accounts in Liechtenstein, and access to information relating to non residents in both countries.
The aim of the information can be for tax purposes or for investigation that could constitute a crime under the law.
The TIEA allows the U.S. to get information relating to 2009 onwards, or even information created before 2009, provided that the request relates to a post 2008 year investigation.

 

More information about Treaties

The United States has tax treaties with a number of foreign countries. Under these treaties, residents (not necessarily citizens) of foreign countries are taxed at a reduced rate, or are exempt from U.S. taxes on certain items of income they receive from sources within the United States. These reduced rates and exemptions vary among countries and specific items of income. Under these same treaties, residents or citizens of the United States are taxed at a reduced rate, or are exempt from foreign taxes, on certain items of income they receive from sources within foreign countries. Most income tax treaties contain what is known as a "saving clause" which prevents a citizen or resident of the United States from using the provisions of a tax treaty in order to avoid taxation of U.S. source income.

If the treaty does not cover a particular kind of income, or if there is no treaty between your country and the United States, you must pay tax on the income in the same way and at the same rates shown in the instructions for the applicable U.S. tax return.

Many of the individual states of the United States tax income which is sourced in their states. Therefore, you should consult the tax authorities of the state from which you derive income to find out whether any state tax applies to any of your income. Some states of the United States do not honour the provisions of tax treaties.

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