Want to avoid paying taxes? Destinations to choose from
October, 29th 2008
Benjamin Franklin once said, Nothing is certain but death and taxes. We cannot help you avoid death but there are many ways to avoid taxes. Natasha Parekh is touring tax havens to find you the right destination to take a tax holiday.
At last count there were about thirty tax havens world over, we cannot take it to all of them but we can start with a no tax haven. Bahamas, Bermuda, Cayman Islands and Dubai, welcome to the land of no taxes; no income tax, no corporation tax, no capital gains tax and no inheritance tax either.
Then there are countries that work as low tax haven. That is they do impose taxes, but some pay income from the outside and some offer concessions of a certain kind of income. For that travel to Hong Kong, Singapore, Mauritius, Cyprus, Switzerland, Belgium and Netherlands
So where do you go, it is horses for curses.
Sudhir Kapadia, Tax leader- TCE, E&Y said, For example, again Switzerland, depending on the cantons which you locate your operating company can offer you something like 7% to 9% of income tax as opposed to a normal rate of 30% plus in a typical tax paying country and again if you look at a country like Singapore, the under trading company regime, you can actually get a result which is lets say 6% to 8% of income tax on the trading income arising out of operations in Singapore. In Ireland it could be about 12.5% based on the particular tax regime, so what these countries offer is their normal rate of tax is whatever it is, it is 30% or 25% but they have special regimes carved down within their tax loans to attract certain kind of activities in those countries.
Pick your destination based on either business activity or financial structure.
Jayant Jain, Exec Director, PwC said, If you want to make an investment then you would like to look at Netherlands or a Cyprus or a Belgium company for routing your investments for your trading company probably you would like to consider Dubai as a country or Isle of Man is a country where there is no tax on the receipt of your income.
Here is how some of the major holiday destinations stack up.
Mauritius is the oldest tax haven but the tax treaty is now under negotiation. Here is an interesting one, Singapore has been nicknamed the Asian Switzerland, Cyprus has no anti-abuse provisions or restrictions built in the treaty with India which means you dont have to invest any fixed sum to avail tax benefits, while Netherlands offers participation exemptions which means that the Netherlands based holding company with subsidiaries in other EU countries is exempt from paying taxes like dividends and capital gains tax. Switzerland has stringent secrecy laws making it tough for international governments to access data and Ireland is known to be a hub for cross-border leasing, for example, an aircraft manufacturer like Boeing set up a company in Ireland to set up tax benefits and then lease out aircrafts to airline companies like Jet and Kingfisher in India.
So thats whats on offer and now it depends on what your objective is.
Objective one, to locate a group holding company it needs low or no tax on capital gains and dividends, no or low withholding tax and a robust financial environment incase the holding company needs listing. So, where do you go Mauritius, Singapore, Netherlands, Cyprus or Bermuda?
Jain: More or less they provide the similar tax stream, all these countries doesnt tax the dividend income and it doesnt tax the capital gain also but the BVI says that a country that allows a cross-border merger, so you would like to look at those two countries which permits cross border merger so you can get back money back into India.
Kapadia: Opt for countries or jurisdictions which have tax treaties for instances if you take Mauritius and India for instance from an Inbound perspective, there is capital gains exemption from future exits from the India investments and as opposed to that if the investments in India has come in directly from lets say Cayman Islands then there is no capital gains tax exemptions in terms of future exits.
Ajay Gupta, Fox Mandal Consulting said, Objective Number Two, An off shore private promoter holding company, it means secrecy, secrecy and yes no tax on capital gains or dividends. BWI Islands and Isle of Man they are good tax havens so far as keeping your money is concerned and if its like one Member Company and your data not being in public domain and stuff like that but as far as financings are concerned they are not known for financial markets as the means of raising finance.
Objective Number Three, Locating a special purpose vehicle for M&A activity, the SPV needs to be able to raise money for the acquisition or tax sops on debt funding.
Kapadia: There are many countries for example USA, Germany, Belgium subject to separate conditions where if you setup a special purpose acquisition company in that jurisdiction and use that special purpose company to make the investments in the shares of the target company. Then the borrowing cost at the level of the SPV can be set off against the income of the operating company under tax consolidation rules.
Objective number four Business activities that needs special tax treatment. For instance pharmaceuticals research and development.
Kapadia: Take an example, Switzerland, because of the natural pharma concentration pharma R&D concentration to be specific in that country the linkages of the universities etc, combine with a fairly benevolent tax regime for instance royalty income in Switzerland can be taxed as low as between 7-9% and all depends on the contemn which you house in. So that gives you an ability to exploit whatever outcomes you get from your R&D efforts.
So pick your fancy. The alpine beauty of Switzerland or the deep blue waters of the Bahamas, of course there should also be other factors that should influence your pick of tax havens. Political stability, infrastructure and standard of living after all, you may have to visit often and your employees may even have to live there.