Offshore Taxes

Offshore tax exempt entities are popular because of their tax privileges and ability to protect assets. Generally, offshore entities are exempt from all the local taxes that are levied on the local public of the country of incorporation and benefit from exemptions from offshore taxes, withholding tax, taxes on gifts, inheritance and capital gains. The offshore tax privileges that are obtained from owning an offshore tax free company and bank account are due to ring fencing whereby offshore companies, like Belize companies, are prohibited from providing their services to the residents of the jurisdiction of registration.

Mainly because offshore companies are exempt from taxes, the offshore taxes that an offshore company may be required to pay are normally imposed by the country where the company’s owners and directors reside and business is conducted. If business operations take place in various countries, then the company is subject to pay local and offshore taxes in each of those countries as may be the case.

Up till 1995, residents of the EU with offshore bank accounts in member EU countries were able to take advantage of the offshore tax free privileges that were delivered by offshore banks in those countries, but this came to a halt when the EU Savings Tax Directive was passed and affected about 39 countries, which include EU Dependencies in other parts of the world. Under the Directive, a withholding offshore tax was levied on the interests earned by individuals, not corporate bodies, on their offshore savings.

In countries where foreign-sourced income is taxed by tax authorities such as the IRS in the United States, HM Revenue & Customs in the United Kingdom and the Canada Revenue Agency, comprehensive systems are developed for handling international income tax issues through the application of offshore taxes. Recently, the IRS took extreme steps to tax the savings of US citizens and corporations held in offshore tax free accounts, and this stemmed from the U.S’s policy on taxing the foreign income and funds. Offshore taxes like this, however, are controlled to prevent people and companies from being double taxed by both their countries of residence and where the foreign-sourced income is earned by tax treaties.

The renewal fee payable by offshore companies is not a form of offshore taxation. Offshore company renewal fees must be paid annually are merely maintenance fees including stamp duties that are payable to the local government of the offshore incorporation. By paying its annual offshore renewal fees, an offshore company maintains legal good standing and avoids being struck off the Register if payment is not made over a period of years. The grace period given to offshore companies before being struck off varies from one offshore tax haven to another. Offshore tax fees companies are also liable to other fees and penalties if they fail to comply with the laws of both the country of incorporation and where business is carried out. These fees and penalties are applicable if an offshore tax exempt company engages in the trade of illegal goods and services, using a company name that was revoked or considered misleading by the Registrar, including other illegal activities such as reducing the company’s stated capital when insolvent and purchasing or acquiring own shares when insolvent.

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