Offshore Companies .

Do they still work to Minimise Tax and Protect Assets?

We are living in a world where the security of wealth is more at risk than ever before.

Yet there’s so much media hype about Australians taking money or business overseas. This has scared many people off structuring their business offshore, or moving their assets outside Australia.

That’s why before using offshore companies, it’s so important to get the right advice.

Finding the right international tax expert to help you with offshore tax planning is a critical challenge, and important exercise.

The reality is, we’re paying far too much tax in Australia!

Take these facts for instance …

• KPMG studies show bracket creep alone will increase tax by as much as 60% for people in the average income range)
• According to figures once released by the National Taxpayers Association, the average Australian can pay as high as 69% tax when you add it up
• We’re the 8^th highest income tax in the world for high income earners, where a person earning an income of $400,000 pays nearly 40% tax (http://afr.com/news/policy/tax/top-rate-of-49pc-would-make-australia-8thhighest-tax-nation-in-oecd-20140505-iucmr)

When you consider medicare levy, GST, fringe benefits tax, luxury tax, fuel tax, excise duties, and all the other taxes, it isn’t hard to pay more than 50% tax …

The good news is, there are many ways to structure yourself offshore for asset protection and privacy purposes

The big question is … are you willing to live outside Australia?

If you live in Australia, your options for offshore tax planning are far more limited. Under Australian tax laws, residents are taxed on all income, whether earned in Australia or overseas. Whereas non-residents (who live outside Australia) are only taxable on income sourced in Australia.

Although there are some opportunities to do offshore structuring for Australian residents, these are very limited.

The fact is, the government are really targeting offshore tax planning. You just need to look at the media and all the hype going on. It ultimately comes down to the fact the government is running out of money, and don’t want to lose their power. Understandable, but remember … someone who is scared is a deadly enemy.

That’s why it’s CRITICAL to only use international tax consultants who keep you within the law while getting you the maximum amount of tax and privacy benefits for the profits in your international business.

To give you an example of poor international tax advice I have often heard it said …

“If I just set up offshore structures and don’t bring the money back into the country I won’t pay tax in Australia.”

This is a myth many Australian have. Unfortunately this is not only incorrect, but can get you into a lot of trouble.

If you use many international tax services providers they’ll say something like …

“ … just set up an overseas structure, use a nominee director, and you won’t have to declare the income”

or

“ … unless you bring it into Australia, it won’t be taxable”.

From there, if you go ahead and set up an overseas structure based on their advice, you are breaking the law.

By choosing to live in Australia, you’ve chosen to accept limitations in what you can do about your tax and structuring. You have to take responsibility for your choices.

The fact is, since 1991, the ability to use offshore tax planning to limit your Australian taxes is limited …

Until 1991, income in offshore structures was exempt from Australian tax. Since that time, the controlled foreign company (CFC) and transferor trust rules have put a stop to that. The Tax Office introduced these laws to protect their revenue, and make Australians pay tax on their overseas income.

This is all being driven by the OECD, who are bullying and pressuring the smaller countries in the world.

“Does your advice change if I’m willing to move offshore and become a non-resident of Australia?”

Yes it does.

The first thing is to ensure you’re a non-resident.

As well as case law on the topic, the ATO have released Income Tax Ruling IT 2650 on the issue of residency. What it says is if you go overseas thinking you’re a non-resident, and it turns out you’re not a non-resident in the eyes of the ATO, you’ll get a rude shock down the track. You won’t only have to pay a huge amount of tax, but you’ll end up with heavy penalties.

This is where it’s critical having quality international tax advice and an international tax consultant who really understands Australian and international tax.

What we recommend is you have a written opinion confirming you’re a non-resident … ideally from an Australian international tax specialist. This will be your salvation if the ATO audits you and hits you with back taxes. It removes the risk of penalties.

If you really want to be safe, you can always get an ATO Private Ruling.

The second thing is, once your residency is sorted out, you want the best possible advice on offshore jurisdictions and the most appropriate way to structure. There are many choices, and you want to ensure you make a good choice.

What are some good jurisdictions to set up offshore companies?

Well … there are over 200 in the world.

Some which I particularly like are:

• Hong Kong. For example, assume you’re doing business in the US. You can set up a HK company which is the billing company, which invoices clients in the US. In turn, you pay a US company to service the clients, and take care of them day to day. This is similar to what Apple and Google and many of the multinational companies do. The only drawback with Hong Kong is it does not have a tax treaty with Australia or USA.
• BVI or Seychelles. Both these countries are tax free. They can be very effective in certain situations, eg. as a second tier structure as part of an offshore structuring plan. (They don’t assist much for Australian residents, other than asset protection and privacy).
• Panama, Thailand or Malaysia. I have grouped these together, as these are great jurisdictions for Australians who wish to set up an offshore residency and move overseas, ie. so you have a permanent place of residency to comply with the ATO requirements in Taxation Ruling IT 2650. You do need to get proper advice before doing this as requirements are always changing. Panama is also known well known for its foundations.
• Singapore. This has a low tax rate and is a very strong country with clean conditions, and great benefits. It is not on the radar as a tax haven, as like Hong Kong, it is a common country to do business in. Unlike Hong Kong, it benefits from having access to tax treaties. This can be very effective for tax planning for international business.
• Malta. This has a low tax rate, and benefits from having access to tax treaties (unlike Hong Kong). This is effective for international tax planning. That said, western governments are now looking more closely at Malta, as has become a more popular tax haven. So you should be very careful. Indeed any kind of tax haven is now looked at closely. This is why in my view international tax planning with the use of treaties and special exemptions is far more effective.
• Cook Islands. For asset protection and privacy, the Cook Islands offshore trust is one of the most powerful structures in the world. The Cook Islands government provides various incentives to encourage people to invest or set up structures in the Cook Islands, and Americans especially love it. Well worth looking at, depending upon what you’re doing.
• New Zealand. This may sound surprising, but New Zealand trusts can be very effective for Australian residents for asset protection and second mortgages on properties or other assets while not drawing too much attention or being on the radar. In saying this I stress we are NOT talking about tax minimisation as the ATO are aware of tax schemes used by Australians with New Zealand trusts. Rather New Zealand is a great jurisdiction for the more nervous investor who wants privacy or security of their wealth and doesn’t want to deal with an offshore jurisdiction they don’t understand.

All that said, don’t do any of these without getting quality advice, ESPECIALLY if you’re still living in Australia.

In fact, apart from a few tax deferral benefits using treaties, and the CFC legislation, as an Australian resident, you’d only structure offshore for privacy or asset protection reasons, not for tax planning, as a rule.

Ultimately the best international tax planning or international tax advice comes from using exemptions or treaties, with carefully chosen jurisdictions. Using obvious tax havens is asking for trouble, and as we have seen, one by one the OECD and western governments are hunting them down.

So you are better off to use stable jurisdictions, which pay some taxes, and move overseas and become a non-resident, especially as an Australian resident.

In summary …

If you’re willing to move offshore and be a non-resident, need good offshore tax planning, and can generate income from multiple sources, setting you up offshore is a relatively easy exercise. If not, it is more challenging, and in only limited situations can we assist you in setting you up.

Choosing a jurisdiction to set up in is never easy, because laws change regularly, and what works one week won’t necessarily work the next week.

How Do I Get in Contact With You?

Call us on 1300 669 336 or click here to organise a free no-obligation chat with an international tax specialist.

We won’t charge you unless we’re confident we can assist.

About the Author

Written by Warren Black head of the Wealth Safe international tax planning division.

Warren Black is the head of the Wealth Safe international tax planning solutions division. With over 26 years experience in tax planning, including 10 years at the Australian Tax Office, and being the ONLY recommended specialist in Australia on Lance Spicer’s list of highly recommended international tax planning experts (Lance Spicer is a top authority on offshore structuring and planning, and going under the radar), Warren knows the tricks of the trade to ensure you only pay the tax you legally have to, and use offshore structures in an effective way to get results and not have any trouble.

Warren knows the tricks of the trade so you only pay the tax you legally have to and you take advantage of the international tricks available to build your wealth faster.