Whether you have a company or companies dividend income is always painful! There is a way to avoid such income and usually this can be achieved via your own tax residencty status. It is a global common tax practise to tax the individual tax payers are the country where they reside most of the time. Most international income tax offices use the 183 days rule (half a year) where if you live in a country for more than 183 days then you are considered to be tax resident of that country and you are taxed based on that countries tax laws.
This allows some space for manuvre and tax planing opportunities as explained below.
As an individual you can choose to lieve in a tax free juristiction like Dubai, BVI, Seychelles, Middle East and as a result you will be subject to, if any, tax laws of those jurisictions (countries). Since those countries / juristictions are tax free then you are not to pay any taxes on your worldwide dividend income.
Businesspeople by relocating there can enjoy undisputted tax free inocme from their worldwide investements.
But what exactly does this mean?
This mean that although dividend incmoe or passive income may be taxed at source (taxed in the country the Company belongs to) when that income is send to the shateholder who lives in Dubai or any other tax jurisiction this oncome will not be taxed again simply because the tax residency of this shareholder is in a tax free zone.
If the dividend or other passive income is generated in tax jurisictions where it does not get deducted at source and then paid to shareholders who live in tax free zones then again this income is 100% tax free.
Example Cyprus
Cyprus has introduced the non dom tax law where a person is effectivly a tax resident in Cyprus under this law but is except from Special Defence Tax. As dividends received by Cyprus shareholders are taxed only subject to Special Defence Tax, an international person relocating to Cyprus will be enjoying world wide tax free dividends.
Cyprus example follows other european countries who have their on sets of rules and which can render the dividend income received on a global basis tax free. Note: if this income is taxed at source that tax can not be avoided.
Note: Always consult with local tax experts and consultants like ourseleves as tax laws frequently change and commonly have timeframes for their appropriate application.
Whether you have a company or a company's dividend income is always painful! There is a way to avoid such income and usually, this can be achieved via your tax residency status. It is a global common tax practice to tax the individual taxpayers are the country where they reside most of the time. Most international income tax offices use the 183 days rule (half a year) where if you live in a country for more than 183 days then you are considered to be a tax resident in that country and you are taxed based on that country's tax laws.
This allows some space for maneuvering and tax planning opportunities as explained below.
As an individual you can choose to live in a tax-free jurisdiction like Dubai, BVI, Seychelles, Middle East, and as a result you will be subject to if any, tax laws of those jurisdictions (countries). Since those countries/jurisdictions are tax-free then you are not to pay any taxes on your worldwide dividend income.
Business people by relocating there can enjoy dividends-free income from their worldwide investments.
This means that although dividend income or passive income may be taxed at source (taxed in the country the Company belongs to) when that income is sentenced to the shareholder who lives in Dubai or any other tax jurisdiction this income will not be taxed again simply because the tax residency of this shareholder is in a tax-free zone.
If the dividend or other passive income is generated in tax jurisdictions where it does not get deducted at source and then paid to shareholders who live in tax-free zones then again this income is 100% tax-free.
Cyprus has introduced the non-dom tax law where a person is effectively a tax resident in Cyprus under this law but is except worldwideSpecialworldwide special Defence Tax. As dividends received by Cyprus shareholders are taxed only subject to Special Defence Tax, an international person relocating to Cyprus will be enjoying worldwide tax-free dividends.
Cyprus's example follows other European countries that have their own sets of rules and which can render the dividend income received on a global basis tax-free. Note: if this income is taxed at the source that tax can not be avoided.
Note: Always consult with local tax experts and consultants like ourselves as tax laws frequently change and commonly have timeframes for their appropriate application.
There are plenty of tax free jurisdictions (locations) you can set up a company which will be used for business.
Such jurisdictions include amongst others:
What effectivly this means is that the sales of your company (instead of receiving your income directly you will be channeling your income via your offshore company) will not be taxed in this juristiction. It is also the case that the dividend income you will receive from this company will also not taxed from this jurisction.
This solution ensures that all your income is tax free in these juristictions. However you must declare your worldwide income in your country of residency and there it is very probable to be taxed at your local, dividend tax rate.
Issues with these solutions: Banking could be an issue so always consult with an expert to identify and illustrate potential banking issues you may experience.
Cyprus companies can also bee 100% tax free if the activities they perform are outside the scope of taxation which means they are excluded for tax purposes. If the shareholders of these companies are non Cyprus tax residents or Cyprus Tax residents but non domiciled then again the dividend payments to these shareholders are also tax free.
100% Cyprus Tax Free Companies are commonly used for the below transactions:
Issues with these solutions:
1) Set Up - No issues
None. As these income streams are explicitly excluded from tax these solutions are 100% tax free.
2) Banking - No issues
Banking is not an issue as Cyprus is 100% fully fledged and compliant EU Member hence there are no foreseen banking issues within or outside Europe.
For instance in Cyprus the tax law stipulates that a Cyprus company is taxed at the jurisiction where its management and control is. As a result you can set up a Cyprus company which is an EU company and NOT an offshore company and use as directors and management individuals that reside in tax free jurisictions such as Dubai, Delaware, BVI etc.
What this means is that although the company will have to comply with the local (in this case Cyprus) filing requirements, it will not be Cyprus Tax Resident and will not have the obligation to prepare and submit the local Company tax form (IR.4).
1) Set Up - No issues.
Cyprus companies are European Companies hence no issues as to their usage and trade within or outside of Europe.
2) Banking - No issues.
Read about the characteristics of offshore juristiction
Read about Cyprus Personal Tax Free Status - Non Domicile Status