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Cross-border Structuring
Every time an individual or a company crosses an international border there is not only the opportunity for financial planning but invariably it is imperative. Therefore we urge you to seek professional financial planning advice. You will be most likely to be able to save substantial taxes by taken action in advance. We will give you some simple examples.
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Using tax treaties for your business
When your business trades internationally or establishes overseas subsidiaries, there are many tax issues to consider and invariably your business can save tax by structuring the way that it trades and holds overseas subsidiaries.
Certain countries, notably the Netherlands, Cyprus, Mauritius and lately Brunei Darussalam, have tax treaties with other countries that reduce withholding taxes on dividends, management fees and loans to levels lower than many other countries. Therefore you would establish an intermediary holding company to own your shares in that overseas country.
Mauritius is the largest investor in India and one of the largest in China but the Mauritian companies are intermediary holding companies owned by US, UK and European parents.
The Netherlands has the most extensive treaty network globally and has its own unique participation exemption system whereby profits remitted to the Netherlands are not subject to Netherlands corporation tax in most cases and providing the holding exceeds a threshold (normally 20%) and is an "active" holding (not part of a share portfolio).
Cyprus has the most extensive treaty network with the former Soviet Union and Eastern Europe and normally a Cypriot intermediary holding company will result in tax savings.
You should take professional advice if you are crossing an international border to trade or establish subsidiaries. We suggest that you start by contacting us for an initial discussion.
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Purchasing Property Overseas
You reside in the UK and have decided to buy a property in the Spanish sunshine, perhaps as a holiday and later retirement home. You need to consider inheritance and gift taxes, wealth tax, income tax, capital gains tax, property tax, stamp duties and notarial fees.
Immoveable property is taxed for inheritance tax purposes on the death of the owner by the country where that property is located and the amount of tax depends on the relationship between the deceased and the beneficiary with rates exceeding 80% . Should the deceased be resident and domiciled in the UK, then that property could also be liable to UK inheritance tax (40% over net worth of £270,000) in addition to the Spanish inheritance tax with no set off of the Spanish tax against the UK tax. Simply put, the tax could exceed the value of the asset.
That property in the sun will incur taxes and fees of about 10% of the cost price at the time of purchase, and changing the way that you own the property will incur the same level of charges. Planning your purchase in advance is crucial.
Should you decide to live more than 180 days in a calendar year in Spain, you will become liable to Spanish taxes on your worldwide wealth and assets and that includes income, capital gains, wealth and inheritance taxes. Placing cash in an offshore bank account does not remove those assets from their liability to all these Spanish taxes. It is essential to structure how you hold your assets to minimise Spanish taxes. The liability is irrespective of holding "residencia" (residential permit). Before you ask "how will the Hacienda (tax office) know", modern technology allows the Hacienda to check utility usage and claim accordingly - as the French already do.
You will remain domiciled in the UK until you obtain a letter from the UK Inland Revenue that accepts that you are no longer domiciled and to obtain that letter you must convince the Inland Revenue of no intent to return. Buying a burial plot or telling relatives of your wish to have your ashes scattered on the South Downs is still an intent to return! As long as you remain domiciled in the UK, your estate is liable to UK inheritance taxes at 40% on any value that exceeds the threshold (£270,000 presently). If you move to Spain, you may give up your domicile after 5 or 6 years.
Similar considerations apply in most other countries and some, like Germany, can be even worse because the Finanzamt (German tax office) will claim worldwide taxes if you spend as much as four weeks in a German property.
The solutions to these tax issues vary according your nationality, residency and domicile and to the country where the second property is located. You need to discuss these matters with us and we will propose solutions in conjunction with your own professional advisors.
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