The Most Common Question About International Tax
I meet people all over the world in all different lines of business and the one question I get asked the most is:
“What jurisdiction do you recommend?”
It comes in various forms:
- “What jurisdictions do you normally work with?”
- “What’s the best jurisdiction for low tax?”
And so on.
It represents a really common misconception and an intrinsic bias you’ll find among most offshore service providers, incorporators, and planners.
Let’s start here: anyone who suggests a specific jurisdiction without first asking in detail about the particulars of your situation is giving bad advice.
The Right Jurisdiction for You
The correct answer to the question “What jurisdiction is best?” is “It depends”.
Of course, people are frustrated and hate hearing that answer. They want simple answers and simple answers will rarely be the best answer.
I care about the best result and I imagine so do you or you wouldn’t be reading this.
Here’s what most offshore service providers, incorporators, and planners do.
They learn about, maybe get established in, and develop relationships in a particular jurisdiction and then push everyone there because they are comfortable with it — not because it is best for the client.
It’s a horrible way to do business.
The correct way, in my opinion, is to be jurisdiction-agnostic.
We look at what’s best for you and then we go set up based on your needs not based on some preconceived notion.
Why is this so important?
Well say for example you’re an American. The rules for repatriation of income are different than if you were a Canadian.
Or say you’ve got one business partner in Spain and another in Germany or Thailand. Now you’ve got two different sets of rules you have to account for each of which is different.
Each country has a unique network of tax treaties, they have unique CFC (controlled foreign companies) and transfer pricing rules, they have different corporate residency rules… the list goes on.
Not only will your personal residency make a difference in what jurisdiction is best for you, the nature of your business will.
For example, say you need to accept online credit card processing. Well then having a company in the Caribbean probably isn’t so great because processing there tends to be expensive and limited.
Europe might make more sense. But maybe you’ve got clients in a particular region and this again will change the best results.
But maybe you’ve got clients in a particular region and this again will change the best results.
Usually, we want to consider:
- Tax treaties
- Local cross-border rules in your home country
- Infrastructure needed
- Staff needed
- Client locations & client relationships
Among other factors.
Bottom line: do not trust someone who gives a carte blanche jurisdiction recommendation.
Best Jurisdiction is Facts Specific
Let’s go back to those questions I get because there’s another very dangerous flaw.
I remember being in Las Vegas for a conference, partying at 3 am in the bungalows at Marquee.
All kinds of people were interested in international tax, and since I was the resident expert, they were coming up to me wanting to connect asking questions.
They fell victim to a common fallacy, which is the idea that where you incorporate determines where you are taxed.
This often isn’t true and comes back to our 3 Pillars of Residency.
So, this one guy half drunk comes up to me asking about Mauritius.
Now, Mauritius might be an ok jurisdiction. It has the advantage of tolerable local banking, a decent international reputation, and costs are a little high — but not insane.
So what about the facts?
If the facts of how your company is operating don’t fit the structure you might be fully taxable in your home country, like Australia or Germany, regardless. And then how have you benefited?
What if you need your staff in India?
What if you are buying property in New Zealand?
What if you need government contracts in Italy?
What if you want to raise money from investors in Silicon Valley?
Do you start to see how this might become an issue?
So, is Mauritius good? It might be, for the right person it could make sense and for a lot of people— it won’t.
Tell me about you, your business, your goals then let’s discuss jurisdictions.
A Lot Are Pretty Interchangeable
In the world of offshore, countries are competing for your business.
In order to do this, they are constantly coming up with changes to company rules, tax rules, regulations to help with reputation, signing various treaties, etc.
The British Virgin Islands will come up with a change and Anguilla or UAE RAK will copy it.
Nevis will make a change to their trust rules and Belize will copy it. Then a few years later the Isle of Man will improve their rules to compete.
The result is, in a lot of cases, a lot of jurisdictions are pretty similar for many people’s individual circumstances.
Whether you form a company in:
- Marshall Islands
- St. Vincent
Might not make a big difference.
It could, which is how come we do a fact-specific analysis. However, very often a few jurisdictions are more or less the same.
In other words, aside from the answer, “it depends”, the answer might be: “it could be any of these six”. They are all equally good for you.
The important thing is to never start with the jurisdiction.
Start with the facts, then based on the facts we’ll ultimately determine the jurisdiction for each component of the business.
These might vary (operating company, holding company, investing company, banking, payment processing, payment cards, brokerage account, etc.)
If you’ve got any questions, please reach out and we’d be happy to schedule a consultation.