For many people the opportunity to live and work in a foreign country is one of life’s most memorable experiences.
It can also present you with a solid gold tax planning opportunity. Here’s how/why…
Chances are if you go to work in a foreign country for a couple of years you are going to have to sign a contract of employment.
What you do is (before you sign the contract of employment) you form a nil tax Offshore Company (eg an International Business Company ie IBC).
The IBC signs the contract.
You open up a bank account for the Company in a country that does not tax banking receipts or interest earned in/on bank deposits.
(what would otherwise be) Your wages are paid into this Offshore account and receipted free from tax.
The IBC in turn engages you as a subcontractor to provide the services it has contracted with your employer to provide.
The IBC makes regular payments to you for the work you do. These payments are what you use to fund your local living costs. Accordingly this money will be paid into a bank account in the country where you are living. Depending on where you are living at the time probably this income will be reportable/taxable in the country where you are living.
The advantages to doing this are as follows:
- You should be able to minimise the amount of tax that you would otherwise have to pay in the country where you are living
- You can bank (and potentially invest) your savings (ie whatever you earn in excess of your local living costs) free from tax
- You should be able to avoid or greatly minimise the amount of tax that you might otherwise have to pay to the tax authorities of your home country (ie your country of origin)
- When you return to live in your country of origin you will have money overseas that you can invest on the quiet, without your home tax authorities knowing about it (ie you may never end up paying tax on that income).
Re 3 it should be noted (if you’re not getting paid into an IBC account whilst working overseas) if (a) you haven’t departed your home country permanently – ie if your home tax authorities regard you still as “tax resident” in that country – (ie liable to declare incomes in and pay tax there) and (b) you are living in a country which does not have a Double Taxation Avoidance Treaty (“DTAT”) with your home country you could potentially be liable to pay tax in both countries. (Or if your country of origin does have a DTAT with the country where you are working, but that country’s tax rates are lower than your country of origin, you may be called upon to pay to your country of origin the difference between what you paid in tax where you are working and what you would have had to pay at home).
(Note – if you wanted to be really clever what you could do is you could characterize your IBC as a Recruitment Agency or Labor Hire Company. Check this link fmi: http://offshoreincorporate.com/common-offshore-corporate-strategies/#9).
Local laws can have an impact. Hence it would be wise to seek local legal and financial advice before committing to incorporate an IBC for such purposes.