Whenever a client asks us “Where should I set up my Offshore Company?” as a starting point we always strongly recommend against incorporating a Company in any jurisdiction which has a TIEA (Tax Information Exchange Agreement) with the client’s home country.
Why do we say that?
Let’s just say your home country government (taxman) someday somehow down the track sees that you are doing business with a Company in XXX Offshore Nil Tax Jurisdiction (ie let’s assume it’s a jurisdiction that DOES have a TIEA with your home country), or receiving money from (or sending money to) said Company or receiving mails or packages from (or sending mail or packages to) said Company, what would likely happen is this…
The taxman would look at that and murmur “Hmmm Mr AB is doing business with an XXXX Company….. Hmmm.. XXXX is a tax haven…. Hmmmm… I wonder if Mr AB is secretly behind this Company…. OOOOO! XXXXX has a TIEA with us. LET’S GO AND FIND OUT!”
What would happen then is the local taxman would send an email to his counterpart in the Offshore Company jurisdiction something like this:
Pursuant to clause XXXX of the TIEA between our country and your country please supply the following information as regards the Company XYZ Trading Ltd incorporated in your country:
- 1. Please tell us the names of the current Directors of this Company
- 2. Please tell us the names of the current Shareholders of this Company
- 3. Please tell us the names of the current beneficial owners of this Company
- 4. Please tell us the names of the current significant controllers of this Company
- 5. PLEASE TELL US THE NAME OF THE PERSON/S WHO AUTHORISED THE SETUP OF THIS COMPANY
The Offshore Jurisdiction taxman collects this information from the Company’s local Registered agent (who is obliged by law to hand over this info ie in the case of a TIEA request) and sends it to his onshore counterpart.
The first you know about it is you get a knock on the door from the local taxman. “ Hi Sir, There’s a Company in XXXX country that you founded and we’ve seen no declared income from or interest in regards to this Company you’d better come with us for a chat”.
A major tax investigation then takes place wherein you are effectively presumed guilty of tax evasion unless you prove otherwise.
You should be able to prove otherwise (ie if you have structured the Company in a very careful manner) but it’s going to cost you tens of thousands, if not hundreds of thousands, of dollars in legal fees to prove your innocence.
Hence we ALWAYS advise our clients, re choice of Company jurisdiction, wherever you decide to incorporate, make sure it’s in a country/jurisdiction that does NOT have a TIEA with your home country.
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