Offshore Tax Heavens Still Possible?
Many people ask me if it’s still possible to use offshore tax strategies now that the world is becoming smaller and government is clamping down on every single loop hole there is to do legal and correct tax planning.
The answer is YES! You can still use international tax planning to your benefit and to reduce your taxes. Please remember that the aim is not to pay zero tax, the goal is to pay as little tax as possible and use the double tax treaties and accounting rules to your benefit.
Let me give you a practical example that I often cover in my seminars.
Let me say that you like to invest in property. You want to buy property and renovate it and sell it on again or rent it out and later sell it.
For this example let’s say that you live in United Kingdom and you want to buy and sell property in London and you have an english passport.
Normally you have to pay capital gains tax on all sale of immovable property, the only capital gains tax you won’t pay is on the property you live in yourself.
The current capital gains tax in UK is 28% so basically the state take 28% of your hard work renovating that property even when you use your own money that you already paid high income tax on. Fair? Not at all…
So what can you legally do about it?
Here is what most people don’t know. The United Kingdom and Cyprus created a double tax treaty in the 70’s that basically say that a resident from the other country shall be taxed in the country they live and not where they make the money. This also covers capital gains.
But I’m not a Cypriot, I have a UK passport you say…
Yep, I know but here is what you can do.
If you invest as the person, you do have a UK passport and you will be taxed 28%. You don’t have to move to Cyprus or to get a Cypriot passport because a company is considered a legal identity. This means that you can open a Cyprus company and you can be the shareholder in this company.
This company will buy the property in UK and if required for a loan you can act as the personal guarantor for the loan and the loan is given to the Cyprus company that you show that you own 100%.
Now, the Cyprus company buy the property and renovate the property and then later sell the property. The money for the sale goes into the bank account in Cyprus or in UK depending on your set up and this money will now be taxed where the company is resident.
In this case that will be Cyprus. So what is the capital gains in Cyprus on property or shares owned outside Cyprus?
Answer: Zero percent … 0%.
Yes, I’m not kidding and I bet you are smiling now if you live in UK.
Now you want to use the money that you made on selling the property and there are ways to re-invest and use the profits also legally.