How international businesses will be affected by the anti-BEPS initiative in 2023
Since 2003, Healy Consultants Group PLC has been supporting our multinational Clients to legally minimize the taxation of their global businesses by assisting them i) to register legally tax-exempt entities in reputable zero tax and low tax countries; ii) to secure Government grants and tax breaks and tax holidays and iii) supplying them smart, out-of-the-box corporate structuring strategies to legally minimize corporate and personal taxation on their income and assets.
However, it is also important that our Clients are aware of their personal and corporate tax obligations in their country of residence and domicile, in particular with regards to new Controlled Foreign Companies (CFC) rules and anti Base Erosion and Profit Shifting (BEPS) rules. If you need Healy Consultants Group PLC to further help you to clarify your local and international annual tax reporting obligations, feel free to contact us.
Recent OECD and EU regulatory changes
- Between 2015 and 2019, over 125 Governments have agreed upon 15 agendas to better monitor and penalize tax avoidance by their citizens. These countries notably include i) Australia; ii) France; iii) Germany; iv) Japan; v) New Zealand; vi) UK; vii) USA; viii) Singapore; ix) Italy; x) Canada;
- Key recommendations of the 15 step action plan are:
- Designing effective controlled foreign company (CFC) rules to restrict the ability of using tax haven companies to reduce tax;
- Preventing the granting of tax treaty benefits to “paper companies” with no staff nor real operations in their country of registration; and
- Implementing mandatory tax information disclosure rules to prevent tax evasion.
- Meanwhile, the European Union also issued in March 2019 a list of “non-cooperative” jurisdictions comprising of 15 countries including i) Barbados; ii) Belize; iii) Bermuda; iv) Dominica; v) Marshall Islands; vi) Oman; vii) UAE – see this page for the latest list;
- In March, the EU furthermore adopted new measures targeting i) businesses registered in these blacklisted countries; ii) their customers; iii) their suppliers and iv) the banks which agreed to supply them with corporate bank account numbers. These measures include:
- Any EU funding related payment routed through a blacklisted country will be reported to relevant tax authorities;
- At the EU member level, each country may further apply sanctions at its own discretion against the listed jurisdictions;
- Our Clients with projects backed by the EU Investment Plan will face a brick wall when channeling funds through the blacklisted countries under any scheme of the investment plan.
How does the above affect tax haven businesses?
- To avoid being categorized as a tax haven and blacklisted, most Caribbean, Channel Islands and Pacific “offshore” jurisdictions will implement substance requirements for their corporate structures. To fulfill these requirements, a business will be legally required to:
- Be operated and managed in the country of its incorporation;
- Have a local physical office – a simple registered address and PO box will no longer suffice;
- Keep records of the local expenses related to the above operations (electricity costs, pay slips, office rental, etc.).
- The businesses remaining registered in blacklisted tax havens may suffer higher taxes and expenses including:
- Higher withholding taxes on interest, royalties and other payments;
- Increased bank transfer fees on international money wires;
- Loss of access to DTAAs and various tax treaties both multilateral and bilateral.
- Blacklisted countries that will not comply the above will remain blacklisted by the EU and may become internationally blacklisted by the OECD, FATF, and other key multilateral institutions;
- The EU Tax Authorities will investigate more often that owners and directors of tax haven entities are completely and accurately complying with their annual accounting and tax reporting obligations. They will also be systematically subject to Controlled Foreign Company (CFC) rules for their offshore businesses;
- Reputable banks, such as HSBC and Commerzbank might rarely approve corporate bank account applications of blacklisted tax haven entities. We also expect these entities to suffer a wave of bank account closures over coming months.
Apart from the blacklisted jurisdictions, stricter conditions will also be introduced by the grey-listed jurisdictions to avoid being blacklisted in 2020. Some new regulations may include:
- Compliance with OECD norms on spontaneous and automatic exchange of taxpayer information amongst listed countries;
- Stricter KYC checks for new bank accounts and business registrations;/li>
- Stricter economic substance requirements for businesses registered in countries like Bahamas, BVI, Cayman Islands, Mauritius, and Switzerland.
How can Healy Consultants Group PLC help you to operate under these obligations?
Healy Consultants Group PLC recommends its Clients to re-domicile their tax haven entities to reputable low / no tax jurisdictions including i) Singapore; ii) Hong Kong; iii) Cyprus; iv) Bulgaria; v) Ireland; vi) Mauritius; vii) Hungary; viii) Madeira; ix) Moldova and also consider hiring local staff along with personal relocation;
Over the past years, these jurisdictions have actively cooperated with the FATF, the USA and the EU tax authorities to upgrade their regulations against money laundering, financing of terrorism and tax evasion including i) Common Reporting Standard (CRS) and automatic exchanges of tax information; ii) public registers of shareholders and directors and iii) private registers of ultimate beneficial owners;
Because of the political power and influence of the USA, some states like i) Delaware; ii) Wyoming; iii) Nevada are the few major zero tax jurisdictions which can afford to not comply with international regulations like CRS and UBO disclosure, without risking being internationally blacklisted. Our Clients preferring privacy could hence choose these jurisdictions as alternatives to the above, while however complying with the tax reporting obligations in their country of residence.
Table of reputable low tax countries for re-domiciliation and relocation
Alternatively, Healy Consultants Group PLC can assist you fulfill the substance requirements in the registered jurisdiction of your firm.
|Country||Corporate income tax rate?||Legally tax-exempt if properly structured?||Blacklisted by the EU or the FATF?||Timeframe to register a new business?||Our fees to register a business and secure bank account numbers without travel?||Timeframe to re-domicile an existing business||Our fees to re-domicile an existing business?|
|Singapore||17%||Yes||No||1 week||US$11,590||1 week||US$9,040|
|Hong Kong||16.5%||Yes||No||1 week||US$8,910||1 week||US$8,910|
|Cyprus||12.5%||Yes||No||3 weeks||€9,535||2 weeks||8000|
|Bulgaria||10%||Yes||No||2 weeks||€8,360||2 weeks||7000|
|Ireland||12.5%||No||No||2 weeks||€8,255||2 weeks||7000|
|Mauritius||15%||Yes||No||2 weeks||US$18,600||2 weeks||US$12,000|
|Hungary||9%||No||No||3 weeks||€10,990||2 weeks||8000|
|Madeira||5%||No||No||2 weeks||€13,700||2 weeks||10000|
|Moldova||12%||Yes||No||2 weeks||US$7,950||2 weeks||US$6,000|
See below table for an estimate of our fees:
|Appoint passive, professional resident directors||US$6,600||2 weeks|
|Recruit local employees||Contact us||2 months|
|Secure local office space||US$950||2 weeks|
The global crackdown on tax evasion is an important development and our Clients should be closely observing the new regulations and trends to mitigate the effects of the potential legal and litigation risk on their business. Healy Consultants Group PLC can help our Clients understand the implications of these changes and devise strategies to minimize impacts on their international business operations.