An intro to reducing your personal and business income tax
We often get asked whether it is possible to legally reduce your taxes whilst growing your personal and business income. The answer is a resounding “yes”.
At Nomad.cloud we are actively pursuing this as a business, and making it available to our clients.
In a global economy with freedom of choice, you have the luxury to structure your financial affairs to ensure that you reduce your taxes and live the lifestyle you always wanted. If so, why are you still stuck in your old ways, paying exorbitant amounts of tax, and getting very little in return?
Your wealth needs to work for you and not for a government that treats you poorly. It is time to plan, execute and exit the weak economic conditions holding you back. It is time to go where you are appreciated.
Stop procrastinating, act, otherwise you are going to miss out on the opportunity to save on taxes whilst your business is incorporated in a stable and growing economy serving the world market.
Reducing your personal income tax
Reducing your income tax starts with ensuring you utilize all legal avenues in your home country’s current tax system. All countries allow, in some form or another, numerous allowances and deductions which reduce your income tax. Although this may not be a lot, it is a starting point.
But do not be fooled by the allowances and deductions on offer by your revenue service. The aim of any revenue and tax authority is ultimately to fund the government, and any reduction in your tax bill is just handing back money you have paid to them in the first place. Significantly reducing your tax bill is not going to occur whilst you are staying in your current environment. If you want your taxes to be reduced, you will have to get out of your comfort zone. You need to think outside the box and act.
The first step is to identify and choose a country that levies low or zero taxes. Once you have done this, it is time to plan exactly how you are going to go about utilizing the tax benefits of the foreign country you have identified.
This approach is twofold. Firstly, you must identify how to exit your home country’s tax net, and secondly, you must identify how to become a tax resident in the foreign country you have identified. These two steps are of critical importance if you are to succeed in lowering your income tax bill.
We often find that the difficulty does not lie in proving your tax residency in the foreign country, but rather in the renouncing of tax obligations in your home country. Our clients often make the mistake of thinking that once they earn income from a foreign country or they are physically living abroad, they are exempt from paying taxes in their home country. This is unfortunately not the case and, to make things worse, this may even result in paying double taxation.
Remember that your home country is either applying a residency-based tax system or a territorial-based tax system (in some cases a variation of both). If your home country is levying tax on a residency basis, as in the case of South Africa, then you will be taxed on all your income no matter where in the world it was generated from.
Unfortunately, there is no one solution to cover all scenarios and your specific circumstances must be evaluated and considered.
We have developed a guide for South Africans wanting to exit the South African tax net and pay zero taxes. Get this guide HERE or get in contact with one of our consultants at Nomad.cloud who will be able to assist you.
Reducing your businesses income tax
If your company is still paying excessive amounts of income tax in your home country for delivering products or services internationally, then you have it all wrong.
Maybe it is simply because you have not considered the alternative, which is an offshore structure that will allow your company to pay low or up to zero corporate income tax.
Corporates are taxed in the country of their incorporation i.e., their home country. A variation to this rule relates to the principle of Place of Effective Management (POEM). If it can be proven that the place of effective management of the company is not in your company’s home country, then the taxing rights may be allocated to a foreign country. One additional consideration is the application of rules relating to anti-avoidance which may be applicable and lead to the profits of a company being taxed in your home country rather than that of a foreign country.
To start the process of reducing your company’s tax bill, it is thus necessary to choose a low or zero-tax jurisdiction and incorporate your company there, then it will be taxed in that foreign country at the low or zero rates.
Now that your company is incorporated in your chosen foreign country, it becomes important to ensure that you adhere to the foreign country’s local requirements for economic substance, as well as to avoid the place of effective management being allocated to your home country. Sounds complicated, but, with proper planning, this is very achievable. Lastly, it is required that you identify and avoid any potential avoidance legislation which may directly affect the allocation of profits to your home country. In South Africa, a typical example of this is the rules contained in Section 9D relating to Controlled Foreign Companies (CFC).
Better yet, to avoid any anti-avoidance whilst setting up your company in a foreign low-tax jurisdiction, ensure that the shares or ownership in the company do not vest in your name. Rather have this vest in a trust which is looked after by professional trustees. If this is the case, you do not have the added burden of direct ownership of the company which goes a long way in supporting your offshore structure.
We have developed a guide for South Africans wanting to set up a foreign company and pay low or zero taxes. Feel free to get this guide on our website or get in contact with one of our consultants at Nomad.cloud who will be able to assist you.
Can you get this done?
Well, it largely depends on your willingness to move out of your comfort zone as well as realise that you are the master of your fate.
We at Nomad.cloud has implemented many such strategies helping our clients either reduce their income tax or move their companies to foreign countries where taxes are significantly lower than what they were used to pay.