May 27, 2020  
 
Gaebler.com is a daily online magazine covering small business news. We help entrepreneurs transform ideas and innovations into greatness.

Articles for Entrepreneurs

 

Incorporating Abroad

 

Tax Considerations When Incorporating Abroad

For better or worse, corporate inversion transactions and other tax avoidance tactics can minimize the tax burden on companies that incorporate abroad. Although there are plenty of critics, tax considerations when incorporating abroad make it a viable option for many American companies.

There are a lot of reasons why a U.S.-based company might choose to incorporate outside of the country.

Everyday, legitimate American firms pursue foreign incorporation for asset protection, corporate anonymity, reduced regulatory requirements, and other benefits.

Yet one of the most common reasons U.S. businesses incorporate abroad is for the tax benefits. As the tax burden on U.S. corporations has increased, more and more American companies have been willing to risk the possibility of negative PR exposure in order to take advantage of the tax shelters and strategies that are available to businesses who incorporate in foreign jurisdictions.

Foreign incorporation isn't a bed of roses the tax benefits of foreign corporation have come under the scrutiny of both the government and the business community. But for certain companies, the tax considerations when incorporating abroad make offshore relocation worthy of a closer look.

How does foreign incorporation work?

There are three ways American companies can tap into the tax benefits of foreign incorporation:

  • 1. Initial Incorporation. Some companies choose to incorporate offshore from the outset. While this eliminates the need for fancy legal footwork later, it adds another wrinkle to the incorporation process at a time when business owners should be focusing on other things, i.e. strategic planning, startup funding, branding, overcoming barriers to entry, etc.
  • 2. Reincorporation. Parent corporations sometimes elect to switch to another corporate jurisdiction as a way of managing U.S. tax requirements. By effectively transferring their corporate status to a foreign tax haven, these companies can continue to do business in the U.S. while receiving offshore tax benefits.
  • 3. Inversion. Another technique employed by U.S. companies is to establish a subsidiary in a foreign jurisdiction. Parent companies and subsidiaries often switch roles if not legally, then at least in practice. Called inversion, this strategy allows revenues to be funneled through the foreign subsidiary as a way to manage U.S. tax liabilities.

What are the benefits of offshore incorporation?

Offshore incorporation has the effect of sheltering foreign operations and the income they produce from taxation. In an inversion scenario, the only revenues that are taxed are those that enter the U.S. in the form of dividends. Critics argue that companies who benefit from intangible benefits like access to skilled American labor and technologies should pay tax, and Congress continues to enact legislation that limits tax evasion by foreign incorporated firms. It goes without saying that you should consult with competent legal counsel before you initiate the process of incorporating abroad.

Related Articles

Want to learn more about this topic? If so, you will enjoy these articles:

How to Incorporate in Bermuda
Arguments That Support Corporate Expatriation


Conversation Board

We greatly appreciate any advice you can provide on this topic. Please contribute your insights on this topic so others can benefit.


Questions, Comments, Tips, and Advice  Code Image - Please contact webmaster if you have problems seeing this image code
Problem Viewing Image
Load New Code

 

 

Additional Resources for Entrepreneurs

Search Engine Marketing

Social Marketing Optimization

Business Forms

Business in the Jungle - Business in Fiction - Negotiating

Radio Ad Costs

Newspaper Advertising Rates

City-Specific Resources for Entrepreneurs

Small Business Insurance

Global Entrepreneurship

China & Entrepreneurs