Setting up an international corporate structure offers a number of advantages, but it can also be overwhelming to some individuals. The good news is that establishing a corporate structure on an international level doesn't have to be as complicated as you might expect.
Before you dive into the world of international corporate structures, it is important to understand your objectives.
For most people, the goal is asset protection. Therefore, virtually all asset protection structures are geared toward the objective of protecting and securing your assets, whatever those might be.
Protection of Assets
One goal of asset protection includes increasing privacy. Many individuals want to own a corporation without making it public knowledge.
This isn't illegal, nor is it something that is attached to illegal behavior. Instead, it's about individuals who want to maintain some level of privacy with regard to their financial transactions.
In the United States in particular, but increasingly around the world, frivolous lawsuits are a concern. Individuals with a high net worth are often the target of these types of lawsuits, so privacy is a tangible benefit to help prevent this.
Tax Savings for Varying Income Sources
Another desire by individuals is protecting assets from needless taxation.
While taxation has a place in the world and arguing about its merits is best saved for another day, many individuals want to protect their holdings from unnecessary tax erosion. Others simply want to protect their assets for future generations, paving the way for long-term security for the people and charitable organizations they love the most.
There is often a mistaken belief surrounding the tax benefits of international investments and corporate structures.
Simply moving assets overseas doesn't mean you won't have to pay taxes again. However, it will impact the types of taxes you pay and the rates at which you pay them.
Ultimately, the tax savings you'll receive depend largely on the types of income you're generating.
Salary, or earned income, is taxed at one rate. Through your international corporate structure, you might also generate passive income. This, whether it is dividends or any other type of income, is taxed at a different rate.
In certain jurisdictions, investment income isn't taxed. This can be beneficial if tax savings are your biggest priority.
Choosing the Jurisdiction for an International Corporate Structure
The jurisdiction of your international corporate structure is essentially the location where you'll be setting it up. Typically, choosing a jurisdiction means picking the country that best meets your financial and asset protection needs.
For the most part, it makes sense to keep your domestic assets in domestic structures.
For your international assets, however, moving them to an international corporate structure is recommended.
Choosing the right jurisdiction can be overwhelming, because financial experts have varying opinions on the best country for corporate structures.
One of the things to consider when choosing a jurisdiction is control. Important questions to find answers for include:
- Will you be able to control what you report?
- Can you control where you move your assets?
- Do you have control over who you employ?
- Will the government support you as you maintain control over your wealth in case of a frivolous lawsuit?
Of course, taxation rates will play a role in your decision. Ultimately, this also has to do with control, as a high tax rate means you'll have less control over the growth of your wealth over time.
Reporting and Compliance Rules
Whatever type of international corporate structure you choose, and wherever you choose to establish it, tax compliance is a necessity. In today's world, reporting is simply nonnegotiable.
If you are a resident or citizen of the United States or Canada, for example, you'll be required to report on the earnings and value of your international corporate structures.
This isn't an area where you can afford to be anything less than exact.
Tax compliance will continue to be necessary wherever your corporate structure is located.
If you're going in this direction because of a desire to reduce taxes, then you're on the right track. If you're hoping to avoid taxes altogether, you're going to be disappointed.
Tax reporting and compliance are simply part of establishing and operating international corporate structures.
Find Out More
There is a lot to know and understand when setting up International corporate structures. We’ll talk more about it in our next article, "Choosing the Right International Corporate Structure For You."
In the meantime, contact Georgetown Trust today to get more information on international corporate structures and to find out if one is right for you.