The goal of every company is to reduce the amount of money it pays under the form of taxes without failing the legal requirements. There are many ways in which this can be achieved and these methods are called tax minimization solutions. When tailored to the taxation of the county where the company is registered, tax minimization is perfectly legal. Below we will explain the most common tax avoidance methods which can be applied in countries all over the world.
Countries of residence with low corporate taxes
One of the best ways of reducing the taxes paid to the government is by choosing to register a company in a country which applies a low corporate tax or a tax-free state. While offshore jurisdictions were often chosen in the past years, there are plenty of countries which are reducing their corporate taxes and offering a legal alternative to offshore countries. Among these countries is Ireland which offers one of the lowest corporate taxes in the world (12.5%). Apart from these, Ireland offers various tax incentives and breaks which contribute significantly to the reduction of the corporate tax, which leads us to the next tax minimization solution for businesses.
Tax breaks for resident companies
Another general rule is for governments all over the world to offer tax breaks, deductions, grants, financial incentives or rebates from the corporate tax for companies operating in certain sectors or investing in research and development activities. These are legal ways in which taxes can be reduced. When factoring in that these incentives are improved every year, registering a company in one’s home country does seem quite appealing.
Double tax treaties are the perfect tax minimization solution
Because they are tailored by each country to the trading activities they have with the other country. Also, most countries have signed double taxation agreements, which is what makes it quite impossible not to find a country suiting the tax reductions needs of one’s business. Double tax treaties will often include clauses in which tax avoidance rules are explained, therefore a company will be able to clearly distinguish the taxes which can be deducted, reduced or exempt. One of the best examples is Germany which covers a great number of tax minimization needs for companies through its large double tax treaty network.
Special purpose vehicles as tax minimization methods
Most countries in the world allow foreign investors, companies and individuals, to set up special purpose entities through which they can reduce their tax burden. The most used special purpose vehicle is the holding company in which various assets can be pooled and administered from the investor’s home country. The holding company will be taxed in the country where it is registered and when this country is one with a low corporate tax, tax minimization is no longer a problem.
Reducing the taxes paid on income is no longer an issue for companies, as governments all over the world understand they need to offer a competitive environment for attracting foreign investments, and thus tax minimization is one of the best ways of attracting investors.