There is a distinction between personal and corporate tax residency. The residence principle determines the location where individuals and companies hold legal obligations and duties. In an era where virtual connections and global business activities become the norm, individuals and legal persons may qualify to choose their establishment, including its tax residency.
Individuals using Offshore Company Services wish to take advantage of the countries where the rules are most fair for their plans. The intention is positive, and the focus is on building and growing a life on the terms defined by themselves. As such, our clients seek interesting and stress-free jurisdictions to set up their business or establish their life.
Corporate tax residency is the place where the company is formed and incorporated. When international companies enter different jurisdictions, they may be imposed with additional local taxes. This mostly refers to Value Added Tax over specific steps in the supply chain. Furthermore, as a general rule, activities are taxed where they take place. Tax treaties provide the bilateral or even multilateral agreements avoid or mitigate double taxation. Accordingly, corporate structuring requires compliance with distinct rules, regulation and laws, both local and abroad.
Personal tax residency relates to the activities, earnings and belongings of individuals. This residency can be voluntary or imposed onto them by local regulation. The most common rules to determine a tax residency is the 183 day per year rule. Yet, more important but less common are the local personal tax regulations. Several jurisdictions can treat foreigners in their country as tax subject when their stay exceeds holiday terms. Defining such intangible terms is difficult. As such, mandatory personal tax residency is an indistinct area.
The choice for a tax residency goes further than just deciding on the location to establish life or company formation. Several countries still impose personal taxation on worldwide income, whether the tax subject lives in the country, or not. A passport is sometimes enough to be considered a tax subject. As such, the establishment of an offshore company alone may trigger personal significant interest taxes over the corporate profits. Enough reasons to prepare a personal or corporate tax residency appropriate.