Jurisdictions with preferential tax treatment

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Jurisdictions with preferential tax treatment

The rate of income tax is considerably low in the jurisdictions with preferential taxation. At the same time, with regard to the mechanism for transferring income, the system of special tax incentives is applied to this group of countries.

Thus, the levied taxes (withdrawal of dividends, payments for royalties) in these jurisdictions equal to zero or are reduced.

The following countries can be considered as those with preferential taxation: Andorra, Bermudas, United Kingdom, Scotland, Hungary, Hong Kong, Ireland, Cyprus, Latvia, Lithuania, Liechtenstein, Luxembourg, Madeira, Macao, Malta, Monaco, New Zealand, Poland, Portugal, Romania, Singapore, Slovakia, Slovenia, Uruguay, Czech Republic, Switzerland and Estonia.

But due to wide range of tax rates, they are considered preferential under certain conditions.

The jurisdictions applied in tax planning schemes can be tentatively divided into the following categories:

States with zero taxes which can be also referred to as Classic offshores. Such countries are characterized by considerably low level of economic development, but, at the same time, they have good political stability. There is no income tax in such jurisdictions. Concerning submission of financial statements, the only requirement is the contribution of annual fixed fee to the treasury. Confidentiality of the rights of ownership in such states is at the highest level.

Countries with low taxes. Setting low taxes in such states is carried out in order to stimulate the economy and attract the foreign capital. Such jurisdictions are not offshore ones, because the companies in their territories pay taxes and submit reports. These companies are used for the purpose of cooperation/trade with countries having negative attitude towards classic offshore companies.

Countries with territorial system of taxation. The level of taxation is influenced by the place of origin of income in the countries of this category. In order to prove the right to benefits, the companies shall be annually audited and shall submit financial reports.

High-tax countries with specific benefits. In such jurisdictions, the location of the source of income has no impact on taxes. It is possible to indicate relatively high tax rates, and also obligatory accounting records. There are several organizational and legal forms of business completely exempted from taxes (corporate ones):

Limited Liability Companies;

Partnerships with limited liability (LP, LLP, SLP);

Specialized companies.

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