Relocating a company abroad or setting up a new company in a foreign country is becoming a custom among many entrepreneurs. The ease of relocation, the facilities offered by foreign governments and the incentives granted by various ministries represent serious reasons for which many businessmen choose other countries than their own to relocate themselves and take their businesses with them.
According to various studies, taxation is one of the strongest reasons for opening a company abroad. Most investors say that the countries they choose offer more tax benefits than their home states and that is a good reason to set up a company in another country from the beginning.[REITs]
There are many advantages related to opening a company in another country if we take taxation as the main reason, however, we should also consider avoiding falling in the other direction and that is tax evasion or becoming the victims of various frauds.
Leaving aside the unpleasant parts, there are more tax benefits and advantages to opening a company in another country, so let’s check them out below.
The foreign country’s taxation system
The first and most important tax advantage is the foreign country’s tax legislation which provides for the tax obligations of companies from the beginning. Knowing the exact tax rate to be paid and the fiscal incentives granted by a government is for sure one of the most important reasons to open a business abroad.
It is very common for government to tax companies based on their size and a country like this, which imposes lower taxes on small companies, will definitely be preferred by entrepreneurs.
Double taxation agreements represent a great fiscal incentive
The more the number of double tax treaties a country has, the more foreign companies and businessmen it will attract. Why? Because that will reduce the tax burden on the company and its owner in both the home country and the state the company operates in.
Double tax treaties work on the principle of reciprocity by granting tax exemptions, reductions or reliefs based on a mutual agreement between two countries. This way, an investor can decide on the foreign country to open a company based on the state offering the best tax conditions.
Tax deductions and exemptions
There are many countries which offer targeted support to foreigners opening companies. These support measures are created with the purpose of attracting foreign direct investment, the well-known FDI, and to create new jobs for the population.
Foreigners can benefit from tax reductions in accordance with the amount of money invested, the facilities created, the number of individuals hired and so on. It could be said that the investor can decide on the incentive he or she wants to benefit from when opening the company. Also, the choice can be done based on the needs of the future company.
The start-up and operational costs
Even if these are not real tax benefits, the start-up and ongoing costs of a company can be good reasons for deciding to open a company abroad. Among these costs, the business registration costs, the share capital requirements and the administration costs can lead to pretty large amounts of money spent for opening a company, which is why they shouldn’t be neglected.
In Malta, for example, these costs are rather low. The share capital for starting business in Malta begins at a little over 1,000 euros which is quite low compared to other similar jurisdictions.
Without a doubt, starting a company in another country has become easier and more advantageous from a taxation point of view. Before deciding on the country to set up a business is checking if the tax system fits one’s needs and if the market can accommodate the products or services offered.