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Professional Service Companies

Individuals who receive sub­stan­tial fees in respect of their pro­fes­sion­al ser­vices in capac­i­ties such as design­ers, con­sul­tants, authors or enter­tain­ers, may assign or con­tract with an off­shore com­pa­ny the right to receive those fees. The off­shore employ­ment com­pa­ny may not have to pay tax on its prof­its which can be rein­vest­ed in a tax free cli­mate to gen­er­ate fur­ther income from the off­shore com­pa­ny. Payments to the indi­vid­u­als con­cerned can be struc­tured in such a way as to min­i­mize their tax lia­bil­i­ties. One exam­ple in this regard in respect of an over­seas employ­ment is to increase sub­sis­tence expens­es as against fees as such which would be paid to the individual.

Tax Planning Consequences

It is impor­tant to note that you can­not sim­ply open up an off­shore trad­ing com­pa­ny and “pre­tend” to make mon­ey off­shore. Any income through invest­ment would have to be actu­al­ly “sourced” out­side of the United States (either through the IRS tax sourc­ing rules, or var­i­ous tax treaties) to receive tax ben­e­fi­cial treat­ment. In addi­tion you must make sure that your struc­ture does not run afoul of the IRS Controlled Foreign Corporation Laws and that your struc­ture is not deemed to be a Foreign Personal Holding Company.

 

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