Tax Havens May be Told to Recover Dues From Indians

Tax Havens May be Told to Recover Dues From Indians

Going All Out After Evaders: Govt. to also keep tabs on those frequenting such tax jurisdictions

THE government will ask tax havens to recover taxes from Indian nationals who have stashed undeclared income there as it intensifies efforts to tackle the menace of black money. It is also keeping tabs on those frequenting such tax jurisdictions. "We can ask these countries to recover taxes, "a finance ministry official said. The tax information exchange agreements and revised double taxation avoidance agreements (DTAAs) entered into with some of these jurisdictions have a provision for providing assistance in recovery and the income-tax department plans to use this provision. The Central Board of Direct Taxes has opened income-tax units in some of these jurisdictions to facilitate information exchange and coordinate recovery of taxes. Two such income-tax units have been set up within Indian missions in Singapore and Mauritius and one each is proposed to be set up in the US, the UK, the Netherlands, Japan, Cyprus, Germany, France and the UAE. Further, income tax officials are also being posted in some of the tax havens. India recently signed tax information exchange agreements with Bahamas, Bermuda, British Virgin Islands and Isle of Man for access to information on bank accounts of Indian nationals there. Based on the information received, the department will step up the recovery process here. Those found to have evaded taxes will have to pay 100% interest on the tax and penalty up to 300%.Back home, the department is keeping a close watch on visits by Indian nationals to tax havens and those suspected to have bank accounts there. Investigation directorates have collected data from agents and officials of foreign banks offering services and soliciting opening of foreign banks accounts. They are also receiving data from the financial intelligence unit in India that has begun to receive data from other FIUs. As part of the drive against black money, the income-tax department had recently issued show-cause notices to some of the foreign account holders in addition to those in the list given by Liechtenstein. Black money has taken political center stage with the BJP launching a scathing attack on the UPA and the Supreme Court calling the menace a "plunder of the nation". Different estimates like the one by a BJP task force pegged the amount of black money between $500 billion and $1.4 trillion while another international estimate placed such flows at $462 billion.

No Escaping at Home or Abroad

Some provisions that will turn up heat on tax evaders

On Domestic Front


Dedicated info exchange in works Online info exchange with treaty partners Foreign Tax Division collect info about citizens having bank accounts abroad New plan for taxation, transfer pricing

On International Front

India joins Financial Action Task Force Taken membership of the Eurasian Group Upgrading Double Taxation Avoidance Agreements and signing Tax Information Exchange Agreements

Under the New DTC

A reporting requirement to make it obligatory to furnish details of ones investment and interest in any entity outside India Taxable assets to include deposits in banks located abroad

Offshore Company in United States of America (USA)

1. Why the United States Of America

The US as a country is the largest economy in the world.

2. Legal Framework

Although the US legal system is based on English common law, it has several layers such as the Constitution, statutes, treaties, and administrative regulations. The US federalism system provides specific powers to the federal government, allowing the 50 states to retain significant autonomy and authority. Thus, laws can be made at both federal and state levels. A company therefore, must comply with the state law of where it chooses to incorporate or does business. However, public-traded corporations must also comply with federal securities law.

3. Banking

The Federal Reverse System is the central bank of the US. It conducts the US's monetary policy, supervises and regulates banking institutions, maintains stability of the US financial system  and provides financial services to depository institutions, the US government and foreign official institutions.

4. Financial Regulatory Authority

Many governmental agencies are charged with various aspects of the US financial system, including US Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), Federal Reverse System, Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), National Credit Union Administration (NSUA) and Office of Thrift Supervision (OTS).

5. Taxation

5. a. Corporate Tax

US corporations (corporations formed under the laws of one of the 50 states or the District of Columbia) are generally subject to a federal corporate level income tax on their world-wide income at rates ranging from 15% to 35%, subject to applicable foreign tax credits. Dividends received from US corporations are eligible for dividend received deductions. Dividend distributions to shareholders are not deductible against corporate income. Anti-deferral regime exists for income generated by non-US corporations controlled by US persons.

5. b. Personal Tax Rates

US tax residents are taxed on their world wide income, subject to applicable foreign tax credits. US citizens are always subject to US income tax regardless of the location of the actual residence or the time spent in the US. The federal personal income tax rates on ordinary income currently range from 15% to 35% and the current maximum long-term capital gains (gains on capital assets held for over one year) rate is 15%.

5. c. Social Security

All employed and self-employed individuals are required to participate in the US social security system. The social security tax for 2010 is 6.2% of the wages up to $ 106,800 for employees and employers and 12.4% of the earnings up to $ 106,800 for self-employed individuals. A separate Medicare tax for 2010 is 1.45% on wages for employees & for employers and 2.9% of the earnings for self-employed individuals. In essence, an employer pays 50% of its employee's social security tax and Medicare tax while a self-employed individual pays 100% of the applicable taxes.

5. d. Customs & Excise Duties

Many items imported into the US commerce are subject to an import tariff at rates provided in the official harmonized tariff schedule.

5. e. V.A.T.

The US does not charge a VAT, though many states and local governments imposes a sales/use tax on the purchasers of taxable goods and services.

5. f. Tax Incentives

Many tax incentives currently in force are geared towards economic stimulus such as credits for hiring certain new employees, exclusion of gains on the sale of small business shares and accelerated depreciation schedules and certain incentives for renewable energy. In addition, many established tax incentives reflect US social philosophies such as charitable gift deductions, home mortgage interest deductions and limited exclusion of gains on the sale of primary residences.

6. Main Types of Corporate Forms

• Corporations, limited liability Companies and Partnerships are the most common corporate forms.
• Corporations are most commonly used and can have any number of shareholders whose assets are protected from the company's creditors. A shareholder's liability is limited to the amount of the investment in the company.
• Corporations are, however, subject to double taxation's profits are taxed first as income to the corporation and then as income to the shareholder when distributed as dividends. Corporations with no more than 100 shareholders can elect S-Corporation status and are generally not subject to a corporate level tax; instead, income is "passed-through" to shareholders.

Shareholders in S-Corporations must be US citizens or residents individuals, and in limited circumstances, certain trusts. Limited Liability Companies (LLCs) combine the corporate advantages of limited liability with the partnership advantage of pass-Through taxation. Members of an LLC can be managers of the company while not exposing their personal assets to claim of general creditors of  the LLC.

LLCs may be treated as corporations, partnerships or disregarded entities for US tax purposes depending on the number of members or the existence of an entity classification election (commonly known as the check-the-box election). LLCs also provide a greater level of flexibility in terms of management and the allocation of profits and losses if they are treated as partnerships for tax purposes. LLCs are also not subject to the ownership restrictions of S-Corporations, so they are potentially ideal for foreign investors. Partnerships fall into 3 general forms General Partnerships, Limited Partnerships and Limited Liability Partnerships. In a general partnership, general partners share equal rights and responsibilities in connection with management of the business, and any individual general partner can bind the entire group to a legal obligation. Each individual general partner assumes full responsibility for all of the business's debts and obligations.

Limited partnerships allow each partner to restrict his or her liability to the amount of his or her investment, however, at least one participant must accept general partnership status, meaning full personal liability for the partnership's debts and obligations. Limited partners do not participate in management decisions. Limited liability partnerships have the tax advantages of the partnership form, but offer personal liability protection to the participants. In some states only certain specified professions may use the limited liability partnership form.

7. Company Incorporation

Entities can be formed in any US state, however, Delaware continues to be the forum of choice for formation - Delaware has a well established and accepted body  of laws and regulations which are regularly updated. Formation of any type of entity can usually be achieved in 24-48 hours and typically limited information is required. Post formation, shareholder agreements in the case of C Corporations and LLC Agreements in the case of LLCs may be entered into, neither of which is filed with the state. There may be circumstances when formation in another state is warranted and determinations such as that are made based on the facts and in consultation with a US adviser.

8. Reporting & Auditing

All US corporations, partnerships or sole proprietorship's are required to file an annual income tax return with the Internal Revenue Service may select random taxpayers for audit depending on its current audit priorities.

9. Special Notes / Country Update

The maximum personal income tax rates are expected to be 39.6% for ordinary income and 20% for long term capital gains starting 2011. The Internal Revenue Service continues to focus on US taxpayers with unreported offshore bank or financial accounts and corresponding unreported non-US sourced income.

10. Double Taxation Agreement

USA has double taxation treaty with the following countries:

• Austria
• Bulgaria
• China
• Cyprus
• Czech Rep.
• France
• Germany
• Hungry
• India
• Indonesia
• Israel
• Italy
• Japan
• Mexico
• Morocco
• Netherlands
• Poland
• Portugal
• Romania
• Russia
• Slovenia
• Spain
• Switzerland
• Tunisia
• Turkey
• UK
• Venezuela

Offshore Company in United Kingdom (UK)

1. Why The United Kingdom

The World Bank has ranked the UK as one of the top European countries in which to operate a business. It takes only 13 days to set up a business in the UK, compared to the European average of 32 days. There are already more than 2.6 million registered companies in the UK and over 350.000 new companies are registered each year. There is relatively minimal red tape involved in forming and running a UK offers ease of access to many overseas markets. In particular, as the business gateway to the European Union, the UK is a very attractive place to set up and do business and serves as a springboard for global growth.

2. Legal Framework

The UK has three systems. English law and Northern Ireland law are based on common-law principles. Scotland has a pluralistic system based on civil-law principles, with common law elements. The UK has implemented all major EU legislation.

3. Banking

UK banking is regulated by the bank of England. Nearly all the World's banks have branches or subsidiaries in London which is one of the reasons why the UK's capital city is recognized as a world-leading financial center. The UK is not part of the Euro but business is often conducted in non-sterling currencies.

4. Financial Regulatory Authority

The Financial Regulatory Authority in the UK effectively consists of three separate bodies. The bank of England operates independently of the British government and its chief responsibility is to maintain the stability of the financial system as a whole by overseeing the operation of the UK's financial infrastructure. The FSA supervises all financial services providers and the financial services providers and the financial markets. The Treasury's responsibility is to direct the overall institutional structure of financial regulation and legislation.

5. Taxation

5. a. Corporate Tax

UK resident companies and UK branches of overseas companies are liable to Corporation Tax ("CT") on profits including cpaital gains. An overseas company may be resident in the UK if its central management and control takes place in the UK. If there is a double taxation agreement in place with the country in which a non-UK company is resident it will generally not be subject to CT unless it has a permanent establishment in the UK. The standard rate of CT is 28% once annual profits are pound 1.5m, or 21% if the profits are not more than pound 300,000. For profits between pound 300,000 and pound  1.5m the rate is 29.75%. The standard rate is due to fall by 1% per annum from April 2011 to take the rate down to 24% by 2014. The small profits rate will be reduced from 21% to 20% from April 2011. The threshold are divided by the number of associated companies. Non-UK companies are liable to income tax on UK property income at rate of 20%. There are transfer pricing provisions, rules on the allowability of interest and controlled foreign company legislation. Subject to treaty provisions and EU law, withholding taxes may apply to interest and royalty payments.

5. b. Personal Tax Rates

UK resident domiciled individuals are taxed on their world wide income and gains. Normally an individual is UK resident if days spent in the UK are at least 183 days in a tax year or average 91 days or more annually over 4 years. The UK tax year is 6 April to the following 5 April. Typically income tax is levied at 20% until income reaches the low pound 40,000s, then 40% up to pound 150,000 when a 50% rate applies. Capital gains tax is generally 28% but 10% on business assets up to pound 5m of life time gains. Non residents are liable to UK taxes on certain UK source income and gains including UK property income where 20% withholding may apply. Subject to a threshold of pound 325,000 inheritance tax is levied at 40% at death on the value of worldwide assets (but see "Special Notes" section regarding non-domiciliaries), or 20% on certain lifetime asset transfers.

5. c. Social Security

Generally employees, employers and self-employed in the UK are required to make national insurance contributions. These entitle an individual to the state pension and, for employees, certain unemployment benefits. The first pound 6,000 (approximately) is exempt, there after 11% and 8% for employees and the self-employed respectively until earnings are in the low pound 40,000s, then 1% on all further earnings. The employer's rate is 12.8% on all earnings of an employee over the pound 6,000. These rates increase by 1% from April 2011. The positions of individuals coming to the UK is complex, Can be subject to agreements between countries, and advice should always be sought.

5. d. Customs & Excise Duties 

As an EU member state, the UK normally follows EU customs procedures. In general, goods from other EU member states are subject to VAT on acquisitions, while goods from outside the EU are subject to VAT and excise duty on importation.

5. e. V.A.T.

VAT must be charged on a taxable supplies of goods or services made in the course of business. The registration limit is pound 70,000, but voluntarily registration is possible if taxable  supplies are less. The standard  rate is currently 17.5% but rises to 20% on 4th January 2011. VAT is applied to imports and intra-EU acquisitions of goods.Generally supplies of services to businesses in other EU countries and to businesses  and non-businesses out side the EU are not liable to VAT, but there are exceptions, notably if the supply relates to UK Land. Likewise, generally reverse charge mechanism has to be applied to services received in the UK form businesses outside the UK.

5. f .  Tax Incentives

For business income purposes, depreciation is disallowed and instead capital allowances apply.The rate is 100% on the first pound 100,000 per group of annual expenditure on most fixed assets which amount is due to fall to pound 25,000 in April 2012.There is also a 100% rate on the acquisition of certain environmentally friendly assets with no monetary limit.Otherwise the capital allowances rate is 20% per annum on a reducing balance basis with the exception of certain long life and integral building feature assets where the rate is 10%. These rate are due to fall to 18% and 8%  respectively from April 2012.There are tax incentives for investing in certain small trading companies.

6. Main Types of Corporate Forms

These are: limited liability company (Limited Company),public limited company(PLC) and Limited Liability Partnership (LLP).For a limited company the liability of the shareholders is limited to the nominal value of the shares held. A PLC must have minimum share capital of pound 50,000 of which a quarter is required to be paid up. A PLC is perceived to have more substance to it and has greater statutory obligations than a limited company. All UK companies traded on an exchange in the UK will be PLCs. Directors of PLCs (Minimum of 2 are required compared with 1 for a limited company) have increased statutory responsibilities. Members of a LLP have their liability limited to a fixed amount and are registrable at companies house.Unlike companies,LLP is generally treated as transparent for tax purposes and the members are subject to personal taxes on their shares of the LLP's profits and capital gains.Business may also be operated by sole traders or partnerships.

Both have unlimited liabilities and in the case of partnership a partner has liability for all the liabilities and debts of the partnership.

7. Company Incorporation

Companies are incorporated at Companies House. Shelf companies are permitted. A UK company can be incorporated with in 1 day. This means that the business of the company can commence almost immediately. Certain statutory registers must be maintained. A private company need only have a minimum of 1 share which can be of any currency. A PLC must have at least 2 in issue. Shareholders and directors may be of any nationality or country of residence. LLPs are governed and by the terms of any partnership agreement.

8. Reporting & Auditing

UK company accounts must comply with either the UK companies Acts, where financial statements must comprise a balance sheet as at the last day of the financial year and a profit and loss account for the financial year, or with EU-adopted IFRS where financial statements are prepared in accordance with international accounting standards. Private companies and LLP's have 9 months and public companies 6 months, from the end of their accounting reference period to file their accounts with companies house. Generally an audit is required if the annual turnover is greater than pound 6.5m or gross assets exceed pound 3.26m or if the shareholders otherwise require one. Certain categories of company registered with the FSA automatically require an audit irrespective of level of turnover. Once a year a company must file an Annual return with Companies House. The accounts together with a CT return must be filed with her Majesty's Revenue & Customs ("HMRC") with in 12 months of the company's year end. CT has to be paid with in 9 months of the year end. Larger companies (taxable profits greater than pound 1.5m divided by 1 plus number of associated companies) pay by quarterly installment. HMRC has 1 year from the filing date to inquire into the return, although this can be later if a 'discovery' is made. LLP and partnership returns must be submitted to HMRC for each tax year ended 5 April by the following 31 January if submitted online. Partners disclose their profit share on their individual tax returns or on the CT return if a member is a company and pay tax directly to HMRC.

9. Special Notes / Country Update

Holding Companies : With certain exceptions, UK and foreign dividends are exempt from CT. The substantial shareholding exemption means there is no CT on gains arising from the disposal of shareholdings in trading companies - a  minimum holding of 10% is required and the shares must have been owned for at least 12 months. There is no withholding tax on dividends paid to shareholders. All in all, UK is an attractive location to set up a holding company to own foreign trading subsidiaries.


Domicile : In the UK domicile, different from residence, refers in basic terms to the country which an individual regards as his permanent home. Non-domiciliaries can avoid tax on foreign income and gains by not remitting the income/ proceeds to the UK. once UK resident in 7 out of the 9 years prior to the year in question, this generally comes at an annual cost of pound 30,000. non-domiciliaries are also not liable to inheritance tax on their non-UK sites assets and for this purpose an individual is deemed UK domiciled once resident in the UK during 17 out of 20 years.


Sundry : Stamp Duty Land Tax (SDLT) is levied on the purchase of UK property with the rate varying between 0% and 4% with the latter applying where the purchase price exceeds pound 500,000. From April 2011 a 5% rate will apply to residential transactions over pound 1m. UK property is often held by an offshore company, and rather than sell the property, the shares in the offshore company are sold to avoid SDLT. It has been proposed that from April 2013 UK companies will pay corporation tax rate at 10% on income from new patents.

10. Double Taxation Agreement

UK has double taxation treaty with the following countries:

• Argentina
• Austria
• Bulgaria
• China
• Cyprus
• Czech Rep.
• France
• Germany
• Hungry
• India
• Indonesia
• Israel
• Italy
• Japan
• Jersey
• Kuwait
• Malaysia
• Malta
• Mauritius
• Mexico
• Morocco
• Netherlands
• Poland
• Portugal
• Romania
• Russia
• Singapore
• Slovenia
• Spain
• Switzerland
• Tunisia
• Turkey
• USA
• Venezuela

Offshore Company in Japan

1. Why Japan?

• Thanks to the recovery programs implemented after World War II, the Japanese economy expanded rapidly. As a result, Japan became the world's most successful economy, dominating such fields as electronics, robotics, ITs, Car production, Banking and J-pop-cultures.
• Japan is safe and clean country and a strong work ethic with mastery of high technology. 
• There is big smart consumer market and high quality products/services are required.
• Japanese tax rate currently is relatively high need reliable professional firms.

2. Legal Framework

• Japanese law was based on the European legal system especially Germany and France. However, after the world War II, the Japanese legal system underwent major legal form and was revised by modeling American law. Therefore, it is possible to say the Japanese legal term is a hybrid of continental and Anglo American law.
• Important laws for foreign investors are,normally, business laws, labor laws and tax regulations.

3. Banking

• Japan's banking system is consisted of city banks, regional banks and foreign banking institutions.
• Bank transfer is probably the most common way to pay various expenses, through internet banking system. Also, payroll and related taxes can be paid though banks.

4. Financial Regulatory Authority

The Financial Services Agency is a Japanese government organisation responsible for overseeing banking, securities for exchange, and insurance. The agency operates with a commissioner and reports to the minister of financial Services. It oversees the securities and Exchange Surveillance Commission and the Certified Public Accountants and Auditing Oversight Board.

5. Taxation

5. a. Corporate Tax

• Companies engaged in economic activities in Japan (i.e. Branch) are subject yo Japanese taxes on the income generated in Japan only.
• Companies established in japan is subject to Japanese tax for all income all over the world, but foreign taxation deductions are available.
• Corporate taxes are consisted of income tax, inhabitant tax, enterprise tax and the effective tax rate is approximately 40%.
• Tax losses in each business year are carried forward for the next seven years of withholding tax is assessed on the dividend.

5. b. Personal Tax Rates

• Resident individuals are taxed on their worldwide income whereas non-residents are taxed only on japan-source income. There is no strict definition  of residence, but residence will be based on where a person effectively lives and has a home. Staying in japan for six months in a year would imply residence. Tax is charged at progressive rates up to a maximum rate of 40%.
• Employers and employees of the Company established in japan is are normally subject to withholding tax and personal tax, as well as inhabitant tax and social insurance is withheld by the Company from the Salaries.

5. c. Social Security

• Health Insurance and Employees pension Insurance apply to all companies and individual offices which regularly employ 5 or more persons. Those who are required to join this insurance, are employees employees who work regularly for an applicable company, and an employees' ordinary working days or hours are three quarters or more of those of full-time employees. The monthly premiums are determined in accordance with the employees wages, and are shared  equally between the employer and the insured person. As the employer must pay both the shared premiums together each month, the employer's premium shall be deducted from his/her monthly wages and bonus.

5. d. Customs & Excise Duties

• Goods imported into Japan are subject to customs duty and VAT (consumption tax). In addition to consumption tax, certain other internal taxes ( liquor tax, tobacco tax, etc.) are also applicable to dutiable imported goods.

5. e. V.A.T.

• VAT (Consumption tax in japan) imposed on most sales and services provided in japan and on imports. A taxpayer may offset the consumption tax paid on expenses against the tax he has to pay on his income. Consumption tax rate is flat 5%. Companies whose sales per year are less than 10 million yen are tax exempt.

5. f. Tax Incentives

• Tax Incentives are provided to encourage manufacturing companies to locate operations in specified industrial development regions outside of Tokyo and Osaka.

Notes: Japan contracted Double Taxation treaty with many countries all over the world (56 countries as of October 2009). For double taxation agreement see the list of the end.

6. Main Types of Corporate Forms

There are three different types of operation for a foreign company:

• Representative office
• Branch office
• Subsidiary (company established under the Japanese law)

Company in Japan can be currently 4 types, however, normally company limited (Kabushiki Kaisha, K.K.) is selected.

7. Company Incorporation

• The new Japanese Corporate law effective from 1st may 2006 has made it a lot easier to set up a company in japan.
• Numbers of restrictions such as minimum capital of 10 million yen, minimum number of 3 directors have been abolished, and it is possible from now on to establish a company limited (Kabushiki Kaisha, K.K.) with a capital starting from one yen and with only one director.
• A representative director can be foreign people; however, he must be a residence in japan.

8. Reporting & Auditing

• Financial reporting is required at least once a year for all companies. These financial statements are submitted to the tax authority with annual corporate income tax returns.
• External audits are required for list companies and large companies only in Japan.
• Large companies is defined as capital stock of yen 500 million or more, or liability of yen 20 billion or more, as of the latest fiscal year-end.

Double Taxation Agreement

Japan has double taxation treaty with different countries:

• Austria
• Brazil
• Bulgaria
• China
• Czech Rep.
• France
• Germany
• Hungry
• India
• Indonesia
• Israel
• Italy
• Malaysia
• Mexico
• Netherlands
• Poland
• Romania
• Russia
• Singapore
• Spain
• Switzerland
• Turkey
• UK
• USA

Offshore Company in Italy

1. Why Italy?

Founding member of European Union, Italy is the seventh economic system in the World (GDP 2009: 2.313.893 millions of US$) and one of the most important exporters. Two-thirds of Italy's Gross Domestic Product (approximately 69%) is represented by the services sector, whose strong point is tourism. Approximately 29%of the national income is owing to industry (including the construction sector) and the remaining approximate 2% derives from agriculture. The strongest industrial sectors are machinery and apparel/textiles. One of the Italian system's peculiarities lies in an "industrial cluster" model, well-established in a clearly defined are and consisting of a dense fabric of small and medium sized enterprises, each specialized in a specific phase of production. There are a lot of specific entrepreneurial expertise with a great potentiality but limited by the small size of their organization. Due to long lasting history of friendly contact Italy is fully open to foreign investors.

2. Legal Framework

It is based on the constitution stating that private economic initiatives are free and shouldn't interfere and be against social utility. The legal system is integrated in the EU system and agreements and companies are basically regulated by the Civil Code. Italian law places no restrictions on foreign investments: this general principle can be limited on reciprocity basis.

3. Banking

Central Bank is Banca d'Italia that is part of European System of Central Banks and is in charge of the control of the finance system. In the banking sector after a concentration process a few large Italian Banks together with international banks have very large market shares. Credit services are at the top worldwide level.

4. Financial Regulatory Authority

Listed companies are under the control of CONSOB, banking system of banica d'Italia and insurance companies of ISVAP. Large M&A operations are under the control of Antitrust Authority. Economic sectors like energy and communication are under the control of specific authorities.

5. Taxation

5. a. Corporate Tax 

Corporate Tax (IRES) rate is 27.5% with a limited deduction of interest and a participation exemption system. Regional Tax (IRAP) rate is 3.9% with a limited deduction of labor cost and no deduction of interest allowed.

5. b. Personal Tax Rates 

Italian residents are taxed on their worldwide income and a tax credit is granted for foreign incomes. Personal Income Tax (IRPEF) rate is gradual from 3% up to 43% and there are also limited regional and local taxes. No Wealth Tax is provided in Italy.

5. c. Social Security

Social security system (INPS) is mandatory for all workers and the National Health System (SSN) basically takes care of all citizens and of other residents on demand.

5. d. Customs & Excise Duties

Since Italy is member of European Union customs and Excise duties are harmonized according to EU law.

5. e. V.A.T.

VAT system is based on EU 2006/112/CE Directive. Ordinary rate is 20% and reduced 10% and 4% rates are provided for the law. Exemption is related to financial services, health care and education.

5. f. Tax Incentives

Flat 12.5% rate is provided with reference to personal income tax related mainly to dividends, interests and cappital gaions. Inheritancs Tax rate is stated from 4/%  to 8% accordding to degree of kinship. Inheritance Tax is levied for spouse and direct line heirs only on any value exceeding euro 1.000.000 for each heir. Inheritance Tax is not applicable also with reference to company's shares if heirs work in the company or hold the control of the company for more than 5 years.

Notes: A strict monitoring of assets abroad belonging to residents of Italy is provided for the law.

6. Main Types of Corporate Forms

Companies can be distinguished into the following types:

1.  Partnerships

  - informal partnerships (Societa semplice)

  - general partnerships (Societa in nome collettivo)

  - limited partnerships (Societa in accomandita semplice)

2.  Companies

  - limited liability company (Societa a responsabilita limitata), minimum comp[any capital Euro 10.000

  - company limited by shares (Societa per Azioni), minimum company capital Euro 120.000

  - limited partnership with share capital (Societa in accomandita per azioni), minimum company capital Euro 120.000

3.  Cooperatives based on the principle of mutuality

  - cooperatives (Societa cooperative)

  - mutual issuance companies (Mutual assicuratrice)

7. Company Incorporation

The articles of association need a notary act the basic elements of the company and the by-laws. new enterprises must register with the Register of Companies (through the chamber of commerce), notify the tax authorities and register employees with the relevant social security authorities. The registration process can be carried out in  a few days after the notary deed. It is possible for companies to have only one shareholders if correctly registered with the register of companies . Foreign companies can register with Italian Register of companies as branches on the basis of a deed translated into Italian and legalized in Italy. Special laws also apply to banks, insurance companies , investment and trust firms.

8. Reporting & Auditing

With in 120 days from the end of the financial year the financial statements together with their reports of directors and statutory auditors must be approved by the shareholders and filed with the Register of Companies. S.P.A and large S.R.L must appoint a board of statutory auditors in charge of the compliance with law and company's by-laws and the auditing of account. Complete auditing is mandatory for listed companies.

9. Special Notes / Country Update

There is a full disclosure referring to articles of association by-laws, directors, shareholders, financial statements with annual reports of management and auditors and minutes of ordinary meetings of shareholders approving the financial statement  and all extraordinary meetings of shareholders. For S.P.A by-laws may provide that the management and control be carried out alternative by system based on a board of directors and a board of statutory auditors, by a system based on a management board and on a supervisory board and a system based on the board of directors and on committee formed with in the board of directors. relationships with tax Authority and Chamber of commerce are web based. The Stock Exchange was merged with LSE. It encouraged the listing of Italian Companies especially the small/medium ones. Now Italian companies have an easy and direct access to LSE AIM market: "the most successful growth market in the world.


Double Taxation Agreement


Italy has Double taxation treaty with different countries:

• Argentina
• Austria
• Brazil
• Bulgaria
• China
• Cyprus
• Czech Rep.
• France
• Germany
• Hungry
• India
• Indonesia
• Israel
• Japan
• Kuwait
• Malaysia
• Malta
• Mauritius
• Mexico
• Morocco
• Netherlands
• Poland
• Portugal
• Romania
• Russia
• Singapore
• Slovenia
• Spain
• Switzerland
• Tunisia
• Turkey
• UAE
• USA
• Venezuela

Offshore Company in Germany

1. Why Germany?

Of Europe's economies Germany is the largest and has a political and economical key position. Worldwide Germany is ranked 4th of 180 countries analyzed by the IWF in 2009 for 2008 with the criteria BIP in US-Dollars. Germany is member of the EU, G8, UN, OECD and OSZE. Germany has a highly valued influence in the worldwide economic and monetary policies. In Europe Germany is positioned quite in the center with a top infrastructure, especially regarding the good and densely road and railways systems and the various airports. The airport Frankfurt am Main is the leading European cargo airport and the third largest passenger airport. Germany is famous for its industrial production with international important companies as VW, Daimler, Siemens, BASF, Thyseen- Krupp. The Slogan "Made in Germany" Still is of great importance. The last time that Germany became "Export World Champion" was in 2008. Another important economic criteria is the great variety of branches. Apart from industry the service branch is a continuously growing sector. Mainly the German population is well-educated and therefore there exists a great stock of highly qualified employees. Politically and socially Germany is extraordinarily secure.

2. Legal Framework

The Legal Framework system in Germany divides in private law, public law, criminal law and litigation. Characteristic for the German Legislation is the principle of concurrent legislation between the federation, the States and Municipalities which means that the following hierarchy only has the power to enact a law if the preceding has not done so. The court decisions in the above mentioned four fields of law are based on the established law and not on precedents. The judgement are basically done by the courts of the federal states. So the Germany jurisdiction is completely different to the Anglo-american Common Law which also is called the "case law". Important to mention for international tax matters is that Germany has signed about 88 double tax Treaties.

3. Banking

Characteristic for the German Banking system is the great variety, consisting of Trustee Savings Banks (Sparkassen), cooperative banks, the German big banks and in comparison with the foreign countries quite few private banks. The banking business underlies the rules of the German Banking law (Kreditwesengesetz). The banks are controlled by the federal Supervisiory Office for Financial Services (Bundesanstalt Fur Finanzdienstleistungsaufsicht = Bafin) to prevent for example money laundering and Corruption etc. The largest German bank is the Deutsche Bank.

4. Financial Regulatory Authority

The German Banking Supervisory authority is the Federal Supervisory Office for Financial Services (Bundesanstalt Fur Finanzdienstleistungsaufsicht = Bafin). The Bafin supervises commercial banks (about 2.080 banks), financial service companies (about companies), insurance companies (630 companies) and the securities trading. The Bafin is an institution under public law with about 1.700 employees. It funds itself complete out of charges and contributions which the supervised companies have to pay. Therefore the Bafin is independent from the federal budget. The Bafin also controls the ability to pay of the supervised institutions and is looking after fair and transparent market conditions. Consumer protection, certification of old age benefits contracts and avoidance of money laundering and financing of terrorism are also tasks of the Bafin.

5. Taxation

5. a. Corporate Tax


Since corporate income tax was reduced from 25 to 15% in 2008 Germany is no longer a high tax-country. Depending on their location corporations pay overall taxes of 23% to 32%. Taxes consist of corporate income tax, solidarity surcharge and local trade tax. A corporation is to be taxed in Germany if its seat or place of management is ion Germany or if it has income form Germany.


5. b. Personal Tax Rates


Individuals pay income tax, 5.5% of that solidarity surcharge and if they are a member of church 8-9% church tax. Married couples may apply for joint assessment. Per person a personal exemption of 8.004 Euro and tax free allowances are granted. Income tax rates go from 14% to 45%, reaching the top rate at a taxable income of 250.371 Euro per person.


5. c. Social Security


Employees and employees each pay a maximum of 19-20% of wages for contributions to health insurance are about 16% of wage income with a ceiling of 45,000 Euro annually and contributions to statutory pensions and unemployment insurance are 22.7% of wage income with a ceiling of 66,000 Euro (55,800 Euro in Eastern Germany). Exemptions are possible for foreigners working in Germany for a limited period of time, managing directors who hold a majority of the share capital and employees whose wages exceed the above limits.


5. d. Customs & Excise Duties


Transfer of goods to and from Non-EU Countries is surveilled by the customs authorities. Customs or important VAT might to be paid. Excise duties are imputed on energy carriers, alcohol, alcoholic drinks and tobacco products.


5. e. V.A.T.


The normal VAT rate is 19%, the reduced VAT rate is 7%. Input VAT can be refunded if applied for and original invoices can be presented and either fiscal registration was made in Germany or if foreigners qualify for the conditions for refund of VAT. Depending on the amount of revenues taxpayers have to hand in monthly quarterly or annual tax declarations. Small enterprises with estimated turnover of less than 50,000 Euros and less than 17,500 Euros in the previous year may be exempted from VAT (and from refund of input VAT).


5. e. Tax Incentives


Corporations usually pay only 1.5% tax on profits from dividends and on capital gains from the sale of shares. Several corporations belonging to the same group with in Germany may form a tax group and thus net profits and losses. In order to avoid inheritance or gift tax high tax allowances for husbands or spouses and children are granted to successors of entrepreneurial assets under certain conditions  Income tax: many costs are tax deductible.


Notes: Cash over 10,000 Euros per person has to be the border when entering or leaving the EU.

6. Main Types Of Corporate Forms

The most common used corporate forms are the limited liability company (GmbH) and the limited liability partnership with a fore mentioned corporation as unlimited partner (KG). In addition publicly held companies use the form of a public corporation issuing shares (AG) and obligations to finance their activities. Besides the limited partnership the typical partnership includes jointly and severally liable partners only. Shareholders and partners with limited liability are liable to the extent capital contributions are not paid in or deemed to be paid back. Corporations or partnerships with limited liability practically have no minimum capital requirement. However ordinary limited liability companies and public companies have a minimum paid up capital of Euro 12,000, 25.000 or 50.000 respectively. Major Banks and insurance companies are organised as public corporations unless using special vehicles for certain branches of investments including investments funds. Investment funds include open-ended forms investing in real estate, portfolios and other funds. Private equity investments are mainly constructed in corporate or partnership form. Trusts may be used to coordinate a family business or as holding for corporate investments. Trusts also act as non-profit organisation or in similar functions.

7. Company Incorporation

All companies running business are registered in a local register. This registration includes the names of the companies founders, partners and managing directors. The records of the register are deemed to be correct. This also applies to the list of shareholders to be file with the register upon any change of shareholders.
    Setting up a company can be done in one to two weeks, but will usually take longer if foreign shareholders are involved. Forming a corporation needs notary form including fixing the articles of association and any changes thereof. Partnerships are not formed in notary form but applied for to the commercial register. In contrary to a corporations files the records of a partnership in the register do not show the articles of association or similar items.
    Under EU law foreign companies being registered in An EU country have the right to apply for registration with the local register in the area of its seat of management. Currently a German company moving its seat to another country is deemed to be in liquidation and may loose its status as registered company in Germany.

8. Reporting & Auditing

The fiscal year is equal to the calendar year unless a company has a different year end for statutory purposes. any company has to file monthly and yearly tax returns on the basis of its financial statements for the previous year. Taxable income is computed on the basis of the statutory profit and loss statement amended by certain deviations for tax purposes. Usually companies pay monthly advances on VAT and quarterly advances on income taxes.
    Yearly returns are to be filed until the end of May of the following year. However this date may be normally extended until the end of that year. Tax payments are automatically subject to interest if the assessment is made after a skipping time of 15 months after the end of the fiscal year assessed. Medium sized and big companies are subject to tax audits regular basis. audit Requirements exist only for statutory purposes. Basically all companies which meet two of three tests in regard to turnover, balance sheet total and number of work face have to undergo an official audit. Such audit requirement covers medium sized companies, big companies as well as limited liability partnerships. Additional requirements refer to the audit of publicly held companies listed on a stock exchange.
     Any corporation and limited liability partnership have to disclose its financial statements in a special register. This also applies to non-audited firms. The extent of disclosure varies due to special rules exempting minor companies from overall disclosure.

9. Special Notes / Country Update

Germany has a very sophisticated legal and tax system. Due to the implications of EU law and the ongoing globalization permanent changes are made to adopt new laws and make Germany attractive to foreign investors. However high individual taxes and a lack of planning safety are still a handicap as well as the high labour cost caused by social security premiums to be absorbed by the employer.
   On the other hand, Germany has a relatively effective bureaucratic and very clear rules for investments and developing businesses. Foreign investors are treated equal to all other investors and have public guarantees in regard to permits, intellectual property and jurisdiction.

Double Taxation Agreement

Germany has double taxation treaty with different countries:

• Argentina
• Austria
• Bulgaria
• China
• Cyprus
• Czech Rep.
• France
• Hungry
• India
• Indonesia
• Israel
• Italy
• Japan
• Kuwait
• Malaysia
• Malta
• Mauritius
• Mexico
• Morocco
• Netherlands
• Poland
• Portugal
• Romania
• Russia
• Singapore
• Slovenia
• Spain
• Switzerland
• Tunisia
• Turkey
• UK
• Uruguay
• USA
• Venezuela

Offshore Company in France

1. Why France?

France possesses the fifth largest economy by nominal GDP eighth largest economy by purchasing power parity. France is the largest state in the Europe behind Russia and Ukraine, and has a very good infrastructure and communication networks: high speed trains (TGV) network, Euro star. France is also the top tourist destination worldwide, receiving 82 million foreign tourists annually.

2. Legal Framework

The French Legal System is constituted of a set of written and codified laws. The French legal system is characterized by the principle of separation between legislative, executive and judicial powers.

     The French legal system is divided into:

1. Public law- subdivided into several branches among which: constitutional law, administrative law, finance law, European law, and on public procurement law - and
2. Private law - divided into many branches among which: civil law, criminal law, company law, labor law.

3. Banking

The financial and banking sector plays an important role in the French economy. In late 2008, 36 French credit and investment institutions were listed on the Stock Exchange, and over the last ten years this sector has represented on average 2.7% of France's GDP. In 2008, 722 credit institutions were operating in France among which there were 394 banks with a network of 27,500 branches.

    However, over the last decade this sector has undergone a deep restructuring which has resulted in a significant decrease of the number of credit organizations. Consequently, today nearly half of the operating credit institutions belongs to only six groups.

4. Financial Regulatory Authority

French banking activity is regulated by different bodies, among which the French central bank (Banque de France), which is responsible for verifying the stability of the banking and financial system, and the respect of the compulsory legal; requirements in matter of financial ratios.

   The French central bank is part of the European Central Bank (ECB) and the European. It participates in the most important international debates: international Monetary Fund, meetings of G7 and G20, meetings of the Basel Committee on banking supervision.

    Beside the French national Bank, the financial Markets Authority (AMF) is an independent agency whose mission is to ensure the protection of saving investments and financial markets at the European and International level.

5. Taxation

5. a. Corporate Tax

The standard corporate tax rates amounts to 33.33%. An additional social security levy of 3.3%, calculated on the basis of the reference amount of corporate tax less Euros 763,000 is applied at the standard rate exceeds Euros 2,289,000.

      For small businesses (under conditions) the corporate tax rate amounts to 15% on the First Euros 38,120 profit, and then 33.33% on the remaining profits.

      Capital gains on the sale of shareholdings are totally exempt, except for the 5% representing expenses.

        Losses can be carried forward indefinitely. It is also possible to deduct the current year's losses from income in the 3 previous years (carry back). Moreover French businesses may be subject to others taxes such as: taxes on immovable, social taxes, etc..

5. b. Personal Tax Rates

Resident individual of France is taxed on his worldwide income while non resident individual of French is taxed on his individual French source income (or, if he is not resident of country having signed tax treaty with France and dispose of residence in France, on three times rental value if higher than their French source income) subject to tax treaty provisions.
    Individual income tax is assessed per household. total net income is total of net results of each taxpayer's income categories. Rates vary from 0% to maximum of 40% for 2010.


5. c. Social Security


The French Social Security system consists in two main statutory schemes:

1. The compulsory general scheme for all workers, covering health insurance unemployment insurance and pension scheme. Contributions are calculated on the basis of percentage rates decided at national level and are borne partly by employers and partly by employees. The total contributions rate of the general scheme varies depending on wages, from 19% to 21% of the wages for the employees, and  30% to 42% of the wages for the employers.
2. The health insurance scheme and the compulsory basic and supplementary pension schemes for self employed workers, which covers non-salaried workers.

The contribution rate depends on the basis of calculation (earnings) used and represents the average of 30% of gross income.


5. d. Customs & Excise Duties


As an EU member State, France customs regulations follow European Union Customs Procedures. In general goods from other EU member's state are subject to VAT, while good from outside the EU are subject to Customs and Excise rules.
   Exemptions of customs duties may apply to merchandise that merely passes through France, that stays in France only temporarily, that is imported in order to be re exported later after modification in France, or that is re imported after having been exported. Excise taxes apply to intra community transactions bearing on specific products such as mineral oil, alcohol, alcoholic beverages and tobacco. Said taxes become due when products are put on market at rates varying depending on nature of products.


5. e. V.A.T.


Value-added tax (VAT) is noncumulative tax levied at every stage of production, distribution, delivery of goods or services. Burden of tax is generally borne in final consumer.
Normal VAT rate is 19.6% and low rate is 5.5%.


5. f. Tax Incentives:


1. Research tax Credit- The French Research tax credit (RTC) is very attractive. It is the first support measure to encourage Research & Development in France. It represents a budget of Euro 3 bn in 2008 and concerns nearly subject to income tax, spending money on eligible expenses on research is entitled to benefit from the Research tax credit.


2.  Innovative young companies- Specific measures have been taken to help new companies whose R&D expenses represent at least 15% of their tax deductible costs. Conditions: small and medium-sized Companies with less than 250 employees, whose sales are inferior to Euro 50 m and total assets inferior to Euro 43 m. The incentive is granted for a period of eight years from the setting up of the company.


3.  Other Incentives- Besides the Research tax credit and the Innovative new Companies incentive, other tax credits are granted to certain sectors of activity: film and audiovisual industry, fashion and leather industries.

6. Main Types of Corporate Forms

1. Corporations in General - French corporations are either "societe anonyme" ("S.A."), "societe par actions simplifiee" ("S.A.S."), "societe en commandite par actions" ("S.C.A.") or "societe a responsabilite limitee" ("S.C.A.") or  "societe a responsabilite limitee" ("S.A.R.L."). Liability of shareholders of these companies is limited to amount of their investment.
2. Foreign corporations -  Such corporations desiring to do business in France through branch must comply with exchange control regulation. Foreign corporations doing business in France are subject to same taxation as French corporations for profits made in France, but with special provisions with regard to dividends.
3. Partnerships - French partnerships are either simple ("societes en commandite simple"), or special by shares ("societes en commandite par actions"). there is also form of association similar to joint venture ("societe en participation"). All forms of partnerships except "societe en participation" are subject to bankruptcy proceedings.

7. Company Incorporation

There are no administrative restrictions on foreign investments in France, but some business sectors require special declarations or permits, and some activities are regulated or require the possession of diplomas.

    Companies wishing to prospect for business in France can start by hiring one employee or opening a 'liaison office'. These two solutions do not involve the creation of a permanent establishment and there is no tax impact, as long as the company does not make any profit in France.

    If the company wants to open a permanent establishment in France, it can open a branch or a subsidiary. Both of them are permanent establishments subject to taxation in France, and must be registered with the registry of trade and companies ("Registre du commerce et des societes").

   The registration of a business (branch or subsidiary) takes 7 days on average. The cost of administrative formalities depends on the option. For a LTD, cost is approximately Euro 85 plus approximately Euro 250 for publishing a notice in the legal gazette.

8. Reporting & Auditing

1. Date of Accounts closure- There is no legal obligation in France concerning the date of closure of the accounts for business concerns. Actually most companies close their accounts on 31th December. For other entities including tax payers the fiscal year corresponds to the calender year. The tax declaration must be sent to the tax authorities within a 3- monthly period if the accounts are closed on 31st December. 
2. Appointment of an external auditor- This is compulsory in the case of joint stock companies and in some other types of entities (charities, foundations, or any type of organisation benefiting from public subsidies, mutual funds...) French SAS owned by Companies. The appointment of an external auditor is also compulsory for the other types of companies under certain conditions (revenue, number of employees, total balance sheet).

9. Special Notes / Country Update

1. Credit to consumer- Since 2003, the protection in consumer credit contracts has been strengthen. In compliance with EC Directive of February 16, 1988 any advertisement or any credit offer shall include statement of annual (and not monthly) percentage rate of charge.
2. Trust - Since February 19, 2007, France provides itself with a new legal vehicle allowing to create arrangements equivalent to the trusts of other countries: the "Fiducie".The French Fiducie  allows an independent patrimony to be created that is not that of the settler (the constituent) but which does not form part of that of the fiduciary either. Indeed, the latter is obliged to keep the transferred property, rights and securities separate from its own patrimony, which was not possible under former French Law.

Double Taxation Agreement

France has double Taxation Treaty with different countries:

·                     Argentina

·                     Austria

·                     brazil

·                     Bulgaria

·                     Cyprus

·                     Czech Rep.

·                     Germany

·                     Hungry

·                     India

·                     Indonesia

·                     Israel

·                     Italy

·                     Japan

·                     Kuwait

·                     Malaysia

·                     Malta

·                     Mauritius

·                     Mexico

·                     Morocco

·                     Netherlands

·                     Poland

·                     Portugal

·                     Romania

·                     Russia

·                     Singapore

·                     Slovenia

·                     Spain

·                     Switzerland

·                     Tunisia

·                     Turkey

·                     UAE

·                     UK

·                     USA

·                     Venezuela