Tax planning is the analysis of a financial situation or plan from a tax perspective. The purpose of tax planning is to ensure tax efficiency. Through tax planning, all elements of the financial plan work together in the most tax-efficient manner possible. Here are main possible options for efficient tax planning;
A holding company is a corporation that limits its business to the ownership of stocks in other companies. In addition, it can perform supervision or management functions for these companies. A holding company does not produce goods or services itself.
Why use a holding company?
There are a number of reasons for using a holding company.
First of all, holding companies achieve the reduction of risk for the ultimate owners of the assets. This is especially the case, when holding companies are located in countries with strong asset protection laws.
In addition, a holding company can help centralize the ownership and control of a number of different companies. For example, you could transfer the shares of a holding company to transfer a large number underlying assets, instead of going through the procedures of buying each asset individually. This characteristic can also be useful when transferring assets to the next generation.
And finally, a strategically located holding company can help reduce your tax burden.
Now we provide one classic example of UAE Holding Structure
A RAKICC Company as a holding entity
The UAE is a white listed onshore jurisdiction that offers business opportunities that exist only in mature industrial and financial hubs. International companies moving to the UAE find themselves in a thriving market with excellent infrastructure.
The RAK/ RAKICC International Business Company (IBC), commonly referred as Offshore company, is by far the most popular for international entrepreneurs looking to set up their business in the UAE. They have very interesting features from which you can highly benefit.
When you compare RAKICC and other offshore jurisdictions your wealth is equally secure and confidential in either of them. But there are some important differences mainly in costs of registration, documents demanded from shareholders, permitted activities and property registration scope.
They are ideal for any type of business that does not require a local office, including passive investment activities. Examples our existing clients use include
- Holding shares in international, local or free zone companies
- International consulting
- Investment company
- Trading activities outside the UAE
- Holding intellectual property
RAKIC/ RAK offshore companies have the following benefits:
- 0% Corporation tax, 0% VAT and no income tax.
- No requirement for the owner or director to visit the UAE in person
- 100% full foreign ownership
- Confidentiality is preserved; there is no public record of shareholders or directors
- No audit requirement or requirement to submit financial statements
- Possibility to open a solid bank account in Dubai
- A registered office in Dubai (through RAS Global)
Just like local and free zone companies, these offshore companies can benefit from some of the tax treaties concluded by the UAE while still benefiting from the strong client confidentiality rules applicable in the UAE.
Using a RAK ICC company as a shareholder of a freezone company can prevent otherwise significant legalization charges.
You might also be interested in our article on buying Dubai real estate with a holding company. (we can publish an article on this topic)
Do you want to know more about the perfect holding structure for you?
Contact us for a Free Consultation on your personal situation.
- Intellectual Property (IP) Holding
Most companies hold Intellectual Property Rights (IPRs) of some sort. They might have been acquired or developed internally. When they might consider licensing the use its IPR to external parties or companies within the group, an IP holding company can be set up to centrally manage these activities. If the IPRs are transferred to a company that is based in a beneficial tax regime, the tax burden can significantly be reduced.
So when you structure the ownership of your IPRs adequately and when you channel your license payments, it can lead to significant tax benefits.
A number of other benefits that an IP holding company can have for you are by placing your IP in one entity you are able to streamline the internal processes for inter-group licensing. Cross-jurisdictional tax issues become simpler as you will be regularly licensing IP between the same jurisdictions.
You can justify staffing that entity with people who have the skills to manage the same so protecting valuable assets of the company further, simplifying the licensing process. Assets can be valued due to the income stream that accrues for the benefit of the IP holding company.
The value of the shares in the entity can be included into the accounts which will benefit the shareholders of the holding company.
Untaxing your Intellectual Property
Every business that possesses intellectual property should look at whether it is feasible to reduce its tax burden through international tax planning.
Intellectual Property (IP) is the term given to the legal rights attached to certain assets which are not tangible. Examples are: ideas, concepts, inventions, written works.
The inventor or originator of an idea possesses the legal right to exclusively use, enjoy and benefit from the idea.
However, one could develop the idea for someone else under a contractual arrangement where the other person becomes the owner. This is the default arrangement for instance when employees develop something for their employer during the course of their work.
The owner can sell the idea or license its use. A license is, simply stated, the permission to do something the granting party (the licensor) has the right to otherwise prohibit. As the original owner, the licensor can attach certain terms and conditions to this right to use the IP.
Because intellectual property is intangible it is easier to move these assets offshore, in order to benefit from a low or no tax regimes then a trading or manufacturing operation.
As intangible property cannot be geographically pinpointed in any one jurisdiction (given its very nature), the situs of the IP would normally be where the owner of the IP is resident.
Once the IP is held offshore it can be licensed to the, typically onshore-, jurisdictions where the IP is used. In order to maximize the tax advantages, several aspects need to be taken into account:
- The IP should be sold to the low-tax jurisdiction when the value is still low. Once IP has shown a consistent history of profits the value will be considerable, so ideally the transfer is done well before that.
- Ideally, the low-tax jurisdiction has the professional infrastructure to develop the IP further, further enhancing future royalty income streams.
- The payments of the licensee to the licensor in the low tax jurisdiction should be subject to low or no withholding tax. A few countries such as UAE do not have withholding taxes on royalties but most do. In those cases the tax treaty network of the licensor country becomes important, because if the incoming royalty payments are covered by a tax treaty the withholding taxes that the licensee country levies will normally be reduced.
Google’s and Starbuck’s use of licensing structures to reduce their otherwise substantial tax burden has been well publicised. What is not well known is that small to mid-sized entrepreneurs, have access to the same tax reduction strategies. Your company might have IP, or be in the process of developing IP, while you do not even realize this!
- Tax Planning for Consultants
In this globalized world, many consultants find their employment in different countries. And when they have a differentiated income, they can often use tax planning for consultants to reduce their taxes significantly. Our services cater for young professionals as well as high earning experienced consultants. If you want assistance with setting up an international company, a trust, a tax residency scheme, or looking for a tax saving, we can help you.
Our experienced Consultants in Dubai and the extensive tax treaty network UAE possess, allow us to create unique tax saving strategies tailored to suit your needs.
What RAS Global can do for you?
Are you a freelance consultant, artist or sportsman, an advisor in the oil and gas industry, a consultant for large multinationals or working on big international projects? Do you have clients in multiple countries and do you have international ambitions? You have come to the right place!
Our services are available for young professionals as well as high earning experienced consultants. If you want assistance with setting up an international company or are looking for a tax saving, we can help you.
We can provide you with 100% tax compliant solutions that allow you to keep more of your hard-earned income.
- Tax Planning for International Entrepreneurs
An increasing number of businesses are conducting business in more than one geographical location. The entrepreneurs behind these organizations often reside in the fully taxed Western world. However, current double tax treaties and legal international company structures offer the possibility to significantly reduce taxes.
Do you have a trading company, an import / export business, an international investment company, an internet business or are you an online consultant or freelancer? You have come to the right place.
In the globalized world these tax planning structures are becoming available for small and medium sized businesses. You might not be able to achieve the same tax planning results as the big multinationals, but with our help and depending on your situation we can slice between 20% to 50% off your tax bill, and in some cases even more!
What can we do for you?
We can analyze your business and give you solid tax and legal advice on how to reduce your tax burden, based on our own extensive experience and by consulting our network of specialized tax advisers.
Based on this advice we can structure your business, and can even provide you with management, administration, provision of a virtual office, the opening of a bank account and much more!
Contact Us for a Free Consultation on your personal situation.