International tax planning

Our value added services are based on the design of international structures, which maximally corresponds to the individual needs of each of our clients and includes the essential analysis of the tax implications for individual transactions. We have extensive experiences with appraisals in terms of finances and the tax authorities within the Czech Republic as well as abroad within the area of international tax handlings. A fundamental aspect of this work is also in the area of tax consulting services relating to tax laws as well as ​​corporate law in the Czech Republic. The most common tax planning services which we provide are in the following arenas:

International business in merchandise

Offshore and onshore services are most often utilized within the realm of international trade and pertain to both goods and services. Due to the highly developed transport infrastructure and operational logistic capabilities, this type of financial service is one of the most highly sought after.  For projects like these it is essential to set up a proper corporate structure which will serve as a suitable tool for effective management with the element of ownership anonymity and tax optimization.  It is of key importance to consider the appropriate settings for such a structure with regard to the location of warehouses, free customs localities and last but not least, free trade zones.

Location plays a key role especially in proposing a suitable business structure as well as in the selection of the jurisdiction where business is to be performed. In terms of business activities, the most common structures are those involving companies registered in the EU (Great Britain, Malta, Cyprus, etc.), wherein the effective tax rate at the correct setting ranges between 1-2%. In some cases, it is possible to utilize a company based in the USA or Hong Kong, wherein one can obtain a tax rate of zero by complying with relatively unrestrictive conditions.

Development projects, real estate

The transfer of property for tax purposes is a very costly affair, especially in cases of speculative purchases. In such cases, a suitable alternative may be the option to transfer shares / shares of property owners (in practice, known as a SPV or “special purpose vehicle”). The assumption is that the parent company is registered in the appropriate jurisdiction with the holding requirements in the form of tax-exempt sales of units / shares in such SPV companies.

In addition, such an approach can be used in the area of development projects which involve an international partner such as an investor for a particular project. This approach allows the investor to offer resources to the project through loans and interest on such loans which will meet several conditions upon entering fully into the tax base as a tax-deductible expense. Through such an approach, key emphasis is placed on the selection of an appropriate jurisdiction in terms of the potential taxation of interest whereby there is a tax withholding at the source of payment of interest (i.e. the Czech Republic) and subsequently with specific regard to the income tax at the point of collection of the interest on income. For this type of transaction, it is recommended to use a company registered in Cyprus or Malta.

Holding structure

 Recently a common practice is the formation of an international holding structure which satisfies several key objectives. In particular, it is to ensure absolute anonymity of ownership while preserving control over the entire structure. The future of shareholding in the Czech Republic is uncertain and therefore many entrepreneurs are moving towards building an international entity, whereby anonymity can be easily achieved.

The days of building aholding structurebased simply onlyon anoffshorecompanyarealreadylong gone.The current trendisbuildingstructuresthat will meetnot only the desire for ownership anonymitybut achieve other objectives as well such as:

  • providing a high image structure (to the public, business partners, banks …),
  • providing tax exemption on the sale of investments associated with a group (i.e. the sales assets and shares in subsidiary companies),
  • providing tax exempt dividend flow / share of profit from subsidiaries; and,
  • property protection-throughbilateralagreements on the protectionand promotion of investment

Achieving these aforementioned benefits is contingent upon the fulfillment of several conditions that differ across jurisdictions. The selection of the holding companies are however, for the most part, situated in the jurisdictions of Cyprus, Malta, the Netherlands, Switzerland, Luxembourg and other such localities.

Trading in securities and receivables

One interesting aspect in terms of the tax effect is the possibility of setting up a company for the realization of portfolio investments in publicly traded securities. Stock trading with securities in the USA most commonly uses standard offshore companies in Seychelles, Panama, the Bahamas, and the British Virgin Islands. However, when trading on European exchanges, it is usually necessary to use a standard onshore jurisdiction due to cases wherein there are negative effects in the form of withholding taxes. For such circumstances the offshore localities of Cyprus or Malta are recommended.

For trading in debt, it is possible to utilize a company situated in any number of locations (it is merely a question of the taxation of income from the sale of assets). A different situation arises, however, if there is a transfer of assets to a foreign entity that will subsequently collect the receivable assets. In the event that a wrong choice of jurisdiction has been chosen, the company may face negative tax effect in the form of a so-called ‘ensured tax’ (in the Czech Republic this is currently 1% of the sum of the total collected assets).

Optimization in providing know-how, patents and licenses

When grantinglicenses, orothermeansforgranting the right of use,isalwaysnecessary to proceedwithgreat cautionin terms ofthe potentialtaxupon the paymentof such feesabroad.Defaultonthesepayments customarily results in imposinga withholdingtaxat the sourceof paymentandthereforeit is necessary tomonitor the behaviorof such paymentswhich correspond toan international entity; in particular in terms of the selection of the jurisdictionaccording to individualagreements on avoidanceof double taxation, which canreduce therate of withholdingtax, or in some cases completelyeliminate the withholding.This form of optimizationis usuallyquite complicatedto setupand the transactionrequires a more detailed tax analysisof the entire situation.
Note .: It is important to call attention to a fact which the public is generally unaware of. Know-how is generally classified as a license, and not a service!

IT services, software services

As for other services, the design structure of foreign companies is a suitable alternative to the provision of services in information technology and software services.