July 1, 2010
Oxford, England
— Happy Canada Day —
One aspect of multiple flags that I don’t address too much is using corporations to your advantage. This is an important strategy that I think you should consider, and there are several reasons for doing so.
Most importantly, governments generally respect businesses a hell of a lot more than individuals. To politicians, people are just slaves to be controlled… as my friend Doug Casey says, “tits on cow” that can be milked over and over again.
Businesses, on the other hand, are an important means of creating jobs and generating revenue– a successful business can create hundreds, and even thousands of jobs. This is beneficial both for the economy, as well as a sitting government’s popular standing.
Politicians understand this quite well, and as such they often go out of their way to court businesses through a variety of tax schemes and incentive programs. It’s commonplace to hear about politicians going overseas to attract foreign investment– many nations rely on this as a source of economic growth.
Once such example is right here in the UK. Last week, the government unveiled its ’emergency budget’ which implements the most severe austerity the country has seen since World War II. Absolutely EVERYONE is going to have to contribute more, including the Queen herself.
While most individual income tax rates are going up, corporate income tax rates are actually headed in the opposite direction, from 28% to 24% over 4-years.
This may seem strange at a time when Britain is desperate to fill its coffers with more tax revenue. Those in power, however, understand that low corporate tax rates attract businesses, and with businesses come jobs and economic growth.
In his address to the nation in which he unveiled Britain’s emergency budget, Chancellor George Osborne underscored this point when he said:
“I want a sign to go up, over the British economy, that says Open for Business… Corporation tax rates are compared around the world, and low rates act as adverts for the countries that introduce them.”
Osborne realizes that businesses have a choice. They can literally pick up in the middle of the night and move to a lower tax jurisdiction. Haliburton famously comes to mind; the Houston-based oil services firm moved to Dubai several years ago, drawn by the Emirate’s 0% corporate tax rate.
(quite honestly, individuals have a choice too; they can pick up and move to another jurisdiction, or plant multiple flags just as easily– most people simply don’t realize that they have this choice… but I’ll save that for another time.)
Russian President Dmitry Medvedev is taking similar action in his nation, cutting taxes, strengthening the rule of law, privatizing state-run dinosaurs, and making it easier to obtain visas.
Russia’s one trick pony economy is starving for foreign investment to diversify away from reliance on oil and gas, and Medvedev understands that the best way to do that is to roll out the red carpet for businesses and investors.
So how do we benefit from this?
First, for entrepreneurs and self-employed professionals, I would suggest looking overseas for opportunities, both to structure your company, as well as for your customer base.
For example, Brazil and Chile are in serious need of people and businesses with experience in mining and finance. China needs anyone who can help manage growth. Qatar and Abu Dhabi are excellent markets for IT, retail, and finance; Taiwan, South Korea, and Israel for defense. Russia for retail and entertainment. Etc.
To structure your company, it makes sense to look in low-tax (Hong Kong, Singapore, Bulgaria) and even no-tax jurisdictions (Panama, BVI, Labuan).
I am particularly fond of structuring in Singapore simply because there is so much transparency there; and even with its low flat corporate tax of 17.5%, it is still possible to avoid taxes entirely by banking in another jurisdiction (like Hong Kong) and not repatriating the funds to Singapore.
If you’re not an entrepreneur, investor, or professional, you may still be able to benefit from this strategy as an employee. Depending on your home country’s tax code, you may be able to change your employer/employee relationship to a client/contractor agreement using a new company that you set up.
For US taxpayers, the IRS has some simple guidelines to determine if being an independent contractor is permissible. I think it also makes a lot of sense to use an Open Opportunity IRA structure instead of a foreign corporation.
