Subsidiaries take over certain functions of a company in another country. When implementing, it is important to avoid activities that would lead tax authorities to assume a site closure and therefore taxable profit on the difference between actual value and book value (e.g. from selling a customer base).
If there are transactions between associated enterprises, transfer pricing should be documented and meet criteria of third party comparison.
Branch office: here a corporation sets up a branch which is part of the same legal entity, but is fiscally located in another country. The financial statements of the establishment are created separately and then included into the headquarters financial statement. The tax authorities at the headquarters sometimes demand deep insight into the financial statement of the establishment, but because of the double taxation agreements, there are attractive design options. Another advantage: when outsourcing to a new branch, existing contracts need not to be changed.
Intermediate companies operate between the parent company and sales or purchasing companies, they perform active functions and enable legal profit transfer.
Principal companies may act as staff office, while commercial activities are performed directly between headquarter and subsidiaries. They offer assistance in marketing, logistics, controlling, administration or management. If they take some risk, transfer prices can be higher.
Collecting Companies: the licensor or franchisor are owners of trademarks, patents, licenses, software licenses, operational know-how, copyrights, etc., and use such intangible property by offering to third parties the right to use it and to exploit it economically. Remember: some tax authorities require the licensee to shortly after signing the contract deposit a copy of the license contract together with a public seat confirmation of the licensor.
Holding, investment and finance companies: they can use tax benefits and capitalize from access to capital markets. Investors in private equity often prefer to have their money back in Switzerland after an exit deal.
Note: Criteria for a location for holding companies in our point of view:
a) tax free receipt of dividends from a subsidiary, even from a country with low taxation.
b) no withholding tax on transfer of dividends to a parent company.
c) double taxation agreements that prevent withholding taxes in the country of the subsidiary.
d) no tax on capital gains (sale of companies or of shares).
e) no tax on dividends at shareholders level.
Switzerland only meets some of these criteria, thus there is a need to combine activities with active companies in other countries. In this field Zugimpex provides support.
Commercial broker: the broker is entitled to receive a commission if the principal and a third party to whom the broker acted as an intermediary, close a contract. He can look for a contracting party but has no obligation to act. He might get his commission for establishing a contact or be involved in contract negotiations.
Participating transactions (Joint Venture): several parties undertake a transaction in the name of one party but on joint account. The joint venture does not appear to the outside, only internally. The partners notify each other of any third party transactions. In their accounts, the partners use one account for the joint venture transactions and one account for any other clearing partner. Such a structure is sometimes used in joint ventures in construction business, but also in other areas where one partner has a long term agreement that cannot be transferred to a third party (e.g. competition clause, general agent, contract after a tender). The "official" partner carries on the business in his own name, but shares his profit with the joint venture partners.
Agent: the agent works permanently for the client and there is a continuing obligation, because the agent is obliged to act for the principal. For tax purposes there is an important difference between agents who close a deal and agents, who only initiate a deal, lead the contract negotiations and submit the documents to the principal for signature. In addition to commissions, agencies can receive various forms of compensation: commissions for collection, contingency commission, compensation for lost profits, compensation for a client stock or compensation for a non-competition clause.
Commission agents transact in its own name on behalf of others (corresponding to an art gallery that sells art works in its own name, but the art works belong to an artist who made them available to the gallery). The commission agent must comply with the requirements of the principal, and he gets a commission if he manages to close a deal.
Representative, exclusive representative agreements: rights and duties are strictly regulated, sometimes there is a definition of the region, sometimes there are obligations for minimum quantities or down payments for the customer base, if the contract is terminated. In many countries this is mandatory.
Franchise contract: the franchisee pays an initial fee and receives a temporary right to exploit a system and the right to be adequately trained on it. Usually, he continues to pay an ongoing fee to the franchisor, who maintains the system, and acquires the right of further support and participation.
Examples: combinations that fiscally make sense:
Use of different regulations for utilization of losses: losses may occur economically or fiscally (such as accelerated depreciation). In some cases such losses can be offset against other profits. Examples are losses from limited partnership, from silent partnerships or from consolidation of a group taxation scheme. Other tax models use the progression method of double tax relief in the respective double tax agreement. If a partnership generates losses in a foreign establishment and combines these with profits at the headquarters, total effect can occur, if profits at the headquarters are taxed in a lower progression stage.
Austrian group taxation: affiliated enterprises with specific ownership structures may file an application for a tax group. Then, in Austria, profits and losses in the group are considered together for a minimum period of 3 years. Part of a group can be several holders of shares of an enterprise; conversely, not every enterprise that is a daughter company of a holder has to join the group.
Regional combinations:
Switzerland, Austria, Slovakia and Cyprus: Zugimpex offers combined solutions for specific problems. In the interest of our customers, we do not disclose this know how in the internet.
UK Limited with branch office: this structure combines advantages in the company law of one state with tax advantages in another state. 'The Ltd. has low capital requirements, and the branch is subject to limited tax liability in the country of permanent establishment. However, there are additional costs in the UK for the legal seat and for the 2 forms that have to be submitted annually. In the EU, a branch office can act as a holding and thus use the benefits of a holding.
South, Central and Eastern Europe: if we consider not only tax laws, but also promotion of economic development and administrative practices, these developing countries offer some interesting markets with low taxes and low wages. Bulgaria, Serbia, Albania and Bosnia-Herzegovina attract investors with a profit tax of 10%, which can be reduced further by numerous additional benefits; in Montenegro, the official rate is 9%, and there are additional exemptions, too. Low labor costs and real estate prices limit the risk of a real company or branch office with a real business.
United Arab Emirates: The Emirates have not only a booming economy, but also a double taxation treaty with Austria. This allows an Austrian company a tax-free branch office in UAE as well as other benefits. Since Germany has cancelled its Double tax treaty with UAE, so profits of a UAE branch would be taxed in Germany. Also, there is an attractive possibility to create a Slovak Holding structure with an Austrian daughter company that has a real branch office in UAE.
Monaco does not tax the income of private residents, and residents do not have to make declarations of income and wealth. To become resident, there are some requirements: clean criminal record; a declaration of a Monegasque bank that the applicant owns enough funds; and a rental or purchase contract of a real estate. For EU- citizens, it takes only a few weeks to receive the famous "Carte de Sejour”. The first 3 cards are valid for one year, the next 3 cards are valid for 3 years and after this the cards are often valid for 10 years. While the rest of life costs are among European standard, the property prices are among the most expensive in the world, so a residence in Monaco pays off only with an income that exceeds € 200.000 per year.
Savings: Singapore, but also some other countries are not subject to the EU Savings Directive and not so much in media focus. Some countries still have a good banking secret and rarely receive requests. After investors have trusted for decades the well known financial centers, they have been disappointed by by expensive fees, betrayal and sometimes fraudulent activities. They now often transfer their assets to locations where they get a better service for lower fees. Such banks have good online banking platforms and a wordwide network of correspondents where it is easy to open an account.
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