Using tax havens to shelter profits is risky

TAX havens are offshore nations that gives people and companies a tax regime that imposes no tax or minimal tax with out the requirement for residency or enterprise presence. Examples of tax havens are Cayman Islands, British Virgin Islands, Guernsey, Jersey, Seychelles, Liechtenstein, Luxembourg, Curaçao, Cyprus, Cook Islands, Samoa, Bermuda, Bahamas and Isle of Man. There are nations on the borderline which provide extraordinarily low tax charges for sure entities or particular actions equivalent to Hong Kong, Singapore, Mauritius, Brunei which might be thought to be de facto tax havens. How are tax havens used: 1. Passive investments Malaysian people and firms utilizing tax havens to maintain passive investments by means of trusts and different autos which generate dividend, curiosity, or different types of passive earnings the place no lively intervention by the house owners is required shouldn’t be uncovered to any tax in Malaysia even when it is remitted into Malaysia on the grounds that it is international sourced earnings and remittance of international supply earnings is particularly exempted in our earnings tax act. Here, the Inland Revenue Board (IRB) would have an interest to discover out whether or not the supply of funds was subjected to tax beforehand. 2. Business earnings or different lively earnings Both these lessons of earnings require lively administration and intervention the place the Malaysian particular person or firm is carrying on enterprise operations in Malaysia and partially abroad partaking international prospects. There is an inclination to park the total or some portion of the revenues in tax havens. An instance could be the place e-commerce firms could park sure streams of earnings in tax haven firms and depart the stability in Malaysia on the idea that in the event that they pay some taxes in Malaysia, the IRB won’t hassle them. There are others in comparable conditions who will park all their earnings in tax havens. Will the tax authorities discover out? With the elevated focus by all nations in direction of eliminating tax leakages by means of tax evasion, the times of hiding lively enterprise earnings or different lively earnings by Malaysian residents from the IRB are numbered. More than 100 nations together with tax havens have already began to change monetary accounts of taxpayers held by banks, insurance coverage firms and funding entities. If additional info is wanted, Malaysia being a member of the Global Forum on Transparency and Exchange of Information for Tax Purposes can request for detailed accounting data in addition to possession of belongings. All motion of funds out and in of Malaysia is out there to Bank Negara Malaysia and if wanted, IRB can entry such info when investigating Malaysian taxpayers. All purchases of huge ticket objects equivalent to properties and luxurious objects are recurrently reported to the IRB. It is not unusual for dividends to be flowing in from international firms situated in tax havens. Such earnings flowing in won’t be topic to tax in Malaysia because it is international sourced earnings. However, if the IRB had been to scrutinise the connection between the Malaysian recipient and the tax haven firm and enquire additional into the workings of the tax haven firm, the Malaysian recipient could have issue in displaying that the earnings generated by the tax haven firm is not related to actions carried out in Malaysia. Final recommendation You can use tax haven firms to maintain investments offered you’re able to clarify the supply of funds and related taxes have been accounted for. However, when it entails producing enterprise earnings by means of tax havens with out substance (workers, workplace or native expenditure), it is not advisable. This article was contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai.

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