If you are living the life of a location-independent entrepreneur, you will sooner or later encounter the possibility to form an offshore company to save on taxes or social security contributions.

But, based on a number of different factors, your new offshore company might be taxed by different countries.

At first we need to distinguish between two types of companies, natural persons and legal entities.

For natural persons, things are pretty easy, they are either taxed in the country they are living in or the country they hold citizenship of (or sometimes both).

So if you register as a sole-proprietor or as a partnership, that business is, in general, taxed in the country where you register it.

For legal entities, we again have to differentiate between pass-through entities and entities that are taxed as an own legal person.

A pass-through entity is basically a corporate tool that often gives you legal protection like a corporation, but taxation passes through to the members of the entity. Examples for this are US LLCs or Canadian Limited Partnerships.

Finally, entities that are taxed as an own legal person are taxed in the country where they are incorporated, no matter where the owners live and pay their tax. Examples for this are US C-Corporations, UK Limited companies, Spanish Sociedades Limitadas, etc.

An exception to this last rule comes with CFC legislation. Some laws, that broke a lot of offshore dreams in recent years. CFC rules basically say, that a company is taxed in the country where the management is located, if the company has no physical substance in the country of incorporation, like an office, employees, a phone line, an electricity bill, etc. Thus simply opening a company in the Cayman Islands by putting a mailbox there, does not work any more, if the owners are registered as a tax resident in a country that has CFC laws. Please see our article about CFC rules for details.

Before opening your own offshore company, you may weigh the different options against each other. If you are ready to incorporate your company, click the button on the right side of this page. If you need help, you are welcome to book your individual consultation.