How does an offshore company work

Offshore company / letterbox company - how do tax savings and cash flows work in practice?

Since there hasn't been a correct answer yet, I'll add my mustard.

First of all: I have been dealing with the topic of offshore companies and tax optimization for a long time (estimated 1-2 years), I was able to learn a lot about the topics and am about to found my first offshore company myself.

So:

As an employee, saving taxes does not help at all, as you only receive your money net and the money is therefore already taxed. It is different for the self-employed, they have to pay the tax themselves. In this case, you COULD open an account somewhere offshore and store your money untaxed there. Thanks to the CRS (Automatic Information Exchange) of the OECD (Association of Many Countries to Prevent Tax Evasion), a large part of it will soon be history (attention: there will still be loopholes where your information will not be transmitted to your local tax office). As a private person, you can still have an account anywhere in the world and "bunker" money there. In fact, that's a good idea. See Greece. Overnight they couldn't get their money or only little money. This could have been avoided with an account abroad.

Companies:

Taxation takes place at the place of business management. In other words, if the company's decisions are made in Germany, you are taxable in Germany. The exception is when you really create "substance" in the country of the foreign company. In other words, office buildings with employees, etc. A simple letterbox is not enough in this case. There has to be a rented shop / office with employees and this has to be proven to the German tax office (in that case, you yourself have the burden of proof). So as long as you continue to run your business in Germany, but issue the invoices through the offshore company, you are still taxable in Germany. Incidentally, additional taxation can also be added, please use Google for this. Another problem in Germany is that the current foreign tax laws mean that you are not allowed to own any company abroad (exception: substance is available).

But there are also countries with so-called "territorial taxation". These include, for example, Panama, Paraguay, Vietnam, Malaysia, Hong Kong, Delaware (USA), Wyoming (USA). There are many more, but these are the best known.

Territorial taxation means that you only have to tax domestic income. In the case of a Panama company, only income that comes from Panama must be taxed. Income from the rest of the world is tax-free.

In addition, in England, Ireland and Malta, for example, there is the so-called "non-dom rule". This also means that you do not pay any taxes on foreign profits. For example, if you live in Malta, if your company is in Panama, which only has income outside of Panama, all of your income is tax-free - and it is completely legal.

There is another way to live tax-free and travel while doing so:

This is very popular with digital nomads with an online income. You are not permanently resident anywhere (or at least in a country with non-dom regulation or territorial taxation) and are therefore not subject to tax (attention: also note the 183-day rule, center of life, etc.). If you still have an offshore company, you can take profits from this company tax-free, as you are not liable for income tax in any country in the world (except with territorial taxation).

In addition, I would like to link an expert on this topic here:

Christoph Heumann is a Prepetual Traveler (travels around the world and doesn't live anywhere) and has a lot of experience on this subject. You can read a lot about it on his blog. You can find his blog here:

https://staatlos.ch/