What are the pros and cons of a non-resident company?

Cons of a non-resident companies mostly consist of the fact that they are subject to many limitations relating to international tax planning , such as:

  • Treaties for the avoidance of double taxation, signed by the countries of incorporation, do not apply to non-resident companies. This might cause unexpected issues, the severity of them depending on the business model, ownership structure, etc.
  • Provided that the company does not have an effective management in the country of establishment, it is assumed that it should have presence (management) somewhere else. This might cause negative tax-related implications, both to regulators (depending on the business model) and, for example, banks in which the company would intend to open payment accounts.
  • Anti-tax avoidance rules, such as controlled foreign corporation rule, are oftentimes applied to non-resident companies by the jurisdictions of their beneficiaries’ tax residencies.
  • On the other hand, non-resident companies might be the perfect match in situations where the manager(s) and the ultimate beneficial owner(s) of the companies are tax residents in zero-tax countries, such as the United Arab Emirates. In cases like these, the companies do not possess any risk that the permanent establishment or CFC rules will be applied. In certain cases, non-resident entities in the US, Europe or Hong Kong are able to benefit from the favorable local regulations and better banking options, which might not be available in the country from which the entity is managed.

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