Holding Companies

Use may be made of an off­shore hold­ing com­pa­ny which would fund the oper­a­tion of sub­sidiaries in var­i­ous coun­tries so that the sub­sidiaries obtain the ben­e­fit of tax deduc­tions on inter­est paid. If the hold­ing com­pa­ny is sit­u­at­ed in an off­shore area where there are no income or cor­po­ra­tion tax­es and no require­ment that div­i­dends must be paid, then the prof­its which are accu­mu­lat­ed in the tax free cli­mate can be used to fund the require­ment of sub­sidiaries or rein­vest­ed as busi­ness con­ve­nience suggests.

Tax Planning Consequences

It is impor­tant to note that you can­not sim­ply open up an off­shore trad­ing com­pa­ny and “pre­tend” to make mon­ey off­shore. Any income through invest­ment would have to be actu­al­ly “sourced” out­side of the United States (either through the IRS tax sourc­ing rules, or var­i­ous tax treaties) to receive tax ben­e­fi­cial treat­ment. In addi­tion you must make sure that your struc­ture does not run afoul of the IRS Controlled Foreign Corporation Laws and that your struc­ture is not deemed to be a Foreign Personal Holding Company.