Business migration: the current trend of international entrepreneurs
The new trend
For the last few years’ now there has been a move away from the traditional use of virtual offices towards the much more favorable idea of Business Migration.
Migration can be defined as “something or someone moving from one place to another generally in order to receive some kind of a benefit at the place of destination”. It is a standard reality to behold people’s migration in order to improve their standard of living.
“Business Migration” carries a similar trait, meaning that a company will move to a different location in order to receive some sort of benefit. These benefits can include asset security, a stable and reliable economy and operational cost efficiency. Entrepreneurs usually look for a close proximity to suppliers and customers, and substantial tax benefits when relocating their business.
This is not a revolutionary concept, since early man trade has been international. Even in modern day business, international companies have been complexly structured and in some cases specifically for the advantages it can bring. However, as global economies buckle under the strains of world politics, the magnifying glasses have come out and regulations consequently have been put in place to stem the preverbal leaks. One of the key targets is the use of “virtual offices” and bringing to authority’s attention the underlying principle of “business substance”.
The government isn’t trying to stop international trade or business integration; however these activities are inspected to a higher level if a business structure has its substance, i.e. the real physical matter of which a business consists in order to have a tangible and solid presence.
This in itself has led to the sharpest and most forward thinking entrepreneurs to stay one step ahead of new legislation (and not to forget, financially better off) by relocating part or all of their business to a more favourable location starting with the trend of “Business Migration”.
Substance explained: why is it happening?
Business substance becomes an inevitable requirement for any company operating at an international level, even though every governing body and set of regulations will have their own clear guidelines as to what the exact definition is, it is generally recognised that at least some integral part of the business being run, lead or operating out of the location in which the company claims to be based.
By now, it’s hard to avoid the term of “Controlled Foreign Company” (CFC), the principle of which has now become introduced in various jurisdictions such us the UK, Russia, Ukraine and Poland.
The concept of CFC is introduced to tackle problems of anti-avoidance provisions designed to prevent diversion of national country profits to low tax territories, covering the underlying principle of business substance. Under this concept, governments are trying to determine the real location of management and control including legal and economic fundamentals.
This concept has brought forward the concept of the Beneficial Owner removing the shield of Nominee services. The definition of the “Beneficial Owner” is becoming officially introduced through legislation.
In Russia, relevant changes were implemented in 2014 under the Federal Law №115, in Ukraine changes were implemented in 2014 under the Federal Law № 1701-18. The European Parliament has agreed to create unified registers of Beneficial Owners for all EU countries by July 2017.
These changes (to CFC rules and Beneficial Owner registers) are part of the OECD project - Base Erosion and Profit Shifting (BEPS) aimed to look into the matter of tax benefits abuse.
The BEPS project Action Plan includes 15 actions which are split into 3 major areas:
All actions are aimed to develop unique techniques in order to identify a true business nature with substance allowing such companies to benefit from DTAs and international tax benefits restricting abuse of such.
What are the options?
Under the fast changing regulations, it is becoming apparent that business structure and business essence need changing as well.
The first thing to consider is speed and time is of the essence whatever your choice, you should implement your strategies sooner rather than later as no one wants to fall under the authority microscope and as the saying goes: “Prevention is better than cure”.
The next thing we need to consider are the finances, does everything add up, is it financially feasible to move part or all of your business to another location, and if the answer is “yes” your business expansion needs to be professionally managed.
Professional advice on this matter could help give you control of all aspects of the relocation including professional tax and legal advice, appropriate business set up in accordance with local compliance regulations as well as migration legislation matters.
How to choose your business destination?
By setting up key comparison conditions you would be able to identify the best suitable business destinations for yourself. Many entrepreneurs would consider the below:
- Tax environment and business attitude.
- Infrastructure for international businesses.
- Business operational costs.
- Security and safety for the family.
- Social conditions and standard of living.
|Currency:||€ euro||€ euro||€ euro|
|Corporation tax rate(s):||- Taxable profits up to €200,000 at 20%
- Taxable profits over €200,000 at 25%
|12,5%||Effective 28.15% or 29.22% (i.e. including Surcharge and Municipal Business Tax)|
|Corporate: holding company costs|
|Incorporation time & cost:||Possible in 4-6 days approx. €2.500||Possible in 6-8 days approx. €2.000||Possible in 5-7 days approx. €4.000|
|Annual corporate fees of trustcompanies for management,administration services:||Approx. €6.000 – 8.000||Approx. €4.000 – 6.000||Approx. €7.000 – 10.000|
|Audit fees (Holding company with limited transactions):||Approx. €6.000 - 7.500||Approx. €2.500 - 3.000||Approx. €8.000 – 12.000|
|Office Rent Cost per Sq.m per year:*||
€506 (City: Amsterdam)
€179 (City: Limassol)
€777 (City: Luxembourg)
|Personnel: living costs|
Monthly cost to maintain the same standard of living (net earnings after tax):*
|Approx €3.800 (City: Amsterdam)||Approx €2.600 (City: Limassol)||Approx €1.350 (City: Luxembourg)|
|Apartment (1 bedroom) in City Centre:||Approx €1.090 (City: Amsterdam)||Approx €500 (City: Limassol)||Approx €1.350 (City: Luxembourg)|
Healthcare system rating:
|High 61.57%||High 71.76%||High 72.22%|
Eltoma Corporate services has multiple options and an experienced team ready to give tailor made advice and solutions. Click here to see our services on business expansion & relocation.
Article by Dina Pasechnik BA, MSc, ICSA
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