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Overview of the "non-domicile company" concept in some countries

What is a "non-domicile company"?

What is a "non-domicile company"?

Introduction

Individuals and companies with links to several countries can often be affected by complex tax situations. Some countries offer concepts such as the "non-domicile company" or "non-dom", which make it possible to take advantage of tax benefits for foreign income and assets.

Among others, the following companies with non-dom status (non-domestic, foreign) are the most lucrative for us: Non-Domicile Ltd. (Irish Limited Company), Non-domicile LLC (Limited Liability Company in the USA).

This article explains the non-domicile concept in some countries and explains the specific rules in each case.

Mechanisms and requirements for non-domicile status

To achieve non-dom, non-resident, foreign, or "non-resident" status and maximize the tax benefits, two main factors are critical. First, the director does not have to be a resident of the country in which the company is headquartered. Secondly, the company's business activities should take place outside the country of its headquarters and generate income from abroad. Factors such as length of stay, main residence and personal ties to the country usually play a role here. Application and proof of non-dom status may be required to obtain and retain this status.

Tax advantages and disadvantages

The profits of an Irish Ltd. (Company capital) are subject to corporate income tax, but are not taxed in the country of residence of the director. Nevertheless, all profit distributions made by the company to the account of the director become the Income tax in the respective country of residence of the director. In contrast, the company capital of a US company is subject to LLC no corporation taxHowever, it is fully taxed as income of the holder in his country of residence with income tax.

However, it is unknown whether the income tax regime applies to the capital of an anonymous US LLC abroad. As it is difficult for the foreign tax authorities to attribute such a company to a domestic resident. The owner may have to register his anonymous company for income tax himself, especially if he does not receive direct transfers to his domestic account from the company.

What the Value added tax In the case of an American LLC, no attention is often paid to whether it complies with the regulations. In contrast, an Irish Ltd. strictly adhere to it, as it is part of the common EU market. Read more here: Value added tax for non-domiciled companies

Why?

Due to its national legislation and potential double taxation problems for American citizens, the USA has so far refused to grant the AIA to join.

It is important to note that the profits may not be generated in the country in which the company is based.

Non-domicile status usually offers significant tax benefits for foreign income and assets. While the exact rules vary from country to country, typically non-residents only have to pay tax on domestic income and profits, but not on funds acquired abroad.

International context and comparisons

The non-domicile concepts in the various countries certainly have similarities, such as the exemption from taxes on foreign income. However, the precise definitions, criteria and application modalities differ considerably in some cases. The embedding in international tax law with Double taxation agreement plays an important role. A direct country comparison shows that the advantages and disadvantages of non-domicile status must be carefully weighed up in practice.

Practical application examples

The following examples can serve to illustrate the implementation of the non-domicile concept (non-domestic, foreign):

  • A German person who establishes a Limited in Ireland is not subject to Irish income tax on directors' income due to her "non-resident" status, but may be liable to Irish income tax in Germany taxable. The Corporate income tax (in Ireland) for the company capital of the Irish limited company is 12.5%, but due to a double taxation agreement (DTA), the company must be taxed in Germany no taxes pay.
  • A British company based in the UK but managed by a German director. The company itself would be exempt from UK corporation tax as a "non-dom company", while the German director would have to pay tax on his share of the company's profits in Germany.
  • A US limited liability company (LLC) based in the USA and managed by a German managing director. The LLC itself would be exempt from US corporation tax as a "non-domestic LLC", while the German managing director would have to pay tax on his share of the company's profits in Germany.

Conclusion

While the terms and specific rules vary in different countries, many countries have tax rules for individuals and companies that are not considered residents or domiciled in the respective country. This allows them to benefit from reduced or limited taxation on their foreign income. It is important to review tax laws and regulations regularly as these may change.

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Disclaimer: Please note that the above dates, tax rates and regulations may change over time. Do not make any independent decisions without first consulting an expert for your individual situation. It is in your interest to always receive individual information from an experienced expert who knows your situation.

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