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

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 corporation 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 are subject to income tax in the respective country of residence of the director. In contrast, the company capital of a US LLC is subject to no corporation taxHowever, it is fully taxed as income of the holder in his country of residence with income tax.

However, it is not known whether the income tax regulation applies to the capital of a anonymous US-American LLC is applicable 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.

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As far as sales tax is concerned, an American LLC is often not taken into accountwhether it complies with the regulations. In contrast, an Irish Ltd. must adhere strictly to them 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, the USA has opted for American citizens have so far refused to join the AEOI.

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 agreements also 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 its "non-resident" status, but may have to pay tax in Germany. Corporation tax (in Ireland) on the Irish limited company's share capital is 12.5%, but due to a double taxation agreement (DTA), the Companies in Germany do not pay taxes.
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.