Re:Ask HN: What's the best way for foreigners to incorporate...
by philiphodgen on Friday October 29, 2010 @12:36AM
(#1846148)
Yes you want profits to be earned in the lower tax-rate jurisdiction. What you describe is the typical tax strategy: direct profit to the lower-rate country then leave it there.
The economic value is in deferral of tax. A dollar of tax paid next year has a lower present value than a dollar of tax paid today.
You need a lot of deferred tax to make this cost effective. If you are postponing the payment of $100,000 of tax that means you have $100,000 of extra cash in the bank that would have gone to the tax man. What can you do with it? Earn 1% in a bank? Whee! That won't pay for much of Phil's legal fees. :-)
It is a game for big companies.
For most companies, keep it simple is the strategy. Deferral won't generate a big enough economic benefit.
The economic value is in deferral of tax. A dollar of tax paid next year has a lower present value than a dollar of tax paid today.
You need a lot of deferred tax to make this cost effective. If you are postponing the payment of $100,000 of tax that means you have $100,000 of extra cash in the bank that would have gone to the tax man. What can you do with it? Earn 1% in a bank? Whee! That won't pay for much of Phil's legal fees. :-)
It is a game for big companies.
For most companies, keep it simple is the strategy. Deferral won't generate a big enough economic benefit.