Restructuring your business affairs to attain the lowest taxation possible LEGALLY is an important part of being competitive today.  Today's market is global and if you don't minimize taxes, you will be at a competitive disadvantage.  The key is to do it legally.  Below we are going to introduce one such idea.  Keep in mind we are not writing for any particular jurisdiction, so you must take any plan you may come up with to a tax professional in your local country.

The goal in this strategy is to transform your current onshore company into several onshore and offshore companies. 

This strategy will actually allow your company more room to grow, by expanding each function your company does into its own business.  Here's how it works.  Generally most companies can be divided into the following functions:

Marketing & Advertising

Product Development

Production / Order Fulfillment

Management / Headquarters (HQ)

Now ask yourself, what is the most tax advantageous structure we can form with the above entities? 

What if we were to take the HQ functions and move them into an offshore corporation in a tax free jurisdiction like Panama? 

Now what if we outsourced all the other functions to an onshore company (or perhaps 3 companies).  The first objection that would come to most people's minds is the fact that outsourcing causes a loss of control and quality.  Plus if you have an onshore company already, what do you do with that?   Well the answer is simple.  Convert your onshore company into an order fulfillment company, marketing company, and product development company.  You may even want to split all 3 functions into their own companies.  Now expand your business by servicing your competition, or related companies.  Now before you panic and throw this idea out because you HATE your competition, stop and think like a business person.  Many of the largest companies like IBM have adopted this model to increase business.  If you like, you don't have to service your direct competition, but rather you can service other related companies.  Get creative.  There are many functions your company does that cost you much more than it should because you have too little volume.  The cost of setting up a job, when you factor in labor costs, can be as expensive as the actual job being performed.  If you identify such tasks and offer them as services to other companies you can decrease your costs and make a tidy little profit besides.

The big win tax wise is this.  Now the offshore company, just outsources all its non-core functions to an onshore company.  The onshore company will likely, if charging market competitive prices, make only a small profit.  This company will of course pay taxes on this small profit.  The rest of the money goes to the offshore HQ company which happens to be in a tax free jurisdiction like Panama.  (Panama is the most favorable jurisdiction we know of at the time of this writing.)

What is the business reason?

Fair or unfair, some tax authorities believe that if you do something solely to not pay taxes, they consider it tax evasion.  Fortunately, outsourcing non-core activities of your business, is a popular technique that can save your company money.  In addition, the onshore company will earn more money than it would otherwise by performing services for other companies.  

Keeping it Legal

Most tax authorities today use a "looks like a duck, and quacks like a duck, then it is a duck" rule set.  That means that anything you set up should act like it is.  In our case the order fulfillment company, marketing company, etc. needs to act like one, soliciting and performing order fulfillment/marketing for a number of companies.  Perhaps you may not want to solicit your direct competition, but rather a related business, or even a weak competitor you don't care about. 

Ownership of the Offshore Company

Some countries also have Arm's length rules.  This means you cannot own both the offshore and onshore companies.  To satisfy these requirements a foundation can be used to own the offshore corporation.  A foundation is like a trust wrapped in a corporate shell.  It cannot be owned, and therefore appears to be the perfect solution to this ownership problem.

Don't Get Caught Speeding!  What our competition isn't telling you...

Although a foundation cannot be owned under Panama law, your local country (where you live) may have laws that deem the beneficiary of a trust or foundation to be the owner.  A foundation owning a corporation, is a good asset protection structure, but does not in itself, create a self-owned entity.  To achieve a true self-owned structure, a multi-jurisdictional trust structure is needed.  Call for details.