What is tax avoidance
Tax avoidance can be achieved by utilizing effect tax planning strategies which enable the individual or company to benefit from tax regimes in offshore jurisdictions. Tax avoidance is typically sought by both companies and individuals located across the globe in a bid to pay a lower or no amount of tax while remaining compliant with the applicable laws in place.
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Tax Avoidance explained
Tax avoidance, also referred to as tax mitigation, is a legal method by which individuals and companies are able to pay the least amount of tax. It is vital to differentiate tax avoidance from tax evasion the latter is a method of not paying the right amount of tax through illegal means.
Due to the high rates of corporate and individual taxation, tax planners have formed certain strategies in order to assist individuals and companies with the amount of tax they pay. The most commonly used tax avoidance strategies include the following;
- Offshoring – registering and establishing your business offshore allows individuals and companies to take advantage of the chosen jurisdictions tax system.
- Double taxation – most countries have bilateral double taxation treaties with each other thus offering individuals avoiding paying tax twice
- Legal entities – forming an offshore legal entity such as a trust or a foundation enables taxpayers to avoid paying tax as the assets are held offshore.
There are various other methods, such as taking advantage of tax breaks provided by the government however the most important aspect of tax avoidance is that all individuals and companies comply with the legal system. In the case that taxpayers are avoiding tax through illegal means, it is classified as tax evasion thus they are subjected to legal action from the government.
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