Using an offshore company in a tax haven to accumulate profits

One of the most typical uses of tax havens is to divert profits from a high tax country to a low tax/tax haven country. This also includes income such as interest, royalties and management charges. In the absence of any provisions to the contrary this would obviously slash the tax charge on receipt significantly as you could be reducing your tax burden from 40-50% to nil. However,in these cases the country of source of the income is likely to have rules limiting the effectiveness of this technique. This creates a problem as if an overseas country imposes a taxation regime that taxes sources of income or gains within that country there could be a charge to tax on that income. The overall aim here is to ensure that the payments made are an allowable deduction against taxable profits in the country of origin, and would therefore reduce the taxable profits there. There may be withholding taxes in the country of origin, and taxes in the country in question to be considered. In terms of the UK, you'd need to bear in mind the transfer pricing rules. These basically state that transactions between connected parties would need to be on an arms length basis. If they're not then the UK company wouldn't get a tax deduction for the full amount paid, it would only get a deduction for the element of the recharge that was a market rate for the services provided. Check out the articles which cover what you need to know:
Using an offshore recharging company
Uk company owners moving overseas and planning for non residence