Increasingly, the question of the excessive tax burden is part of a worrying dynamic for both businesses and individuals. Faced with this situation, this information guide invites you to make a complete tour of what tax optimization is.
Definition of tax optimization
First of all, it is important to know that all your investments, your income, your capital, and even your capital gains will always be taxed by the State. At some point, you will get tired of these taxes which are often very high and it is for this reason that you must find a legal way to reduce them.
In this sense, tax optimization appears as the legal way to significantly reduce your taxes. This is a system that you can use to your advantage. This system uses the tax rules to reduce your taxes and taxes.
Tax optimization, tax evasion, tax evasion and abuse of rights are all ways that you can reduce your taxes, the only difference being that the former is not illegal. All other means are. It is for this reason that they are to avoid to have no problem with the tax in general, and the law in particular.
Tax optimization is applicable to your financial wealth, your property portfolio, as well as your professional assets: which simply means that you must declare them to the tax authorities.
However, since this is a fairly complicated field, it is recommended that you be assisted either by a tax expert, an auditor, a financial analyst or even a wealth management advisor.
The higher your wealth, the higher your tax rate, which you must avoid. In the same way, you must always reassure yourself to operate in the norms. The reason why it is better that you do not use this system without the help of an expert. In general, large companies have their particular tax experts.
By bringing an expert with you, you will benefit from some tips that only this one can give you. Depending on the field in which you operate, you may have legal solutions that will allow you to make considerable savings, which will allow you to maintain all your profits.
These experts will help you in developing a diagnosis in order to identify any anomalies that are the cause of your surcharges. As a result, they will help you build foolproof tools so you can better manage your business.
In addition, they will follow you step by step during your interviews with the tax authorities while ensuring that the taxes you may have no impact on your wealth. They will take into account the texts of law and jurisprudence to reassure you that you actually operate by following the rules, following the law.
In short, these experts will allow you to benefit from all the possible tax benefits. Because their role is to make available to taxpayers, all the legitimate tricks to no longer are overtaxed and finally enjoy their profits quietly.
As outside of the companies even the natural persons are taxed, individuals should also consider the advice and support of an expert in the matter.
If you do not have the means to call on an expert, the best solution available to you is to thoroughly inquire about the laws, the tax law , the use of all modes of reduction of taxes, its risks, on tax optimization in order to choose the best option and escape any kind of fraud.
Conditions of a tax optimization
Tax optimization can be viewed from two different angles: firstly from the point of view of the state and then from the point of view of the investor or the taxpayer.
At first, the state aims to increase its tax revenues so that it can always operate in the rules. The State must always have sufficient means to be able to improve or develop a country yet, to easily carry out any type of transactions.
For this to happen in the norms, citizens must contribute, and that is why taxes are imposed on them.
Secondly, taxpayers or multinationals seek to reduce their tax burden and it is for this reason that they sometimes resort to means that are not very convenient.
Indeed, some taxpayers tend to use illegal ways to reduce the tax on the profits they make, and these means eventually destabilize or unbalance an entire state.
This imbalance is certainly due to the fact that investors are turning to other countries, country by country to see whoever imposes the least tax and tax.
Faced with these two dilemmas, taxes should be imposed without penalizing taxpayers. That said, you should not focus too much on tax optimization because when you embark on company creation, the goal is to develop it and not to pay the least taxes.
You must be able to make the difference between developing your company, and at all costs call for tax optimization. That’s why an expert in the field should accompany you, especially when it comes to opening your very first company.
It is entirely possible to benefit from tax optimization wherever you are. Each state has its own laws, and every firm or taxpayer is obliged to pay taxes.
However, the percentage of tax is not the same in all countries. For companies with branches in other countries, they will have to comply with the tax laws in those countries. This means that regardless of the country where you invest (for companies), you will have to pay taxes but these could be less compared to what you pay in France.
The state should, therefore, try to look into this problem and try to understand the situation of taxpayers. We should try to review the percentage of tax that each taxpayer or business should pay so that they no longer have to resort to means that are sometimes illegal.
These means push them to become fraudsters, and such a situation does not arrange the state because it could destabilize it economically, or the investor who could end up losing everything overnight.
The different options of a tax optimization
A survey was conducted by the International Consortium of Journalists and at the end of this survey, many options for tax optimization were put in place. Many companies are using these options to significantly reduce their taxes and these solutions are quite effective because it saves a lot of money.
Among these, you have:
Handling of transfer prices
Handling of transfer pricing is the option most used by large companies to reduce their taxes. These are cross-border transactions between several branches in different countries.
Companies set up branches in foreign countries, preferably countries with a very low tax percentage, and that is how they create a reduction in their taxes. In one of these countries the taxes will be high, in another, they will be low and therefore you increase your income resources but decrease your tax percentage.
In order to transfer subsidiaries of your company to one or more other foreign countries, whether European countries or not, you will have to pay the transfer price. The problem with this option, on the tax side, is that the transfer price is often very difficult to determine.
For example, in the digital world, the transfer price of an algorithm or IT service would be extremely difficult to determine. This problem becomes an advantage for you because the tax authorities will never charge you more than what you have to pay.
The large Colgate company has had to use this technique for a very long time and is still using it. In order to reduce taxes, Colgate has shifted its subsidiaries to some countries with a lower tax percentage, and as a result, its assets have increased, but taxes have not increased as much.
You can use this same option to increase your income without increasing your tax percentage.
Setting up in a country that offers a favorable regime
This option will allow you to differentiate between local tax optimization and international tax optimization. Local tax optimization is for any individual, whether a creator or a business owner.
You use a tax optimization to reduce the taxes on profits that you manage to have annually, and this option can save you about 10,000 euros. First of all, as far as your company is concerned, you will have to opt for either an LLC, SA, SAS or even for a sole proprietorship.
If you choose for example an LLC, you will have to choose between a majority manager status or a minority manager status. You will then have to decide how to distribute your income. Here again, you will have the choice between the remunerations and the dividends.
In addition, the state offers you the opportunity to increase your local tax optimization through the Madelin Law and/or the Constitution of SCI. This way, you will be able to reduce your taxes a lot more each year, which will save you money.
With regard to international tax optimization, this reduction is made much more for large companies, those that generate significant profits (100,000 euros minimum). Thanks to this system, you will optimize not only your company in general but also the dividends of your shareholders.
For this system to be more efficient, you will have to create an offshore company. This offshore company can perform factoring and at the same time, it will proceed by different transfer pricing techniques.
International tax optimization allows you to create or domicile your business abroad, including one in which you will have the opportunity to pay or reduce your taxes. Luxembourg is one of the favorite places for companies because of its geographical location, its high standard of living, and above all, the income tax is only 20 %.
More, you can still achieve a reduction on this percentage: it is for this reason that it is better to always be accompanied by someone who knows much better.
By domiciling your business in another state, especially in Luxembourg, Ireland or the Netherlands, you will enjoy all the benefits that these places can offer you.
However, you should know that the percentage of tax you will have to pay will vary depending on your wealth. A large company will not pay the same percentage of tax as an individual, but that does not prevent you from having significant reductions.
Use of royalties
Another way to significantly reduce your taxes would be to finance your business through debt. When you start building a business, you may have the means to do so. That said, you can still apply for a loan to create it, it will allow you to reduce your taxes, the financial expenses being deductible from your tax result.
Despite the fact that the possibility of borrowing exists only to encourage future investors to set up their businesses, this option is also used for purely tax purposes. Many companies also pass by this option, it is, for example, the case of Disney which found it judicious to finance by borrowing.
In short, knowing what tax optimization means can be a plus for you, whether you are a business or a simple individual. Since there will always be taxes and they will always be high, it’s up to you to use the right tips to reduce them legally.