Can someone explain Offshore bank accounts to me?

Question

Can someone explain Offshore bank accounts to me?

In: Economics

Answer 1

The US has among the highest corporate tax rates in the world.

Let’s say you own one company based in America and another based in Germany. You pay 25% American taxes for your American company and have $5,000 profits and 12% German taxes for your German company and have $10,000 profit.

You want to take those after-tax profits from Germany and bring them to the US. The US government is going to make you pay taxes on the difference. The US corporate tax rate is 25%. You’ve already paid 12% to Germany, so the US will only want the 13% difference.

Now, you headquarter both companies in the Cayman Islands and guess what, they have a lower tax rate than both Germany and America *AND* they won’t tax nearly as much to repatriate after-tax profits.