Why cant “offshore shell corporation” tax avoidance methods used by the wealthy be used by the working class? Is it just because it’s cost prohibitive to set up?


Why cant “offshore shell corporation” tax avoidance methods used by the wealthy be used by the working class? Is it just because it’s cost prohibitive to set up?

In: Economics

There’s logistical reasons. The average middle class has their income made working from a regular job. Which gets a w2. Which is taxed already (called withholdings). A tax avoidance method used by middle class is any worker that is paid primarily in tips. The government doesn’t know how much you get, for example, since it’s cash.

1. It isn’t cost prohibitive but it isn’t inexpensive. The cost might run into the thousands per year at the lowest level so if you’re not saving that much in taxes, it makes no sense.
2. The right kind of income. Domestic wages and salaries cannot be hidden. So if that is where you’re earning most of the income, no luck there – rich or otherwise. On the other hand, holding foreign investment assets and properties, then maybe. Domestic investments and trading income – harder to avoid.
3. Know your end game. Lot of these arrangements are about avoiding estate taxes and such which is relevant if your idea is to pass down a lot of assets. If your end game is living off your investments domestically, these arrangements might be less beneficial.
4. Your own sophistication level and resources. Scammers, fraud etc abound. You do lose protection of domestic laws as well. So there are risks involved and ongoing maintenance. Not for the ignorant – you’ll need lawyers and accountants, trustees etc.

Bottom line though, generally speaking this sort of makes sense if there are tens of millions of dollars of assets in play.

Following on what the other comment said, the average W2 worker has taxes deducted and earnings reported from a regular paycheck. Offshore banks take large amounts of money before taxes and reporting come into play. It’s not worth it for them to hassle with smaller amounts of money that already are on the radar. Go big or stay home.

Those corporations usually avoid business taxes, not income taxes. Having a corporation is the bare minimum requirement for corporate tax avoidance, and most of the working class don’t have one.

Lol yeah try to get your boss to not withhold your taxes and have your full wage paid to an offshore company. It ain’t happening.

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Actual ELI5: Tax avoidance of this kind is done by faking business expenses. So you start business1 in high tax country and business 2 in low tax country. Your business1 is taxed on income but oh dear it seems they barely made anything this year because they paid so much to business2 in consulting fees, asset rentals, and purchases. You make sure business 2 takes huge fees/payments from 1. So business 1 is barely taxed while business 2 is taxed, at a lower rate, for all the “income” from business 1.

So your regular employee working for one business can’t start a second business and have his paycheck routed to a business 2. He’s being paid as an employee of business 1 not as some liason from business 2.

It entirely depends on what you mean by “offshore shell corporation tax avoidance methods” lol.

It just would come down to how the money is made and where it goes. With a person, its pretty simple. Company -$-> You.

For a business, it can be infinitely more complex, which allows for more tax avoidance methods. I’ve heard of a few ways to “get around that” for an individual. However, they almost all involve said individual operating their own business or getting paid in stuff like capital gains.

Not an expert on the US system but I suspect a lot of corporate offshore planning is indefinite tax deferral rather than compete avoidance. It wouldn’t get you anywhere if you actually needed that cash to spend in your home country.