For Australian residents who wish to conduct a trading or investing business overseas, this strategy involves incorporating a company overseas. Typically, the overseas company will be incorporated in a country with lower tax rates than Australia, and have foreign directors. If the foreign incorporated company ensures its Central Management & Control (CM&C) is overseas (and not in Australia), then the company profits will not be taxable in Australia.
For the CM&C of a foreign incorporated company not to be deemed to be in Australia requires:
- Foreign directors who actually make strategic company decisions, and don't just rubber stamp shareholders decisions.
- That the foreign directors have the relevant skills, education & experience to make the strategic company decisions.
- All directors’ meetings and decisions taken are minuted.
- All directors’ meetings are held overseas.
- Foreign directors are provided with timely and relevant information so they are kept up to date with company developments.
- Directors meetings are held frequently.
In addition, with this strategy you also need to consider Australia's CFC (controlled foreign corporation) and transfer pricing rules.