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Reducing U.S. Tax Liability via Qualified Foreign Corporation

Dividends received from a domestic corporation or a “Qualified Foreign Corporation” are eligible for this reduced rate. A “Qualified Foreign Corporation” is defined as any foreign corporation that is eligible for the benefits of a comprehensive income tax treaty with the United States. Although the Jobs Creation Act is due to expire at the end of calendar year 2010, there is still ample time for tax savings for U.S. taxpayers with ownership interests in non-U.S. operating businesses.

In essence, if a U.S. Taxpayer owns a non-U.S. operating business through a Qualified Foreign Corporation, it is possible to convert the income earned from such business into qualified dividend income with an income tax rate of 15%. The difference between the current income tax rates (as high as 35%) and the tax rate on qualified dividend income (15%) represents a significant tax savings for most U.S. tax payers.

It is important to note that this reduced tax rate is only available to income earned by non-U.S. active, operating businesses – this structure cannot be used to reduce tax on passive income.

There are a number of qualified foreign jurisdictions that satisfy the treaty requirement and have favorable holding company legislation, which can be used for the Qualified Foreign Corporation in such structures. These jurisdictions include Switzerland and Cyprus. The Dutch Cooperative can also be used in certain circumstances.

The ATC Group is able to provide for the formation, domiciliation and management of Qualified Foreign Corporations and the opening of the requisite overseas bank accounts.

The ATC Group is also able to a establish Purpose (Star) Trust through ATC Trustees (Cayman) Limited which can be utilised to own the shares of the Qualified Foreign Corporation.

One of the most important aspects of the American Jobs Creation Act of 2004 (the “Jobs Creation Act”) was the introduction of a fifteen percent (15%) maximum tax rate on ‘qualified dividend income” received by U.S. taxpayers
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