Tax Saving by Using a Corporation
There is a limit of how much you can save on tax as an individual.
We’d like to show 3 patterns of how to do tax saving by using a corporation.
1.Real Estate Property Management Company
You launch a property management company and pay management fees to the company.
In this case, maximum fee would be 5% so if you pay more than that, there is a high chance you get tax investigations. However you can save that 5% fee as a tax saving. It seems not a huge saving but this method is easy to do.
Also when you do reforms, you place an order not to a reform company directly but via your property management company with say 20% profit on, then you can save the same amount on your tax.
Let’s say a reform costs one million but your management company receive the order for 1.2 million. That 200,000 difference would compress company’s profit. Therefore you can save on tax.
Keep in mind that when they decide to investigate your case, what they will look at is if there is a “reasonable” reason for the management company that you own to manage your real estate properties that you as an individual have”. What’s most important is you have enough evidence such as management contract or reform contract to prove it’s a decent transaction.
This method is you create a company and you rent out your properties in bulk to that company.
With this method, you can take about 20% fee so it’s more than Pattern 1.
You might be invested to see if there are actual sublease contracts. It might be rejected if the lease contracts are made between you and each tenant.
3.Real Estate Holding Company
This third method is the most efficient in terms of tax saving.
Your holding company owns properties so you can treat expenses as corporate expenses.
Also you can pay to yourself through the company so that the company can save on tax.
On the other hand it would be difficult to get financing since you are trying to borrow money as a corporation. It will be a proper loan which is much harder than an apartment loan.
Also if you would like to move your properties to your company assets, you will need do a sell/buy transaction. In that case, you will need to pay registration tax, acquisition tax and other fees again.
- List of Tax when selling a real estate
- List of Tax when owning a real estate
- List of Tax needed when purchasing a property
- Difference between tax saving and tax evasion
- Reason why the purpose of real estate investment only for tax saving is bad for you
- Tax Saving by Using a Corporation
- In case of Tax Investigations