Can Your Government Find Out Who Owns Your Offshore Company?

It’n not easy for an “Onshore” government to find out who is behind X Company assuming you set up an Offshore Company (eg an IBC ie International Business Company) in a Privacy Haven ie somewhere which:

 

(a) has no public register of Directors or Shareholders or owners; and

(b) which has passed laws prohibiting release of ownership info except by Court order.

 

As regards the latter in most IBC jurisdictions, unless the country seeking ownership info has a a TIEA (ie Tax Information Exchange Agreement – see below which explains what that is) with the country wherein the IBC is incorporated, the Courts only have the power to release that info if the Company or someone closely connected to it has been involved in very serious criminal activity eg drug trafficking, money laundering, terrorist financing, illegal arms dealing etc

 

Privacy Haven jurisdictions include:

 

 

What is a Tax Information Exchange Agreement?

 

A Tax Information Exchange Agreement (TIEA) provides for the exchange of information on request relating to a specific criminal or civil tax investigation.

 

Let’s assume that you set up a Tax Free Offshore Company in a country which has a TIEA with your home/taxing country.

 

How it works in practice is, if your home state becomes suspicious of your connection to or involvement with an Offshore Company (ie if they think an Offshore Company is being used by you to avoid domestic tax obligations), the Tax Authorities of your home country can request of the Tax Haven Country Government, as of right, (ie if there TIEA has been entered into between the 2 countries) that they give up the name and address of the “underlying beneficial owner” of the company in question.

 

Although the information isn’t publicly filed this information must/will be kept by the Tax Free Offshore Company’s local Registered Agent who is obliged by law (as a condition of its International Corporate Service Provider’s License) to hand over this information upon request by/to the local Financial Services Authority (who then pass ownership details to the Tax Haven’s Attorney General’s Office who then pass it down the line to the requesting country).

 

If you’d like to know what TIEAs have been signed by the country where you live please Contact us via email at this address: info@offshorecompaniesinternational.com

 

 

How To Run a Yacht Charter Business From Offshore

 

International Yacht Chartering, given its international clientele, is a business that lends itself well to “Offshore” Corporate Structuring. Here’s how it will typically work:

 

  1. The yachts will be owned by (or the leases held in the name of) the/a tax free Offshore Company
  2. Your international clients will enter into an agreement with the said Offshore Company (which is commonly an “IBC” ie International Business Company)
  3. The situs of the agreement (ie the place at which the contract was formed and or services provided) will be deemed in the agreement to be Offshore
  4. The nil tax IBC will have a bank account Offshore ideally in a nil tax International Offshore Financial Centre
  5. You will want to set up a merchant account facility for your Company so clients can pay you by card (and also ideally by paypal) as well as by bank wire if/as they may prefer
  6. Funds are ultimately directed to the Offshore Company’s tax free bank account and receipted free of tax in the first instance
  7. Your or your local company will be engaged by the Offshore Company to perform certain functions (eg client liaison, yacht sourcing, fleet maintenance, logistics management etc etc etc)
  8. The operating expenses can/will be paid from the Offshore account
  9. To cover your local living costs you could draw down regular instalments as wages (or consulting fees) and/or you could access funds using the Offshore Company’s VISA/Mastercard and/or the Offshore Company could loan you money
  10. If you want to make substantial purchases onshore eg to buy a car or a piece of realty or shares/investments your tax free IBC could buy these or (eg if you want to make these purchases as discreetly and as privately as possible) your existing IBC could form a subsidiary IBC to buy these
  11. The remainder of your Yacht Charter Business profits could be held and/or invested offshore potentially tax free.

 

Local laws can have an impact. Hence you should seek local legal/tax advice before committing to set up an Offshore Corporate structure such as that described above.

 

 

MICROSOFT DEFENDS ITS RIGHT TO USE OFFSHORE CENTRES

 

United States software giant Microsoft has defended its right to use Offshore hubs in Ireland, Singapore and Puerto Rico, which helps reduce its tax rate, in a submission to the US federal inquiry into corporate tax avoidance.

 

It is the latest technology company to claim it pays its fair share of taxes, following similar statements by Google and Apple in their submissions last week.

 

Microsoft confirmed its overall effective tax rate was well below the standard US corporate rate of 35 per cent.

 

It said it was working within international tax rules that allowed income it reported on its US tax return “as fully taxable in the US without regard to the location of the customer”.

 

It is unclear from the submission or the company’s annual reports how much tax the company paid on its Australasian profit s- the company claims it is above the 30 per cent company rate.

 

But at the same time it goes into an extensive explanation of why Microsoft uses the lower-tax nation of Singapore as a hub for its Australasian operation.

 

The submission said Microsoft channels its earnings through foreign hubs – it called these “regional operations centres”  - in Ireland, Singapore and Puerto Rico.

 

This allows it “to licence the rights to use the relevant intellectual property to produce and sell Microsoft products in respective regions” such as Australasia.

 

“The Singapore ROC group, organised in 1998, supplies products and services to the APAC region, also representing billions in customer revenue earned and operating expenses incurred serving 18 countries throughout Asia Pacific,” the submission confirms.

 

It said the APAC group operating costs are funded by the Singapore ROC, which employs over 2300 employees and contractors and owns and operates datacentre facilities that distribute software to APAC customers.

 

“Regional production, marketing and G&A functions are performed by the Singapore ROC,” the submission said. “The profits earned from the APAC business, after appropriate taxable payments to the US group for technology rights and other support and the payment of support fees to the local subsidiaries, are earned primarily by the Singapore ROC group.”

 

Microsoft said local entities are “generally required to act under the direction of Microsoft with regards to marketing campaigns, pricing, terms and conditions and policies and procedures” .

 

“The local subsidiaries provide very limited input into the creation of marketing or technology intangibles embodied in the material provided by Microsoft,” the submission said.

 

Under long-standing international rules, tax is paid where the value is created. Traditionally this has been where companies have had a “physical” location.

 

But the rise of online commerce deals with intangibles like intellectual property. This has made it easy for corporations to shift the location of their primary value-generating asset, their intellectual property rights, to lower-tax nations.

 

The practice, while completely legal under the current rules, has come under question as government revenues dry up.

 

The use of hubs is an annoyance to governments outside the US. In November, the Chinese government hit Microsoft with a $140 million tax bill, becoming the latest of a series of US technology companies accused by the Chinese government of tax evasion.

 

But Microsoft, which has previously disputed the backdated figure, said the company “complied with the tax rules in each jurisdiction in which it operates and pays billions of dollars each year in total taxes”.

 

“The resulting income is reported on our consolidated US income tax return as fully taxable in the US without regard to the location of the customer,” it said.

 

Microsoft said its overall effective tax rate was 20.7 per cent, 19.2 per cent and 23.8 per cent for fiscal years 2014, 2013, and 2012, respectively.

 

“The reduction from the United States federal statutory rate stems from foreign earnings taxed at lower rates from producing and distributing our products and services through our ROCs in Ireland, Singapore, and Puerto Rico,” the submission said.

 

“Our foreign earnings, which are taxed at rates lower than the US rate and are generated from our regional operating centers, were 81 per cent, 79 per cent, and 79 per cent of our foreign income before tax in fiscal years 2014, 2013, and 2012, respectively.”

 

It said the company was working within US, and other foreign tax laws as written. “That is not to say that the rules cannot be improved – to the contrary, we believe they can and should be. Microsoft is supportive of the current discussions regarding changes to international tax laws.”

 

The key things to note here is

 

HOW TO SET UP AN IT/WEB SERVICES BUSINESS OFFSHORE

 

Offshore Companies are commonly used to own/operate IT Services Businesses. In principle here’s how it can work:

 

  • A nil tax offshore company (commonly an International Business Company “IBC”) is incorporated

 

  • The IBC owns the web based business (ie it owns all proprietary items including website, IP, operating software, soft products to be delivered to customers etc)

 

  • All services are provided/delivered via the web or via email

 

  • The IBC is seen to be managed and controlled from – and is seen to be delivering services from –  a nil tax jurisdiction

 

  • Any commercial agreements entered into (and/or terms and conditions agreed to) should clearly state that services are being delivered from x country (ie the Offshore/IBC jurisdiction) and that the contract is formed/closed in that jurisdiction

 

  • An Offshore account (which receives payments via a merchant account) is set up in a nil tax banking centre

 

  • Ideally the server is located in a country which does not tax business on the basis of server location (eg Singapore)

 

  • Customers contract with and pay the IBC. All such monies are banked free of tax in the first instance

 

  • You or your local company would be contracted by the IBC to manage sales/delivery of product/website maintenance/whatever.

 

  • You would invoice the IBC periodically (eg monthly) for this service which income would be assessable income in your home state – though a smart Tax Accountant should be able to assist you to claim a series of expenses against this income (eg home office, equipment, travel, phone/internet/utilities etc) to significantly reduce the amount of tax payable on this income.

 

  • Often there is some kind of intellectual property (“IP”) created as part of or underpinning such a  business (even if it’s just the website/design). It may be advantageous to you down the track if ownership of the business and the IP were held by 2 different entities. What you can do there is set up a 2nd IBC to own the IP. The first IBC (ie the Trading Company) pays license fees periodically to the 2nd IBC which fees wold be receipted tax free. This could be advantageous if you wanted to bring ownership of the web-business onshore or if you wanted to sell the business but keep a passive (potentially tax free) income stream

 

  • Ideally once you start to grow you and to add substance you would be wise to set up your MD/Board and or a sales team to take orders and receive income in a low tax onshore environment (eg Hong Kong, Ireland, Singapore, Cyprus etc as per the Amazon/Google model).  

 

To minimise the chances of the IBC being taxed onshore ideally the IBC should be (and be seen to be) managed and controlled from offshore. How this can be achieved is by including a Nominee Director etc as part of the Corporate structure. For details of how that can work click on these links:

 

http://offshoreincorporate.com/faq/should-i-engage-nominees-or-should-i-direct-and-hold-the-shares-in-my-offshore-company/

http://offshoreincorporate.com/faq/how-can-i-protect-my-underlying-ownership-of-my-offshore-company-where-a-nominee-is-engaged-to-act-as-director-or-shareholder/

 

Local laws can have an impact. Hence you should seek local legal/tax/financial advice before committing to register such a structure.

 

 

How To Create an Anonymous Offshore Account

I’m often asked Is it still possible to have an anonymous offshore bank account?

 

The answer is yes it is still possible. Here’s how:

 

To succeed in your mission of having a truly anonymous offshore account there are 4 things you need to address.

 

  1. Firstly you will want to set up an anonymous Corporate entity to be the account holder. To achieve this you will want to incorporate a Company in a Privacy Haven ie somewhere that does NOT have a public register of Directors or Shareholder or Company owners (ie somewhere like Seychelles or Belize or BVI or Anguilla or Nevis).
  2. To minimise the chances of your ownership of this company being discovered you will want to ensure it is incorporated in a country which does NOT have a Tax Information Exchange Agreement (“TIEA”) with your home state (a TIEA enables your home state to demand of a tax/privacy haven, as of right, details of owners of an Offshore Company).  If you want maximum privacy then you would be wise to include a Foundation as part of the Corporate Structure (See below which explains why).
  3. Thirdly you will want to ensure you open a Corporate Account at an Offshore Bank which is not going to share ownership information. Ideally that bank will NOT be located in a country which has agreed to be part of the OECD Bank Account Info Sharing Initiative (see below which lists those countries).
  4. Fourthly you will want to open an account at a Bank which can/will issue you with an anonymous card ie on which one which your name (and ideally your company name) does not appear. Banks which offer this include Euro Pacific Bank, Loyal Bank, Choice Bank, CSC Bank and more.

 

Why set up a Foundation? 

 

If an IBC alone is used you will still be liable to declare and pay tax at home on your IBC’s earnings if/when you live in a country which has a Controlled Foreign Corporation (“CFC) law. Failure to do so usually is regarded as tax evasion (which is a crime and usually carries heavy penalties).

 

What you might do then is set up a Private Interest Foundation to own the shares of the Offshore Company.

 

Offshore Trusts used to be used for such purposes back in the noughties but the problem there is that you have someone (ie a Trustee) holding property for the benefit of 3rd parties who are inarguably beneficial owners of that property and probably/potentially entitled to the income/capital of the Trust (which can have tax consequences onshore).

 

A Foundation is very similar to a Trust in that it’s set up by a Founder (like a Settlor in the case of a Trust) and managed day to day by a Councillor (like a Trustee in the case of a Trust) who manages the Foundation property for the benefit of the beneficiaries of the Foundation. A key advantage of a Foundation is that it’s a separate legal entity in its own right (ie the Foundation actually owns the assets held by the Foundation – unlike a Trustee who holds property for someone else ie the beneficiaries) and generally speaking the beneficiaries are not entitled to the income or capital of the Foundation until it’s actually received.

 

What this means as a beneficiary is that you should be able to defer paying tax at home on the income of investments held by the Foundation enabling you to reinvest 100% of that income not just the after tax component. (One jurisdiction ie Seychelles has even taken this a step further by specifically stating in their law that the legal and beneficial owner of any asset held by the Foundation is the Foundation itself).

 

Seychelles Foundations 

 

If you are a resident or citizen of a country which has the ability to track Offshore Bank account beneficiary details and you would like to keep private details of your Offshore earnings (or if you plan to set up a very sensitive business eg one that might be illegal if owned/operated from where you live) again a Seychelles Foundation can help:

 

How so?

 

It all comes back to the legal structure/operation of the Seychelles Private Interest Foundation.

 

Bottom line is notwithstanding that individuals (or a class of beneficiary) may be named as beneficiaries in the Regulations:

 

  1. The beneficiaries have no legal or beneficial interest in property owned by the Foundation (unless or until such time as that property is transferred to them – per section 71 of the Seychelles Foundations Act).
  2. The Foundation is a legal entity in its own right not a mere Trustee (per section 23)
  3. The Councillor of the Foundation owes no Fiduciary duty to the beneficiaries (per section 63)

 

As such there is no “beneficial owner” of the Foundation. The beneficial owner of any property/asset owned or held by the Foundation is the Foundation itself.

 

What is the OECD Account Info Sharing Initiative? 

 

In May 2014 a number of countries committed in principle to the OECD Bank Account info sharing initiative. Under the initiative, a range of OECD and other countries have agreed to pass new domestic laws that will allow them to collect information on any foreign bank account holder (or any non-local underlying beneficial owner of a Corporate bank account holding entity) and then automatically exchange that information with other participating countries. The list of countries who have committed in principle to the initiative include Andorra, Argentina, Australia, Austria, Belgium, Brazil, Canada, China, Chile, Colombia, Costa Rica, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland,  India, Indonesia, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, Malaysia, Mexico, The Netherlands, New Zealand, Norway, Poland, Portugal, Saudi Arabia, Singapore, The Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, Turkey, The United Kingdom, The United States and  The European Union

 

If you want to avoid your interest in an Offshore account being reported to local authorities you have options:

(a)   Open an account in a country which is not in the above list; and/or

(b)   Set up a Seychelles Private Interest Foundation to hold the shares of the Offshore Company account holder (as this shifts legal and beneficial ownership of the Company to the Foundation by virtue of section 71 of the Seychelles Foundations Act)

 

Local laws can have an impact hence you should seek local legal/tax advice before executing a plan such as that conceptualized above.