How To Set Up An Uber Or Air BnB Type Business Offshore

Have you conceived an idea for an app or web-based business that might operate in a similar way to Uber or AirBnB?

 

Such a business (ie an Online Business) lends itself well to an “Offshore” Corporate Structuring Plan. (See below “HOW TO SET UP AN ONLINE BUSINESS OFFSHORE” which explains generally how).

 

Structuring Options

 

These kind of businesses usually operate in one of two ways:

 

  1. Where all the marketing and service delivery is done online and the customer deals with one central Trading (nil or low tax jurisdiction incorporated) Company
  2.  Where the business has its headquarters Offshore but for credibility/marketing reasons (or for licensing reasons) needs an on the ground presence in each of the country/s where it is selling/providing services

 

In the latter example a local subsidiary company is usually incorporated to market to, or liaise with, the customers but certain key functions are exported to (and a large chunk of the sale price diverted to) the business’s Trading Company (or a tax haven subsidiary thereof)

 

In either example what you normally have is a twin company structure at the top of the tree ie a Trading Company + an IP Company.

 

How and Why To Set Up An Offshore IP Company

 

Intellectual property (“IP”) is a creation of the mind and includes things like inventions, literary and artistic works, designs and symbols, software code, names and images used in business.

 

IP is commonly protected in law by way of patents, copyright and trademarks which enable the person who came up with the idea to securely earn recognition or financial benefit from whatever it is he/she has invented or created.

 

An Offshore IP company is an ideal vehicle for the administration and management of licenses and intellectual properties including computer software, technical know-how, patents, copyrights and trademarks.

 

Practicalities

 

So how does it work from a practical perspective?

 

At core the Offshore IP Company (which is usually set up in a nil or low tax country) is used to divert income from Trading Companies or Businesses trading in developed or high tax countries.

 

The first step is to transfer ownership of the IP rights to the Offshore Company/Entity.

 

Once that’s done the Trading Business then enters into a legal agreement (contract) with the IP Company whereby, in return for being allowed to use the IP, the Trading Company agrees to pay the Company royalties or license fees. The income arising from these agreements can then be accumulated offshore in a nil or low tax environment.

 

Timing is of critical importance – It is clearly preferable to acquire the IP (for example, a patent) at the earliest possible time (e.g. at the patent pending stage) before the IP becomes highly valuable. That way the capital payment for the acquisition of the IP (e.g. patent) can be set at a lower amount i.e. before its true worth has been determined in/by the market. (These capital payments may even be deferred and or staggered by way of an instalment contract such as would enable the IP Company to use subsequent royalty payments to fund the cost of the IP).
If a deal is struck for the Offshore IP Company to buy the IP before the IP gives rise to a product or service which is offered/advertised in the market the IP might even be transferred for nominal consideration enabling the IP inventor/creator to transfer patent, copyright or trademarks in favour of the low/nil tax company before the IP suffers significant appreciation in value.

 

Businesses Who Pay Royalties or License Fees for the use of IP

 

Once it has acquired the Property the Offshore IP Company can then issue (IP) sub-licenses or exploitation rights to appropriate third party structures.
For example, a majority of software companies license their users through companies which are established in an offshore jurisdiction, or through a firm, which is not established in a classical offshore jurisdiction, but is owned or controlled by such a firm.

 

Typical examples of businesses that might pay license fees to a nil/low tax Offshore Company include:
- Software companies
- Companies doing business in information technologies
- License and copyrights to books, articles, music, films, etc.
- Users of Franchise operating systems

- Trademark product (e.g. Clothes/Consumer Goods/Accessories etc. Brand) manufacturers and or retailers

 

In some circumstances the royalties may be subject to withholding tax at source, however, the interposing of a second company in another jurisdiction may reduce the rate of tax withheld at source (a carefully selected jurisdiction can withhold taxes on royalty payments with the commercial application of double tax treaties).

 

Partner Options

 

Another option, whilst you are still in the process of creating a new piece of intellectual property, is to involve or engage an offshore (nil tax) company as a foreign partner or financial sponsor. Participation in development at this early stage would entitle the tax free Offshore Company to register as the owner or co-owner of the property.

 

If you involve an offshore company later, you will have to sell or assign the title to the property to the offshore company, and these kind of transactions require at the least that a fair market price deal be apparent as if no associated parties were involved (+ the transfer may involve the incurring of some CGT on the part of the inventor/creator of the IP).

 

Benefits of an Offshore IP Company


There are numerous benefits that an IP holding company can deliver including:

  • By placing your IP in one entity you are able to streamline the internal processes for inter-group licensing
  • Cross-jurisdictional tax issues become simpler as you will be regularly licensing IP between the same jurisdictions
  • You can justify staffing that entity with people who have the skills to manage the same so protecting valuable assets of the company further, simplifying the licensing process
  • Assets can be valued due to the income stream that accrues for the benefit of the IP holding company
  • The value of the shares in the entity can be included into the accounts which will benefit the shareholders of the holding company
  • You can split your income streams in two enabling you to sell one chunk of your business first up (i.e. the operational business) whilst retaining the other (i.e. IP) arm of the business which would entitle you to receive passive income
  • If your business or trading company ever gets sued and the IP is owned by a 2nd (e.g. Offshore) Company the most precious asset of your business can/will not be lost.
  • You get to retain ownership of your IP in a highly private environment where no one knows what you own or how much the IP is worth. (There have been many documented cases of inventors and artists who rise suddenly to fame only to lose their fortune just as quickly via a law suit filed by a disgruntled gold digging ex-lover or confidante… The chances of that happening if your IP is owned by a privacy haven company are GREATLY reduced)
  • You can significantly if not dramatically reduce the tax that your operating/trading company would otherwise have to pay

 

Where to Incorporate?

 

Ideally you will want to incorporate the IP (and Trading) Company in a jurisdiction which does NOT Have a TIEA ie Tax Information Exchange Agreement with your home state. 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 is a TIEA 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).

 

Proprietors Holding Entities

 

By the time you become/s entitled to a share of the profits you would be wise to have already in place a nil tax entity to hold your interests in the business.

 

If you are a resident of a less developed country all you will need is an IBC.

 

However if you live in a country which has Controlled Foreign Corporation (“CFC”) laws a nil tax Offshore Company or IBC by itself won’t be of much use to you. (a CFC law requires you to declare and pay tax at home on any Offshore Company profits where you own, or have the capacity to own, 10% or more of the Company’s shares)

 

If you fit that bill the solution is to set up a Foundation as well as an IBC.

 

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 would constitute tax evasion.

 

What such clients usually do they is they set up a Private Interest Foundation to own the shares of the Offshore Company.

 

A Private Foundation is like a Trust (eg it has beneficiaries) but it has corporate personality. Moreover the Foundation is presumed or deemed to be both the legal and beneficial owner of any asset it holds . 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. 

 

Prices start from as little as $1,600. For more information on Seychelles Foundations (including details on pricing and inclusions) please visit these pages from our website:

http://offshoreincorporate.com/private-interest-foundations/

http://offshoreincorporate.com/seychelles-foundations/

 

How To Set Up An Online Business Offshore

 

Offshore Companies are commonly used to own/operate online businesses. Please check out these links for some examples of how certain kinds of businesses can be set up “Offshore”:

http://offshoreincorporate.com/common-offshore-corporate-strategies/#1

http://offshoreincorporate.com/common-offshore-corporate-strategies/#2

 

In principle here’s how it can work:

 

  1. A nil tax offshore company (commonly an International Business Company “IBC”) is incorporated
  2. The IBC owns/operates the web based business (eg ownership of the web-domain and the website/artworks or trademark/s or any sole distributor rights are held by or transferred to the IBC)
  3. An Offshore account (which received payments via a merchant account) is set up in a nil tax banking centre
  4. Ideally the server is located in a country which does not tax business on the basis of server location (eg Singapore)
  5. Customers contract with and pay the IBC. All such monies are banked free of tax in the first instance
  6. You or your local company would be contracted by the IBC to manage sales/delivery of product/website maintenance/whatever.
  7. 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 expense against this income (eg home office, equipment, travel, phone/internet/utilities etc) to significantly reduce the amount of tax payable on this income.
  8. Often there is some kind of intellectual property (“IP”) created or behind the website based 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
  9. 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 onshore to take orders and receive income in a low tax onshore environment (eh 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 including a Nominee Director etc as part of the Corporate structure. See this page for details of how that can work:

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/

 

As ever local laws can have an impact. Hence you should seek local legal/tax/financial advice before committing to embark on such a program as detailed above.

 

 

How To Set Up A Manufacturing Company + Offshore IP Company

Intellectual property (“IP”) is a creation of the mind and includes things like inventions, literary and artistic works, designs and symbols, software code, names and images used in business.

 

IP is commonly protected in law by way of patents, copyright and trademarks which enable the person who came up with the idea to securely earn recognition or financial benefit from whatever it is he/she has invented or created.

 

An Offshore IP company is an ideal vehicle for the administration and management of licenses and intellectual properties including computer software, technical know-how, patents, copyrights and trademarks.  

 

Every other day I’m asked to advise on how ownership and commercialization of IP can be managed from an Offshore Perspective. 

 

Let’s look at a particular example.

 

Recently I was consulted by a cutting edge motor vehicle designer looking to begin manufacture.

 

Here are the steps you would need to undertake in order to establish such a business (ie once you’ve worked out where, ie in what country, you intend to manufacture):

 

  1. Register a tax free Company in a hand-picked jurisdiction (where to incorporate depends on a number of things including where you live, where you intend to manufacture, where you intend to sell etc etc, contact me for advice on this).
  2. Transfer ownership of the IP (eg the car design) to the nil tax Offshore Company (or have the Tax Haven Company apply for registration/recognition at law as the initial owner of the IP ie if you are not, at law, presently the registered/legal owner of the IP).
  3. Obtain the necessary government approvals for your business in, then incorporate a domestic Company in, the country where you intend to manufacture.
  4. Have the Tax Free Offshore Company License the use of the IP to the domestic/manufacturing Company

 

1.      Register the Tax Free Offshore Company

 

This is the easiest part. All you need to do to register an Offshore Company is:

(a)   Complete, sign and email your provider an order form.

(b)   Email your provider certified copies of your passport driver’s license and proof of address as per the requirements.

 

Note: If, whilst setting up/conducting operations, you remain tax resident in a country which has CFC laws you will want to also include a Private Foundation as part of your Tax Free Offshore Company structure.

 

2.      Transfer ownership of the IP

 

All forms of intellectual property –  copyrights, trademarks, trade secrets and patents – can be transferred in two ways: the property can be temporarily transferred under a license; or the property can be permanently transferred by way of an assignment.

 

An Assignment is a permanent transfer of the rights. In other words, you’re selling the rights to someone else and you will not be getting them back. Assignments are typically made under employment or contractor agreements, when companies acquire the assets of other companies, or when intellectual property is used as security such as when a movie studio secures finance by assigning movie rights in return for a loan.

 

If you create or invent something with commercial potential, someone may eventually want to buy the rights from you. That’s usually done with an assignment (or, as its sometimes called, an assignment agreement). An assignment is a permanent transfer of your ownership rights to a copyright, patent, trademark, or trade secret. Why would you give up all rights? Usually it’s because someone makes you an offer that’s hard to refuse — typically a lump sum payment, or periodic royalty payments based on a percentage of sales or units. When you assign your creation, you are the assignor and whoever purchases the rights is the assignee.

 

There are three common types of assignments in intellectual property: trademark assignments, patent assignments, and copyright assignments.

 

Trademark Assignments

Trademarks are the names or logos that are used to identify goods and services. If you were buying the Coca-Cola Company, you would want to make sure that the sale included an assignment of the company’s trademarks and their associated goodwill (the intangible value that the trademark possesses because consumers know it). Trademark assignments typically occur when a company is sold. A trademark assignment may also occur as part of a bankruptcy or may be used as a security interest when a business seeks to obtain a loan.

 

Once the assignment is made, the business buying the mark, the assignee, becomes the owner, and the assignor (the seller) has no further ownership interest. On some occasions, an assignment may be transferred back to the original owner if certain conditions are met. Most countries’ national trademark laws require the assignment of a mark to be in writing. Assignments should be recorded with the local Government’s Patent and Trademark Office and the new owners can obtain new certificates of registration in their names.

 

Patent Assignments

Patents protect inventions, industrial designs, and plants. Assignments of patent rights must be in writing. Many inventors assign their invention, either to the company they work for under an employment agreement or, in the case of independent inventors, to outside development or manufacturing companies. These assignments typically transfer ownership of any patent that issues on the invention and may (although usually not in the case of employed inventors) provide for compensation for the inventor, although employed inventors often receive little or no additional compensation, because they are getting paid to invent. Like trademark assignments, patent assignments usually must be recorded with the responsible local government department. Trade secrets – confidential information that provides a business advantage – and patent applications or unpatented inventions can also be assigned.

 

Copyright Assignments

Copyrights protect music, art, writing, software, and other forms of creative expression such as websites, blogs, and video. Copyright assignments must be in writing. Usually, a copyright assignment involves the transfer of the entire copyright, as when a freelance writer assigns all copyright interests in a particular article to a magazine. But an assignment may also transfer less than the whole copyright. For example, an author might assign the right to promote, display, and distribute a novel to a publisher while reserving the right to create derivative works (such as a screenplay) from that novel. Copyright assignments may be recorded at the Government Copyright Office. Copyright assignments, unlike patent and trademark assignments, can be terminated under certain conditions.

 

 3. Forming a Domestic Company

 

Given you will probably need to engage a lawyer on the ground (in the country where you intend to manufacture) to help you obtain the necessary business/residency permits, it may be cheaper and more efficient to have that lawyer incorporate the domestic Company for you.

 

4. License the use of the IP to the Offshore Company

 

What this entails is having a Lawyer draw up an agreement between the Offshore Company and the manufacturing Company which affords the manufacturing Company the right to manufacture the item (eg cars) provided it makes regular license or royalty payments to the Offshore Company. The royalty payments are receipted by (and may potentially be reinvested) by the Offshore Company free of tax. The key to this working is that the amount of the Royalty payments should be seen to be commercially realistic for that type of industry/market/product.

 

Practically speaking, commonly the manufacturing Company will pay the Offshore Company a fee (eg a percentage of sale price) for every item (eg car) sold. Obviously you’ll need to do some research to find out what a fair percentage would be.

 

As ever local laws can have an impact. Hence you should seek local legal/tax/financial advice before committing to embark on such a program as is detailed above.

 

OECD Offshore Tax Crackdown Hits Major Hurdle

For one country to gain revenue, another has to lose. 

 

The biggest hurdle to stopping multinational tax evasion isn’t the companies themselves. It’s the governments behind them.

 

As the OECD works on its plan to stop multinational tax evasion, the United States has already signalled it’s not happy with what’s being proposed.

 

The US has always been clear on its position: it will not agree to any plan that will cannibalise its tax base.

 

So you can understand why it is not overjoyed by recent moves by Great Britain and Australia to try to unilaterally collect more tax out of multinationals (GB & Australia have proposed a penalty tax on the transfer of local profits by multi-nationals to “tax haven” countries)

 

One of the US Treasury’s top officials has labelled these measures as evidence the debate is heading ”in a disturbing direction”.

 

US deputy assistant secretary for international tax affairs at US Treasury, Robert Stack, told the OECD international tax conference in Washington last week that the discussion about how to improve global tax laws is being driven by politics.

 

The need to fix budget deficits means that governments take actions that aim to raise more revenue for themselves, without taking account of the impact on the tax base of other nations.

 

Stack has been involved in negotiations on the OECD plan against profit-shifting known as Base Erosion and Profit Shifting (BEPS) and is a strong supporter of it.

 

But he’s worried that certain aspects of the BEPS plan – there are 15 parts to it – will fall down on implementation.

 

At the heart of the problem the OECD is trying to tackle is where a company has its location in the digital world.

 

There are no longer physical “permanent establishments”.

 

To try to create a virtual one, Stack says, will create winners and losers.

 

Tax authorities have to work out among themselves how and where to tax intangible items such as intellectual property.

 

For one country to gain revenue, another has to lose.

 

Stack’s fear: the United States will be the loser.

 

Most of the multinationals accused of dodging tax are US-based companies such as Apple, Google and Microsoft.

 

These companies have already complained to the US Treasury about Australia’s aggressive approach to getting more tax out of them.

 

By October, the OECD will have delivered its final BEPS plan.

 

What will happen next? Stack says 2015 will be a year in which the OECD will engage in “horse-trading”.

 

Or more unilateral moves.

 

Stack has condemned Britain’s Google tax, and Australia’s multinational tax avoidance legislation, saying they had “shone a spotlight on the degree to which political pressure can trump policy”.

 

To recap, the British  government has proposed a diverted profits tax, whereby companies get hit with a 25 per cent levy on profits generated in Britain, but “artificially shifted” overseas.

 

The Abbott government wants to strengthen anti-avoidance laws to go after 30 companies with more than $1 billion revenue that shift profits through low-tax or no-tax nations.

 

Never mind that we don’t actually know what the government means by low-tax nation.

 

Or that Australia’s proposed laws were never costed by Treasury and may not raise a cent in revenue.

 

Or that the laws risk breaking Australia’s international tax treaties and could provoke revenge taxes being imposed on local businesses operating overseas.

 

The reality is that politics is already dictating how governments behave.

 

The Australian Senate inquiry into corporate tax avoidance – which gave the Australian public a closer look at the tax affairs of big companies from Google to Glencore – increased the stakes politically.

 

Tony Abbott and Joe Hockey’s hands were forced, even if reluctantly.

 

They couldn’t hand down a budget without addressing the multinational tax avoidance issue. Even if it was just months before the OECD was due to deliver its plan.

 

As Stack said: If “two of our closest friends are going their own way”, then “how soon until others follow”?

 

The OECD’s tax director, Pascal Saint-Amans, also isn’t thrilled about Britain and Australia’s unilateral moves.

 

But he believes that once BEPS is finalised, those moves won’t matter.

 

“Are they massive?” he told tax news publication Tax Analysts. “I don’t think so, compared to what would have been the case without the [BEPS] exercise.”

 

Without saying so directly, Saint-Amans is pointing out that in the end it may not matter if the US plays ball.

 

With the European Union, China, India, Brazil, and a bunch of nations looking to preserve their tax bases, the US will have to move in sync.

 

If multinationals can no longer shift profits to tax havens – that is, no longer pay zero tax because everyone is in agreement that tax has to be paid somewhere – then negotiations will have to begin on where that tax is paid.

 

Tax experts are warning that the laws could deter business investment and spark revenue wars with overseas tax authorities.

 

So what happens in the post-BEPS, no-more-tax-havens world?

 

The initial impact could be tax revenue wars.

 

In the longer term, however, the debate will inevitably return to tax competition.

 

Multinationals will always base themselves where they can get the most competitive tax rates.

 

Expect to see countries jumping over themselves to get more tax-competitive.

 

Read more: http://www.smh.com.au/business/the-economy/joe-hockeys-multinational-crackdown-is-bad-tax-law-that-will-spark-global-revenue-wars-say-experts-20150916-gjnsds.html#ixzz3lzqfVln4

 

The Sydney Morning Herald

 

Tax Residency & Offshore Tax Avoidance

I regularly receive inquiries from persons who claim not to be a tax payer in any particular country.

 

When I ask why or how this can be the most common answer I hear is “because I move around a lot”.

 

After a bit more probing it often becomes apparent that, whilst Fred/Mary Bloggs may not have paid tax anywhere in a long time on account of his/her “moving around”, he/she has not in fact escaped the tax clutches of his/her mother state?

 

How can that be so?

 

The starting point it this: If you are regarded at law to be tax resident in a particular country you are liable to pay tax there on your (usually, worldwide) income.

 

The concept of tax residency however (ie what it takes to be classified as non-tax resident) varies from country to country. Depending on where you originate from you may pass the non-tax resident test of one country but fail the same test had you originated from the country next door.

 

Let me explain….

 

The most well-known tax residency test is in fact the oldest ie the days spent at home test. Historically, in most countries (USA excepted – see below), you were considered non-tax resident if you spent less than half the year inside your “home” or mother country.

 

Over the years, and particularly with the proliferation of “fly in-fly out” jobs (seen most prevalently in the oil/mining industries) a number of countries (in particular the more developed countries) have brought into play a multifaceted tax residency test. In other words notwithstanding that you might spend less than half the year on the ground in your mother country if you have a “substantial connection” with your mother country you may still be classified as tax resident of/in that country.

 

So what constitutes “substantial connection”?

 

In considering whether you still have a “substantial connection” to your mother country a number of factors are looked at including:

 

  • Do you retain a residency/home in your mother country?
  • Do you own any personalty in your mother country (eg a car, furniture/home contents/boat/leisure toys etc etc)
  • Do you have a bank account in your mother country?
  • Do you have investments or business interests in your mother country?
  • Do you retain a professional or trade license (eg Lawyer/Plumber/Doctor/Teacher/Nurse/Engineer/Architect/Builder/Dentist etc) license in your mother country?
  • Do you keep current a golf/tennis/leisure club membership in your home country?
  • Do you regularly renew a driver’s license in your home country?
  • Do you have children at school in your home country?
  • Do you have a spouse/partner living full time in your home country?
  • Etc etc etc

 

Chances are, as a minimum, what you will need to do in order to become non-tax resident in your mother country is:

 

(a)   Sell your home/residence in your mother country (or cancel any lease you might have over residential premises there)

(b)   Sell any business you own on the ground in the mother country

(c)    Sell all personalty owned/held in your mother country

(d)   Hand in (and not renew) any professional/trade license you may have in your mother country

(e)   Close down any bank/investment accounts you might have in your mother country

(f)     Write to your local IRS/Tax Office and advise that you have departed the country permanently and filed your last tax return.

 

For USA citizens however a unique situation applies. Generally speaking if you are a US citizen you are required to declare worldwide income in and pay tax in America regardless of (a) whether you spend less than half the year there and (b) whether you have no substantial connection with the USA. (For Americans the only way to be classified as “non tax-resident” of the US is to hand in your passport and denounce your citizenship).

 

Note even if you have to remain tax resident in your mother country there are certain Offshore Corporate etc structures (eg a combination of an IBC and a Private Foundation) that may enable you to receive income tax free in the first instance and to invest that income potentially tax free.

 

How it works is the Private Offshore Foundation owns a Tax Free Offshore Company and the Tax Haven Company earns/invests the income. Down the line (eg for maximum asset protection):

  • The assets held by the Offshore Company might be transferred to (and/or dividends might be paid to) the Tax Haven Company’s shareholder ie the Private Foundation.
  • The Offshore Foundation could then pay a distribution/s to all or any of its beneficiaries (who would presumably include you/your family members).

 

I imagine you /your family members ie the beneficiaries of the Foundation would have to declare and pay taxes locally on any income or capital received from the Foundation. Having said that I know of a number of clients  who have set up one of these Combo structures and then years later shifted tax residence to a country that didn’t have income or capital gains tax (whereupon they promptly drew down the capital from/of the structure all of which was receipted/ banked tax free)!

 

If you do intend to become non tax resident (or set up a structure Offshore), before you commit to departing the country etc, I would absolutely urge you to seek advice from a senior Tax Lawyer in your mother country about what you need to do to become classified at law a non-tax resident etc.

 

Becoming non-tax resident has plenty going for it. But if you get your exit strategy wrong it could cost you dearly…

 

4 Steps to Building a Great Business – Lessons From a Master

Megabrand Virgin Founder Sir Richard Branson was kind enough to impart some wisdom on a bunch of would be young entrepreneurs yesterday. Here are, what he says, constitute the 4 essential ingredients to business success:

 

1.      Surround yourself with good people and delegate well

 

Sir Richard says it is important to know your strengths and your limits and not try to do too much yourself. Instead, you need to get the best people with great ideas to join your team – and then avoid second-guessing them all the time.

 

“Sometimes they will fall flat on their face,” he says. “Sometimes they will do incredible things. Obviously I have been at it for a long time. Based on experience, sometimes I can say whether I like something or not based on many years of doing things. But surround yourself with great people.

 

“And delegate. I think too many people are building companies, they are not delegating. The absolute key is early on as you are building companies, try to put yourself out of business. Find one or two people [who] are better than you to do everything.”

 

2.      It’s OK to fall flat on your face, as long as you get back up again

 

Sir Richard views failure as a learning experience. He points to the Virgin Cola product, launched in 1994, as an example. The product did well in Britain for about 18 months, but that attracted the attention of Coca-Cola, which had deep pockets with which to fight back. Suddenly, Virgin Cola disappeared from the shelves of big retailers like Tesco.

 

“A lot of people fall flat on their face,” he says. ”The key in life is to learn from that experience and pick yourself up and keep reinventing yourself until you succeed. Most successful people have. It is learning from that and not giving up when it happens. Hopefully ultimately you come out on top.”

 

3.      Make sure you have a better product than the incumbent

 

Sir Richard says the key lesson from the Virgin Cola debacle was to always ensure you have a product that is “much, much better” than your competitor.

 

“Obviously with a soft drink, there is not much you can do to differentiate it,” he says. ”When British Airways tried to do the same thing to Virgin Atlantic because the quality of our product was better, they couldn’t do it. Or when Qantas tried to do it to Virgin Australia, they inflicted so much damage on themselves that they finally backed off. They even had to go begging to their government, having lost hundreds of millions of dollars trying to drive us out of business. The main thing was to make sure we kept the quality up.”

 

4. Do anything you can to promote your business for free

 

Sir Richard says Sir Freddie Laker, who had gone bankrupt fighting British Airways, had an important bit of advice for the launch of Virgin Atlantic and its fight against a deeper-pocketed rival.

 

“He said you have got to use yourself to let people know about your business,” Sir Richard says. ”And don’t spend tons of money on advertising but go out, make a fool of yourself, do whatever it takes to get your message out there. So I think for anyone who is starting out in business, if you have got the best product, you have got to let people know about your product and get out there and market it cleverly.”

 

Offshore Company Solutions for Residents of India

The Indian government has (very publicly) announced a proposed crackdown on the use of Offshore Tax Havens by Indian nationals/residents (check my previous blog posting for details).

 

If you are Indian and you are using (or planning to use) a Tax Haven Offshore Company and you want to minimise the chances of being investigated (or sent to jail) by the Indian authorities there are 4 boxes you will want to tick: 

 

  • You will want to ensure that your tax free Offshore Company is incorporated in (or migrated/redomiciled to, ie in the case of an existing IBC) a country which has NOT signed a TIEA (ie Tax Information Exchange Agreement) with India (check the following link which explains what a TIEA is : https://en.wikipedia.org/wiki/Tax_information_exchange_agreement )

 

  • You will want to ensure that you include a Nominee Shareholder and or Director as part of the IBC’s Corporate Structure. For more information on that and how Nominee Services can work for you please check out 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/

 

  • You will want to ensure that you set up your nil tax Offshore Company’s Bank Account in a country which has NOT agreed to be part of the OECD Bank Account Information sharing initiative. (See below which explains what that is and which countries have agreed to participate).

 

  • You will want to set up a Private Foundation to hold the shares of your Tax Haven Offshore Company. This one is key as it shifts legal and beneficial ownership of your Offshore Company/Assets to a 3rd party (ie the Offshore Private Foundation) which should provide an immediate and robust defence to any claim/charge of tax evasion.

 

Where to Incorporate or Domicile Your Company

 

India has signed TIEAs with Argentina, The Bahamas, Bahrain, Belize, Bermuda, Cayman Islands, Gibraltar, Guernsey, Isle of Man, Jersey, Liberia, Liechtenstein, Macau, Monaco, San Marino, Seychelles and BVI.

 

There are 7 nil tax Offshore Company jurisdictions that have NOT signed TIEAs with India. Please contact me and I will supply you with details.

 

Why set up a Foundation?

 

We used to use Offshore Trusts 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 privacy/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.

 

Moreover under the general law the legal and beneficial owner of any asset or IBC (or bank account) held by the Foundation is the Foundation itself not the Foundation beneficiaries. (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). Hence on the IBC’s bank records your name should not appear as beneficial owner of the Company because at law the legal and beneficial owner of the Company is the Foundation.

 

For more information on Seychelles Foundations please visit these pages:

http://offshoreincorporate.com/private-interest-foundations/

http://offshoreincorporate.com/seychelles-foundations/

 

For more information on Panama Foundations please visit these pages: http://offshoreincorporate.com/panama-tax-free-foundations/

http://offshoreincorporate.com/panama-foundations-fact-sheet/

 

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:

 

Albania

Anguilla

Argentina

Aruba

Australia

Austria

Belgium

Bermuda

BVI

Canada

Cayman Islands

Chile

Colombia

Costa Rica

Curacao

Cyprus

Czech Republic

Denmark

Estonia

Faroe Islands

Finland

France

Germany

Ghana

Gibraltar

Greece

Guernsey

Hungary

Iceland

India

Indonesia

Ireland

Isle of Man

Italy

Jersey

Korea

Latvia

Liechtenstein

Lithuania

Luxembourg

Malta

Mauritius

Mexico

Montserrat

The Netherlands

New Zealand

Norway

Poland

Portugal

Romania

San Marino

Seychelles

The Slovak Republic

Slovenia

South Africa

Spain

Sweden

Switzerland

Turkey

Turks & Caicos Islands

The United Kingdom

The United States

 

Local knowledge is key. Hence you should seek advice from your local/Indian Tax & Legal Adviser before committing to deploy any of the strategies set out above.

 

India targets tax evaders who hide ‘black money’ at home and offshore

Delhi: Among the pledges that propelled Indian Prime Minister Narendra Modi to power a year ago was one to bring home millions of dollars of illicit money the country’s super-rich had stashed abroad.

 

Trying to make good on his promise, his government has introduced a string of tough new measures in recent months designed to crack down on so-called “black money”,  fuelling panic among India’s elite and growing numbers of millionaires.

 

The anxiety has deepened in recent weeks as a government-imposed tax payment deadline for those who have stashed their cash in foreign accounts approaches on September 30.

 

The Associated Chambers of Commerce and Industry of India recently issued a statement denouncing the new law for creating “fear and panic” among industry leaders and trading professionals.

 

“People are uneasy and worried. The penalty and term of imprisonment are disproportionately high,” said Nishith Desai, a corporate lawyer in Mumbai.

 

And industry experts say that the rich are frantically searching for new tax havens and other ways to skirt the law, which includes penalties of up to 10 years in jail.

 

“The super-rich are becoming much more inhibited in their behaviour now. They are no longer posting pictures of their brand-new fancy watch or luxury car or expensive holiday on Facebook as readily as they did before,” said Dilip Cherian, who heads the image consultancy Perfect Relations. “They are either buying with credit cards or buying luxury products in foreign countries.”

 

No one knows for sure how much black money is hidden in India and overseas. But estimates range from $US400 billion ($578 billion) to over $US1 trillion ($1.445 trillion).

 

India’s history as a socialist-leaning country unfriendly to business – with endemic corruption – meant that the country’s rich routinely hid their wealth by hoarding cash, jewellery and expensive artwork or parking it in tax havens abroad. A World Bank estimate in 2010 said India’s “shadow economy” accounts for over 20 per cent of its economic output. Only 3 per cent of the country pays income taxes.

 

Two years ago, the investigative portal Cobrapost conducted a sting on 28 top state-owned and private banks across India in which executives were filmed on hidden camera offering to channel vast sums of customers’ unaccounted cash into the formal banking system.

 

Real estate is another common hiding place for untaxed money.

 

“Land is where Indian politicians and businessmen park the maximum amount of black money. About 30 per cent of all land transactions across India [are] done in cash,” said Pankaj Kapoor, founder of the real estate research firm Liases Foras in Mumbai.

 

According to the election watchdog Association for Democratic Reforms, 80 per cent of the income of five national political parties comes from unknown sources.

 

“In the disclosures of our elected politicians, you can see the assets have grown but their income and income tax payment have not grown proportionately. How do you explain that?” asked Ramesh Padmanabhan, a senior chartered accountant in Bangalore.

 

Last month, police raided a government official’s home in West Bengal and found $US3 million in cash stuffed under the mattresses, sofa, washing machine, refrigerator, television, false ceilings and toilet floor tiles. It took policemen 21 hours to count the money.

 

The government hopes to choke India’s black money culture with measures that include mandatory tax number declarations for people shopping with large sums, linking biometric identity to every bank account, opening new payment gateways and promoting credit card use.

 

“The process of formalising the informal economy is underway in India,” said Rajeev Chandrasekhar, an independent MP. “A lot of people who are used to an old model of doing business in India are uncomfortable today about the new scrutiny.”

 

During his election campaign, Mr Modi made the claim that so much money was stashed overseas that if he repatriated it he could deposit nearly $US230,000 into the account of every poor person.

 

“The big fish must not get away,” Indian Finance Minister Arun Jaitley said when the black money law passed in May.

 

But interviews with chartered accountants, tax officials and businessmen reveal that in recent months many of India’s wealthy have found new ways around the scrutiny.

 

A favourite tactic, accountants said, is sending family members abroad for 182 days, after which time they become “non-residents” with foreign accounts and businesses where the family members can stash money.

 

An official in the tax department said that in the last few months, international companies have begun using a new mix of insurance products to mask and move this illegal money to locations like Dubai and Singapore, from where it can be brought into India legally.

 

The official, who spoke on the condition of anonymity because he was not authorised to speak to the media, said his department has noticed a 250 per cent jump in the number of shell companies being registered by what he called “Indian frontmen” in the tax-friendly city of Ras al-Khaimah in the United Arab Emirates.

 

In July, a special investigation team recommended new measures to curb black money, including laws to deter betting on cricket and closely monitoring donations to temples, gurus and their ashrams, many of which have storerooms stacked with gold.

 

There are doubts the program will be effective. In May, Ram Jethmalani, a lawyer and black money crusader, told the Supreme Court that Mr Modi’s promise to bring back black money was “worse than an illusion” and a “fraud on the nation”.

 

“They must bring in a significant amount of black money into the system like they promised. (Otherwise) people will soon begin to ask uncomfortable questions,” said T. S. Ahluwalia, director of Dharamvir Exports, an exporter of farm products.

 

Already there is speculation that the September 30 deadline may be extended. So far, only one wealthy person has reported black money holdings and paid the tax and penalty.

 

Washington Post