Monthly Archives: March 2015

Australia is being “picked off” by online foreign exchange brokers that are able to obtain a local licence and offer clients extremely high leverage of up to 500 times, Australia’s corporate watchdog the Australian Securities and Investments Commission (“ASIC”) says. 

Mr Greg Medcraft, chairman ofASIC, said the issue had been raised with the country’s top financial regulation forum, which comprises ASIC, the Reserve Bank, Treasury and the Australian Prudential Regulation Authority. 

“We’ve discussed this more globally, and we are being picked off as a jurisdiction that allows very high leverage, 500 to 1,” Mr Medcraft said at a parliamentary hearing on Friday. “We’re doing what we can in terms of vetting those who apply for licences in this area, particularly those that don’t have a [true] connection with Australia that are operating outside of Australia. 

“It is an issue that’s been discussed recently at the Council of Financial Regulators.”

Asked if participants in the foreign exchange market were sophisticated enough to understand the risk, ASIC Commissioner Cathie Armour said there was an “open issue”whether Australia should take the approach of other countries about limiting the amount of leverage.

CAPPED LEVERAGE

The US, Japan and Hong Kong have capped leverage. The watchdog has taken action against some Australian-based brokers. In October 2014, ASIC forced one of Australia’s foreign exchange brokers, Pepperstone, to exit the Japan market, after it was found not to have the appropriate licence. Pepperstone was offering clients leverage of up to 400 to 1, significantly above the regulatory maximum in Japan of 25 to 1.

Given the high leverage allowed in foreign exchange trading, ASIC’s Ms Armour said Australia was “quite fortunate” that brokers here had been able to operate effectively during the significant shock caused by the de-pegging of the Swiss franc in January.

High leverage creates the potential for greater profits, but also greater losses. January’s 30 per cent spike in the Swiss franc after its central bank dropped a peg with the Euro was one of the most dramatic moves ever in currency markets, and resulted in widespread losses for traders, brokers and investment banks.  

For a trader with 400 times leverage, the instant 30 per cent move resulted in a 1200 per cent loss, which exceeded the balance of most traders. FXCM, the world markets’ largest online foreign exchange broker, was forced into a distressed sale while British-based Apari declared insolvency.

The popularity of online foreign exchange trading has surged as technology has allowed individuals to bet on currency moves. Daily ­turnover has more than doubled from $136 billion to $380 billion since 2007 as speculators opt to trade foreign exchange markets that operate 24 hours a day. But foreign exchange markets are largely operated on the often opaque and unregulated over-the-counter basis.

Australia has become a hotbed of the global retail forex broking industry by virtue of its trading culture, and a safe jurisdiction for locally based players to market themselves to traders around the world. Such is its popularity that daily turnover at some of Australia’s largest brokers can exceed the entire cash equities volume of the Australian Stock Exchange on a given day.

THE SYDNEY MORNING HERALD

23 March 2015

Given we are now living in the Global Village, and as more opportunities exist now than even before for qualified professionals and trades/skilled persons to work as Consultants to (or to take up contracts offered by) non-local Companies, more and more clients are setting up (and hiring out their services via) a nil tax jurisdiction based Recruitment Agency or Labour Hire Company.

Here’s how it can work:

1. You would incorporate a new zero tax Offshore Company which might be called something like International Professional Recruitment Services Ltd  (hereinafter, “IPRS Ltd” or the “Employment Agent”)
2. This business would be characterized as, and appear to the outside world to be, a Professional Recruitment Agency or a (Specialist) Labour Hire Company
3. You might tell anyone who wants to hire you eg your existing employers (or contract counterparty if you are on a contract) that, as IPRS Ltd can offer you (a) consistent employment + (b) jobs the world over, and as they are experts in finding contracts for your Profession/Trade/Occupation, you are contracted exclusively to IPRS Ltd and anyone who wants to hire you has to sign an agreement with, and must pay, IPRS Ltd.
4. Your existing employers (or contract counterparty if you are on a contract), assuming they wish to keep you employed/engaged, would then have to sign a labour hire agreement with IPRS Ltd.
5. Your existing employers (or contract counterparty if you are on a contract) would thereafter pay your wages (or contract fees as applicable) to IPRS Ltd.
6. IPRS Ltd would keep a percentage of these payments as Agency commission (the commission could be anywhere from 2.5% to 50%).
7. The remainder of monies (ie after the tax free Offshore Company IPRS Ltd has retained its agency commission) would be paid to you by IPRS Ltd
8. The monies received by IPRS Ltd should be receipted free of tax and could be held and or invested Offshore potentially tax free.

For the above to work the agreement between your employers (and the agreement between you) and the Tax Haven Company IPRS Ltd would need to be (and be seen to be) commercially realistic.

Local laws can have an impact. Hence you would be wise to seek local legal and or tax advice before committing to create such a company/structure.

The Nevis Multiform Foundation Ordinance is a very unique and cutting-edge piece of legislation which was designed to remedy some of the problems seen in other foundation products.

The Nevis Multiform Foundations Ordinance provides that each Nevis Foundation will have a stated ‘multiform’. This means that the constitution of the foundation will state how it is to be treated whether as a trust, a company, a partnership or an ordinary foundation. Through the ‘multiform’ concept the stated identity of the Foundation can be changed during its lifetime, thus allowing for there to be greater flexibility in its use and application. Generally, the Nevis Multiform Foundation product can be used for estate planning, charity, financing and special investment holding arrangements.

There are five basic requirements for establishing a Nevis Multiform Foundation:

-       It must have a Nevis based registered agent (which OCI supplies)

-       It must have a Nevis registered office (which OCI supplies)

-       It must have an acceptable name

-       It must have a management board and secretary (which OCI can supply via Nominees); and

-       It must have a memorandum of establishment

Like the formation of a company, you must first engage the services of a registered agent who is authorized to act as agent of the entity, and that registered agent must have an office to which all communications and notices may be addressed. The Promoter of the Foundation, through its registered agent may reserve a name prior to establishment of the foundation. If the foundation is a trust foundation, then the name must accord with that multiform so that the trust foundation has the word “trust” in it. The name must not be prohibited by law: Irrespective of the prohibited word list the Registrar of Foundations will not reserve a name that is misleading, undesirable, confusing or similar to another name of an entity registered in Nevis.

Once the Registrar confirms that a name is available and valid for use, that name can be reserved for a period of one month. The Registrar has discretion to permit a name to be reserved for a longer period. Once a name has been reserved, the following establishment documents must be submitted to the Registrar in order to establish the Multiform Foundation:

-       Application Form

-       Consent Schedule

-       Memorandum of establishment

-       By laws (if standard by-laws are not adopted)

-       Evidence that the existing entity has been dissolved or discontinued or an undertaking that an application for dissolution or discontinuance has been submitted in the existing jurisdiction (where applicable)

The relevant fees must accompany the documentation for establishment of a Nevis Multiform Foundation.

The Nevis Multiform Foundation Ordinance also provides for entities to be converted or transformed, continued or consolidated and merged into a Nevis Multiform Foundation. Through the process of Continuance, a foundation in another jurisdiction can be continued in Nevis as Multiform Foundation.

Through the process of Transformation, any entity outside of Nevis can be transformed into a foundation in Nevis. Therefore, a trust in Jersey can become a multiform foundation in Nevis. Through the process of Conversion, an existing Nevis entity like an IBC can be converted to a multiform foundation.

Through the process of Consolidation or Merger, any two or more entities can merge into a multiform foundation and alternatively, through the process of Discontinuance, a multiform foundation can move to another jurisdiction. These provisions allow for the mobility of the foundations as an entity into and out of Nevis and give the founder an extremely valuable asset protection tool.

A new special economic zone (SEZ) has been confirmed in Qatar near the new Hamad Port, just south of Al Wakrah.

The zone, to be known as Um Al Houl Special Economic Zone, will seek to attract companies from the petrochemicals, building materials, maritime, metals, logistics, food processing, automobiles, tools, and machinery sectors.

The new zone, announced on March 2, is one of three SEZs being developed by Manateq, a company established by the Ministry of Business and Trade in 2011. Manateq intends to allow investors to develop land on the 33.52-square-kilometer site from the second quarter of 2016.

Manateq’s SEZs will offer zero duties on trade within the Gulf Cooperation Council and low import duties or exemptions for inputs and machinery.

Qatar’s Minister of Economy and Commerce, Ahmed bin Jassim bin Mohamed al-Thani, said: “This groundbreaking ceremony of Um Alhoul special economic zone is testament to the firm resolve and unwavering commitment of the State of Qatar towards a strategically and fully diversified economy.”

A company set up in such a Free Zone offers benefits to owners including:

• 100% ownership( A single individual is required for setting up (no sponsor required))
• Tax exemption
• Owning properties is allowed (25 years lease options, warehouse facilities, availability of areas for production and assembling etc.)
• Fair renewal fees
• Confidentiality of your business is maintained
• Allowed to open bank account in Dubai
• No restriction for doing more than one activity
• Can wind up at your discretion

The best known jurisdiction for Trade Free Zones is Dubai which has  more than 20 Free Zones operating within its confines including:.

• Dubai Airport Free Zone
• Dubai Cars and Automotive Zone (DUCAMZ) also known as Dubai Auto Zone
• Dubai Healthcare City
• Dubai International Academic City
• Dubai Internet City
• Dubai International Financial Centre
• Dubai Knowledge Village
• Dubai Media City
• Dubai Gold and Diamond Park
• Dubai Multi Commodities Centre (DMCC)
• Dubai Silicon Oasis (DSO)
• International Media Production Zone
• Jebel Ali Free Zone
• JLT Free Zone
• Dubai World Central(DWC) Business Park

A number of our clients hold US Real Estate via Offshore vehicles.

What those clients usually do is this:

• They set up an LLC in a state other than where the property is situated; and
• How they structure the LLC is they have the membership units (akin to shares in the case of a Limited Company) in that LLC held by a tax haven IBC (which depending on where the client lives, is usually owned by a tax free Offshore Private Foundation, see below).
• All incomes are passed through the LLC and paid to the member/s leaving the LLC with no Corporate/Business Tax liability in the US (LLCs are treated as partnerships for tax purposes ie as a “flow through entity”. In other words provided all the income is distributed to the LLC’s members by tax year’s end the LLC should not be required to file a tax return).
• Provided there is only one member (shareholder) of the LLC and provided that member is not a US resident or citizen the income can flow through to the member without the LLC having to declare and pay tax in the US on its profits or capital gains
• The tax haven IBC is not liable to pay tax at home on those receipts
• If there are no further holding entities beneath the IBC, and the owner of the IBC lives in a country which has CFC laws, then he/she will have to declare the IBC’s income at home
• But if the owner of the IBC is a tax free Offshore Private Foundation the IBC’s income could be held and or reinvested by the IBC Offshore potentially tax free

Note the above information is based on advice received from a US Accounting firm which is experienced in tax filing for foreign owned Delaware companies.  You would be wise to seek independent US and local tax advice before committing to put together such a structure.