Monthly Archives: August 2016

The term holding company is usually used to describe a company which is set up (not to own/operate a business but to) passively hold an asset eg the shares of another company or a piece of real property.

Usually all a holding company does is receive passive income eg dividends if it owns shares in other companies or rent eg if it owns real property. The advantage of setting up a Holding Company “Offshore” is, if you incorporate it in the right place and structure it properly, (a) you might minimize Withholding taxes when dividends etc are paid to the Holding Company (see below) and (b) you can potentially receive (and reinvest) your passive income free from tax.

The other advantage of setting up a Holding Company “Offshore” is privacy. If you don’t want certain persons to know that you own a particular asset or assets you might choose to set up your holding company in a privacy haven ie somewhere which does not have a public register of directors or shareholders or beneficial owners.

A Holding Company is often placed between a Trading company and the Ultimate Holding Entity (which might be a Company or Trust or a Foundation) as a means by which to access a favorable DTAT (ie Double Taxation Avoidance Treaty – see below) such as would enable you to reduce the Withholding tax (“WHT”) that would otherwise apply on dividends, interest or royalties paid by a Trading Company to your Ultimate Holding Entity.

Commonly when dividends, interest or royalties are paid by a local company to a non-local (foreign) shareholder Withholding Tax (WHT) of around 20% is payable in the country from where the payments are being made.

However deals are often brokered between countries and written in to a DTAT which afford WHT discounts if the shareholder is a resident of, or incorporated in, a particular country.

For example Mauritius Companies are commonly used to hold shares in Indian Companies as Mauritius has a favourable DTAT with India that affords WHT discounts to Mauritius persons or companies.

Likewise Seychelles Holding Companies (CSLs) are commonly used to hold shares in Chinese Companies as China has a favourable DTAT with Seychelles that affords WHT discounts to Seychelles persons or companies.

The Netherlands is another popular place for the incorporation of Holding Companies as it has an extremely wide network of WHT friendly DTATs.

What is Withholding Tax (WHT)?

Withholding tax (“WHT”) is tax levied:

(a)   When a company incorporated in one country pays dividends to a shareholder of that Company who is resident in a 2nd country

(b)   When interest is paid by a company incorporated in one country to a lender resident in a 2^nd country

(c)    When a royalty is paid by a company incorporated in one country to a party resident in a 2^nd country

The applicable rate of WHT is usually somewhere between 15 and 25%.

The rate of WHT applicable may be reduced if the person (or entity) receiving the interest/dividend/royalty payment is tax resident in a country which has a favourable Double Taxation Avoidance Treaty (ie one allowing for a reduced WHT percentage) with the country from which the payment is coming.

What is a DTA?

A DTA (Double Taxation Avoidance Treaty) is a bilateral treaty (ie a legal agreement signed by two countries) which is designed to avoid persons being taxed twice ie in 2 countries on the same income. DTA’s usually also set out the taxing rights of each country where there would otherwise be a dispute about who has the taxing rights over certain income/gains.

DTAs tend to reduce taxes of one treaty country for residents of the other treaty country in order to reduce double taxation of the same income. The provisions and goals vary highly; very few tax treaties are alike. Most treaties:

• Define which taxes are covered and who is a resident and eligible for benefits
• Reduce the amounts of tax withheld from interest, dividends, and royalties paid by a resident of one country to residents of the other country
• Limit tax of one country on business income of a resident of the other country to that income from a permanent establishment in the first country
• Define circumstances in which income of individuals resident in one country will be taxed in the other country, including salary, self-employment, pension, and other income
• Provide for exemption of certain types of organizations or individuals; &
• Provide procedural frameworks for enforcement and dispute resolution.

In summary, if you are looking to buy or otherwise acquire shares in a foreign Company (before committing to the purchase) it would be wise to engage an International Tax/Corporate Structuring Specialist to provide advice on whether a Holding Company regime might be available to facilitate savings on Withholding Tax.

A lot of people these days are making money on the side renting out properties (or rooms) via Air BnB.

Interestingly, Air BnB has given entrepreneurial types access to a whole new model of business!

Briefly what these clever business persons are doing is they are locating properties which are likely to be of interest to short terms renters eg inner city apartments in much visited European/Asian/American city locales, beachside holiday apartments, unit accommodation near hospitals etc.

Once located they contact the owners of the properties seeking the right to either (a) lease the property for a fixed term or (b) manage the renting of the property/s for a percentage of rent received.

In the case of (a) typically the lease will contain a clause allowing the entrepreneur to sublease the property.

In the case of (b) the entrepreneur typically enters into a property management agreement with the owner agreeing to manage the process of finding renters for and renting the property in return for a percentage of rent received.

Once the lease/agreement has been signed the entrepreneur lists the property/s for rent on air BnB.

Let’s look at a very practical example of how that should (tax effectively) work using a tax free International Business Company (” IBC”).

Say you contact a bunch of property owners in London and you either (a) convince them to let you rent the property/s out to others for a fee or percentage or (b) lease the properties yourself and sublease them to holiday makers.

Either way how it would work using a tax free Offshore Company (“IBC”) is:

• The IBC would sign any contracts to manage or lease the properties in question
• Any add online to rent the properties would be placed in the name of the IBC
• The IBC would enter in to the agreement/contract with Air BnB
• The client would pay Air BnB
• Air BnB would keep their percentage and pay the balance to your IBC.
• Any/all profits generated have been generated online
• In the case of an online business typically tax liability lies only in the country from which the Company is managed and controlled
• The Company would be structured with a (tax haven based) Nominee Director/Shareholder (ie management and control would be “Offshore” ie in a nil tax environment)
• Thus  any profits earned have been earned (and ideally banked) Offshore ie in a nil tax environment

Local laws can have an impact. So be sure to seek local legal/tax/financial advice before committing to set up an Offshore Company for such purposes.

A cryptocurrency is a digital medium of exchange that uses encrypted software to operate a market for transactions. That market is overseen by those using the network, based on rules coded into algorithms. It’s a transparent, peer-to-peer operation, similar to the file-sharing protocol BitTorrent which is widely used for the illegal sharing of movies, TV shows and music.

How are cryptocurrencies propagated?

Crytocurrencies are created, or mined, based on a mathematical formula. In the mining process, computers are tasked to solve complex mathematical problems and rewarded with virtual coinage. Over time, the equations become progressively more difficult to solve, slowing down the supply of new cryptocurrency units.

Can anyone become a miner?

Theoretically it is possible to start mining at home. But as the mathematical challenge becomes harder, more computational grunt is required. For this reason, miners often pool resources to buy access to supercomputers or server farms (networked arrays of smaller computers).

How many cryptocurrencies are there?

The market for such payment instruments is dominated by Bitcoin, but there are scores of other currencies including Blackcoin, Litecoin, Dogecoin, Megacoin, Onecoin, Namecoin  etc and there is even a sexcoin.

What are they worth?

Values fluctuate based on supply and demand (and market sentiment). At the time of writing, one Bitcoin is worth $US651. But the price has gone as high as $US1145.  On the other hand, one Litecoin is worth just over $US4.30.

How do you buy and sell it?

A transaction is similar to a direct transfer between bank accounts. Algorithmic verification ensures that the same unit of currency can’t be owned by more than one person at the same time. In most cryptocurrencies, accounts known as wallets are stored either on hard drives or remotely in the cloud. Every transaction is recorded in a ledger called the blockchain that is accessible by every currency owner.

What can you buy with it?

Because of its widespread adoption, Bitcoin is the most liquid of the alternative currencies and can be readily exchanged into US dollars. In addition to being used to pay for goods and services on a person-to-person level, a number of larger enterprises have begun accepting Bitcoin as payment.

What are the benefits of Cryptocurrencies?

A Cryptocurrency is a digital or virtual currency that uses cryptography for security. It is a medium of exchange like normal currencies such as USD, but designed for the purpose of exchanging digital information through a process made possible by certain principles of cryptography.

Cryptography is used to secure the transactions and to control the creation of new coins. A cryptocurrency is difficult to counterfeit because of this security feature.

A defining feature of a cryptocurrency is that it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation. Encryption techniques are used to regulate the generation of units of currency and to verify the transfer of funds, operating independently of a central bank.

Moreover decentralized cryptocurrencies such as bitcoin provide an outlet for personal wealth that is presently beyond restriction and confiscation. Interestingly an Offshore Corporate Structure be can used to hold cryptocurrency so that any capital gain occurrs or is realized in a nil tax environment. Check our Blog Article of 18 July for details of how that can work.

OFFSHORE COMPANIES INTERNATIONAL LTD.

14 August 2016

To change the Trustee of an International tax free Trust (Offshore Trust) a certain procedure needs to be followed.

To begin with the existing Trustee of the Offshore Trust must resign or be removed.

The resignation can be verbal or in writing (in writing is preferable) however the Trust Deed usually dictates the required method.  If there is more than one Trustee, the notice, whether verbal or in writing, is given to the other Trustees.  If there is only one Trustee then the notice is given to the Nominated Beneficiaries.

A Trustee can be removed by the Appointor/Settlor. Depending upon the wording of the Trust Deed, either the retiring Trustee appoints a new Trustee or the Appointor/Settlor appoints a new Trustee.  The appointment should be in writing, preferably by Deed and should be signed by the new Trustee and incorporate an undertaking by the new Trustee to act as Trustee and discharge the duties of a Trustee set out in the Deed and at law.

Most Discretionary Trust Deeds provide that it is the Appointor/Settlor that has the power to remove an existing Trustee and appoint a new Trustee however:

• If there is no Appointor/Settlor then a Trustee (either the retiring Trustee or a continuing Trustee) has the power to appoint a new Trustee.
• If the Trustee has died then the deceased Trustee’s Executor (Legal Personal Representative) has the power to appoint.
• If the Trustee or Legal Personal Representative fail or refuse to appoint then the Nominated Beneficiaries can appoint.

It is important for Trustees to be mindful that if there is a change of Trustee then the Trust Deed must provide or be amended to provide (before the new appointment is made) that neither the retiring Trustee or the new Trustee can ever be beneficiaries of the Trust.

How is a new Trustee added?

Depending upon the wording of the Trust Deed, it is either the Trustee or the Appointor/Settlor who has the authority to add a new Trustee.  The appointment can be verbal or in writing (in writing is preferable). Generally the appointment is in the form of a Deed.  The new Trustee must, when accepting the appointment, undertake to carry out the duties of Trustee and discharge the obligations contained in the Trust Deed and at law.

Resignation: A Trustee may resign as Trustee of an Offshore Trust by giving the Appointor/Settlor(s), or Trustee(s) as relevant, notice. However, unless there is a remaining Trustee, the resignation is only effective when a new Trustee has been appointed;

Removal: If the Trust has an Appointor/Settlor(s), then, depending on the wording of the Trust Deed, the Appointor/Settlor(s) may remove a Trustee at any time by signing a statement to that effect.

Appointor/Settlor’s and Trustee’s powers: If the Trust has an Appointor/Settlor (and if the Trust Deed provides for it)  then the Appointor/Settlor, or otherwise the Trustee, may appoint an additional or replacement Trustee at any time by a written statement to that effect.

First named Beneficiary’s powers: If the Trust has no Appointor and no Trustee, then (if the Trust Deed provides for it) the first named Beneficiary who is still alive may appoint an additional or replacement Trustee at any time by a written statement to that effect.

Automatic termination of Trustee’s appointment: Also, a Trustee’s appointment terminates automatically if any of the following occurs:

(a)   the Trustee is found to be of unsound mind, or the Trustee or his or her estate becomes liable to be dealt with in any way under a law dealing with mental health;

(b)   the Trustee becomes bankrupt or makes an arrangement or composition with his or her creditors; or

(c)    the Trustee enters into compulsory or voluntary liquidation (except for the purposes of amalgamation or reconstruction), or has an administrator, receiver, official manager, or receiver and manager appointed to any part of its assets.

The documents that would have to generated to effect a change of Trustee usually include:

• Trustee consent forms;
• Appointor minutes (if applicable);
• Current Trustee minutes;
• New Trustee minutes;
• First Named Beneficiary minutes (if applicable);
• Draw and Settle a Deed of Amendment

Local laws can have an impact. Hence you should seek the advice of a Trust Law expert in the jurisdiction where the Trust is registered or domiciled before committing to try and change Trustee/s.