Monthly Archives: March 2017

The Isle of Man is an extremely stable self-governing British dependent territory, located in the Irish Sea at the geographical centre of the British Isles with a legal system based on English common law.

It is not and has never been part of the United Kingdom but is technically a Crown Dependency and is independent in all matters except foreign affairs and defence, both of which are the responsibility of the United Kingdom Government and for which the Isle of Man pays an annual contribution. 
 
The Isle of Man is politically and legislatively independent of Great Britain; It boasts its own Westminster style of Parliament (known as the Tynwald) which is the oldest legislature in the world in continuous existence. 

The Isle of Man (“IOM”) Company law historically is based on English Company Law but, so as to better compete in an expanding global marketplace, the IOM Government introduced new corporate legislation in 2006 with the introduction of “2006 Act Companies“, to complement the existing company legislation. The new Company Law is more geared towards flexibility and simplicity.

Companies incorporated in the Isle of Man must comply with the Companies Acts and regulations in force which guarantees that high standards of Corporate Governance for all IOM Companies (including the filing of an annual return ie annual accounts must be provided to  the IOM Government’s Income Tax Division).  

Isle of Man registered companies are the conventional form of business entity for the purposes of conducting local and international business from the Island and enjoy numerous benefits including:

• ·       Separate legal personality
• ·       Can be incorporated either as a Private Limited Company or as an LLC
• ·       Provided the Company is not being set up (a) to provide banking services or (b) to own/operate a local retail business or (c) to do local real estate business a 0% corporate tax applies in IOM. (If structured correctly an IOM Company can enable you to bank worldwide profits without having to pay Corporation tax)
• ·       No capital gains tax, inheritance tax or stamp duties
• ·       No Exchange Controls
• ·       Bank Accounts can be opened for IOM Companies in the IOM with reputable international banks
• ·       There are no authorised or issued share capital requirements + shares may be issued
• ·       Ease of incorporating an Isle of Man company (usually within 3 working days subject to satisfactory due diligence)
• ·       The Isle of Man is part of the EU’s Customs Union making it ideal for businesses looking to do business in Europe (a UK VAT number can be obtained)
• ·       Provided there are no local shareholders there is no tax levied in IOM on retained profits
• ·       No requirement to specify a company’s objects in the Memorandum of Association so a company is not restricted in its business activities
• ·       Third parties take comfort from the similarities to English company law
• ·       Only 1 Director is required
• ·       A Non IOM resident can be appointed as Company Director
• ·       Only one shareholder is required
• ·       Corporate Directors are permissible
• ·       Nominee shareholders can be used to protect the identity of the owners
• ·       The Isle of Man is a well-regulated highly regarded jurisdiction giving IOM Companies and air of respectability in the International Market Place.

Common Uses for IOM Companies

Most common use of the Isle of Man offshore companies:

• Holding investments, e.g. portfolios, UK commercial property and other companies shares – these activities are not taxed in IOM;
• Simplified trading within the EU due to the zero rate of tax on trading income and the ability to quote an EU accepted VAT number;
• Holding intellectual property (As the Isle of Man is a signatory to the Paris Convention on Patents and Trademarks).

Doing Business in Europe?

The Isle of Man is part of the UK for VAT purposes only. The consequence of this is that it is possible to very quickly (and relatively cheaply) obtain a UK VAT number using an Isle of Man company (in a matter of weeks rather than months).

Moreover if VAT registration is desired the Isle of Man is the only country which provides a 0% tax environment in which it can be achieved.

VAT registration is of course also possible in all EU countries and some tax saving can still be achieved through the use of, low tax EU countries, such as Malta (where the effective tax rate can be as low as 5%) or the UK (where tax transparent structures can achieve an effective rate of 0% however much greater delays should be anticipated with UK registration as opposed to Isle of Man registration).

OCI Isle of Man Company Formation Services

At OCI we believe in giving you more for your money than would the average IBC formation service. Hence included in the incorporation package for your IOM Company is the following:

Services:

• ·       Unlimited name availability inquiries
• ·       Advice from an experienced International Corporate Lawyer on how to structure your company
• ·       Preparation (overseen by a lawyer) of application to incorporate the company
• ·       Preparation (overseen by a lawyer) of the company’s memorandum of association
• ·       Preparation (overseen by a lawyer) of the company’s articles of association
• ·       Attending to filing incorporation request with the company registry  
• ·       Attending to payment of government filing fees
• ·       One year’s Registered Agent service in the country of incorporation
• ·       One year’s Registered Office service in the country of incorporation
• ·       Company Secretary
• ·       Mailing address in the country of incorporation
• ·       Delivery of Incorp pack by international courier (ie DHL/Fedex/TNT etc)
• ·       Unlimited free legal consultations for 12 months (Speak to our In House Lawyer at any time for advice on how to manage/administer your Company etc)

Documents included in your Incorp pack:

• ·       Certificate of incorporation
• ·       2 sealed/stamped copies of the company’s Memorandum of Association
• ·       2 sealed/stamped copies of the company’s Articles of Association
• ·       Resolution appointing first director/s
• ·       Resolution appointing first shareholder/s
• ·       Up to 5 share certificates
• ·       Resolution to open a bank account
• ·       Resolution to rent an office
• ·       Resolution/s to engage a Phone, Internet & Website service provider
• ·       Resolution to hire a staff member/s
• ·       Resolution to appoint a company lawyer
• ·       Resolution to appoint a company accountant
• ·       Resolution appointing you as the company’s authorised representative in commercial negotiations
• ·       Resolution issuing a Power of Attorney in your favour
• ·       Agreement authorising you to represent the company in commercial negotiations
• ·       Power of attorney authorising you to sign documents on behalf of the company
• ·       Register of directors
• ·       Register of shareholders
• ·       Expression of wishes (ie an “Offshore” Will)
• ·       Lawyer authored User Guide (“How to Use Your Offshore Company”)

Price (all inclusive): GBP 2,440

(With tax effective offshore company management ie including Professional “Nominee” Director, Shareholder & Company Secretary: GBP 1,000)

From year 2 (including government fees, provision of IOM registered office/agent service, maintenance of statutory records, compliance, filing of Annual Return and any tax/license declaration): GBP 990

Every effort has been made to ensure that the details contained herein are correct and up-to-date, but this does not constitute legal or other professional advice. We do not accept any responsibility, legal or otherwise, for any error or omission.

Hong Kong has signed agreements with six jurisdictions to automatically exchange financial account information in tax matters.

The agreements expand Hong Kong’s Automatic Exchange Of Information (AEOI) network to include Belgium, Canada, Guernsey, Italy, Mexico, and the Netherlands. These countries join Japan, Korea, and the UK as “reportable jurisdictions” for AEOI purposes in Hong Kong.

Before these agreements can take effect however HK will have to pass local legislation compelling its Banks to share the relevant information. Given how much Hong Kong’s Banking Sector contributes to the local economy (and the amount of power the Banks can bring to bear as a lobby group) it remains to be seen whether the relevant legislation will ever be passed.

If you live in any of the affected countries (ie Belgium, Canada, Guernsey, Italy, Mexico, the Netherlands, Japan, Korea, or the UK) and are concerned about maintaining financial privacy, and you have currently a personal account in Hong Kong (or a Company bank account where you are the beneficial owner of the Company) you have in effect 2 choices:

1.       Close your account and move it to a bank in a country which has not (i) signed an EOI Treaty with your home country or (ii) signed on to the OECD’s Multi Competency Authority Agreement aka the MCAA (ie the vehicle which gives rise to Automatic Exchange of Financial Information – you can check the list of countries which have signed by clicking on this link: https://www.oecd.org/tax/automatic-exchange/international-framework-for-the-crs/MCAA-Signatories.pdf )

2.      (If you are the beneficial owner of a Company which banks in Hong Kong) Set up a Seychelles Foundation to hold the shares of your Company.

Why Register a Seychelles Foundation?

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 illegal if owned/operated from where you live) again a Seychelles Foundation can help:

How so?

It all comes down 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 – see section 71 of the Seychelles Foundations Act).
2. The Foundation is a legal entity in its own right not a mere Trustee (See section 23 of the Seychelles Foundations Act)
3. The Councillor of the Foundation owes no Fiduciary duty to the beneficiaries (see section 63 of the Seychelles Foundations Act. Note you can download a copy of the Seychelles Foundations Act by clicking on the relevant button in this linked page: http://www.seylii.org/sc/legislation/act/2009/32 )

 What does all this mean?

If a Seychelles Foundation owns a Company and the Company owns property or money in the bank as a matter of law the Legal AND Beneficial owner of the Company (and any funds it has at bank) is the Foundation.

Re opening a Paypal account for your Offshore Company or IBC, here’s how that usually works (Note the below scenario assumes that you have chosen a Nominee Director as part of your Company package):

1.       The client/company owner (“you”) is usually appointed (via Consultancy Agreement) as an Authorised Representative of the Company. 

2.       The Consultancy agreement gives you the authority (amongst other things) (a) to negotiate purchase and supply contracts on behalf of the Company and (b) to approach a bank or merchant account or payment provider seeking an account on behalf of the Company (In essence the Consultancy Agreement gives you the power to do anything except sign a legal contract on behalf of the Company).  

3.       Presumably you will want/need to approach Paypal asking for (a) a merchant account facility (ie where clients can pay your Company via card) and/or (b) a Paypal payment facility ie whereby you can pay others via Paypal or receive payment from others via Paypal.

4.       Paypal will probably ask you to provide “Due Diligence” or “KYC” as regards the Company. Usually you will have to provide them with (a) proof that the Company is currently registered and “in good standing” (ie still alive at law) and (b) proof of who the Director/s Shareholder/s and beneficial owners of the Company are.

5.       Paypal’s DD/KYC requirements can vary from country to country. Once you know what they require as regards your Company (if you don’t have that info/documentation yourself) email your International Corporate Service Provider (eg OCI) who can/will arrange for the requisite KYC/DD Docs to be supplied to you for passing on to Paypal.

6.       Paypal will probably also need the Company to sign a service agreement. That you will need to get the Director to sign. 

If time is of the essence what can also happen is you could be provided with a Limited/Specific Power of Attorney which will enable you to temporarily stand in the shoes of the Director and do, on behalf of the Company, anything and everything required to open a Paypal Account on behalf of the Company. 

We are often asked How do I go about setting up a Charity Offshore? 

Charities are commonly registered Offshore as either Charitable Purpose Trusts or Charitable Purpose Foundations. See below for details. 

Purpose Trusts

A Purpose Trust is a particular type of trust which, unlike a conventional trust, can be formed to hold assets for a purpose without conferring a benefit on any specific person. An example of such a purpose is to hold shares in a company.

Purpose Trusts are currently used, among other things, in conjunction with asset financing transactions and securitisations.

They are also used to hold the shares in a Private Trust company (PTC) structure, where confidentiality and control issues are important. The advantage of using a Purpose Trust in such a scenario is that there are no registration or disclosure requirements of such trusts at law generally speaking. Therefore the ownership of the PTC will be confidential, and the shares in the PTC will be immune from an attack on the Settlor (ie the person who sets up the Trust).

Charitable Purpose Foundations

Any discussion about Charitable Purpose Foundations must necessarily begin with an examination of What is a Foundation?

Unlike Trusts (which are a creature of English common law) Foundations are a by-product of European civil law jurisdictions (most notably Liechtenstein) and have existed since the Middle Ages when they were used mostly for charitable purposes. These days Private Interest Foundations are more commonly established to protect family wealth (and as highly effective Tax Minimisation tools – see below).

Like a company a Private Interest Foundation is a separate legal entity (that is it can hold property & sue and be sued in its own right) and its operations are governed by a Charter and Regulations (similar to the Memorandum and Articles of Association of a company). Usually a Private Interest Foundation (“PIF”) can only be used as an asset holding entity (though it can carry out certain commercial functions depending on its country of registration).

Management

The day to day management of a PIF is overseen by a Councillor or a Council (like a board of directors in the case of a company). However instead of shares a Foundation, like a Trust, has Beneficiaries who are ultimately entitled to the assets and income of the Foundation. Importantly the creator of the Foundation (usually called a “Founder”– see below) can still steer the direction of the Foundation post registration by being appointed as a Financial Adviser or Protector. Additionally the Founder can have certain powers reserved to him from the outset (eg the rights to appoint or remove Councillors, to exclude or change Beneficiaries or to appoint and remove Protectors).

The key difference between a Foundation and a Trust is that in the case of a Foundation the legal owner of the Foundation’s assets is the Foundation itself, a separate legal entity (usually) based in a nil tax jurisdiction. This is different to the situation of a Trust where the underling owner of trust assets are the (presently entitled) beneficiaries.  This can have a significant impact in terms of tax liability (see below).

Purpose Foundations/Trusts – Legal Basis

A Purpose Foundation (like its forerunner the Purpose Trust) is one set up, not to benefit specific natural persons or corporate entities, but rather to raise funds for and/or to carry out some form of specific (usually Philanthropic or Charitable) Purpose.

Historically any Purpose Trust or Foundation set up to achieve a Purpose other than a Charitable Purpose has been held by the Common Law Courts to be unenforceable.

However of late some jurisdictions have passed laws specifically allowing for the establishment of a Foundation which is established to carry on a specific Purpose, Charitable or otherwise.

An example of a non-charitable purpose Foundation would include a Foundation which is established to maintain the Founder’s collection of antique automobiles, or perhaps one for the purpose of constructing a home for the maintenance and care of his/her cats and dogs and all their offspring.

In the Common Law world a Trust (ie the forerunner and close cousin of the Foundation) must have beneficiaries whose identity can be established with certainty. If the identity, or method of determination, of the ultimate beneficiaries of a Trust is so vague that neither the Trustee nor a Court could readily determine whether any given individual at any time was or was not a beneficiary, the Trust would be unenforceable under Common Law and therefore, invalid, unless, of course, its purpose was charitable.

Historically, a Charitable Trust, although it may have no named beneficiaries, could be enforced by the local Attorney General. In the foregoing examples, however, certainly neither the antique automobiles nor the cats and dogs could sue the Trustee to enforce the Trust, and none of them is capable of having a Personal Representative.

Interestingly one jurisdiction (ie Seychelles) has specifically catered in its Foundations Law for any attempt by a foreign Court to declare a (non-Charitable) Purpose Foundation invalid by including a provision in its law which says that “Notwithstanding a provision of a written law or of a written law of any other country, a Foundation, other than a Foundation with beneficiaries being beneficiaries in terms of section 59, shall be a Foundation established to carry on a specific Purpose”.

That being said if your heart is set on establishing a Purpose Foundation and your aim is to fly under the radar or to claim tax deductibility for any “donations” made to the Foundation the wiser choice would be to establish your Foundation as a Charitable Purpose Foundation. Certainly such a Foundation would be far more likely to survive a legal a challenge such as those which have historically struck down Non-Charitable Purpose Trusts in the Common Law Courts.

Objects 

In a Charitable Purpose Foundation the objects of the Foundation must be set out in the Charter (that is the document which is publicly filed giving birth to the Foundation). Here is an example of such objects:

(a)               To provide assistance and relief for children in ill-health;

(b)               To raise funds for, and to financially assist, children in ill-health;

(c)                To promote the health and wellbeing of children, including promotion of the provision of proper health care and treatment for children;

(d)               To make distributions to non-U.S. entities and institutions that are organized and operated exclusively for charitable purposes and which further the purposes referred to in sub-paragraphs (a) to (c) above.

When used in combination with a Tax Free Offshore Company (ie where the Foundation is set up to hold the shares of the Company) a Purpose Foundation can assist you to do tax effective business abroad without you having to declare yourself (or your family members) to be, at law, the underlying beneficial owners of your Offshore Company. This affords one unparalleled Tax Deferral and Asset Protection opportunities.

The down side of a Charitable Purpose Foundation is that, once registered, it can’t later morph into a Foundation with named/specific beneficiaries.

The law of your home state can impact on your reporting requirements. Hence it would be wise to seek local legal and tax advice before committing to establish a Purpose Foundation or Purpose Trust.