Monthly Archives: July 2017

Where a Seychelles company has only one member who is an individual and that member is also the sole director of the company, notwithstanding anything contained in the memorandum or articles, that sole member/director may, by instrument in writing, nominate a person who is not disqualified from being a director of the company as a reserve director of the company to act in the place of the sole director in the event of his death ie per section 135 of the new Seychelles IBC Act (which can be viewed via this Link: http://www.fsaseychelles.sc/index.php/download/send/3-legislations/46-ibc-act-2016 ).

The nomination of a person as a reserve director of the company ceases to have effect if:

(a)        before the death of the sole member/director who nominated him: (i) the person resigns as reserve director; or (ii) the sole member/director revokes the nomination in writing; or

(b)        the sole member/director who nominated him ceases to be the sole member/director of the company for any reason other than his death.

The procedure is:

1. We would need to collect via email and review DD/KYC re the reserve Director per the requirements
2. We would draft and arrange for the reserve Director sign a Consent to act as Reserve Director
3. We/you would call a board meeting for your IBC and pass a resolution at the meeting authorizing the appointment of the Reserve Director
4. We would then note the Company’s statutory records re the appointment of a/the Reserve Director
5. We would then advise the Reserve Director that he/she has been formally appointed

A lot of people think that all they have to do to legally avoid paying tax in their Home Country on their non-local earnings is set up a tax free Offshore Company (eg an International Business Company ie IBC).

But depending on where you live there is at least 1 (and possibly 2) other hurdle(s) you’ll need to jump in order to achieve your aims.

The first thing you’ll need to address is Management and Control. In short if your tax free Offshore Company is seen to be managed and controlled from onshore it can be taxed onshore. How that issue can be addressed is by deploying a (tax haven based) Nominee Director and Nominee Shareholder as part of the Corporate Structure.

But that isn’t going to fully address the issue if you live in a country which has a Controlled Foreign Corporation Law.

A Controlled Foreign Corporation (or CFC) Law is a local law which purports to tax onshore income or capital gains made by Companies incorporated Offshore but which are controlled from onshore. Most western countries have them (see below which lists ALL countries with CFC laws presently).

Essentially how a CFC law works is if an individual owns or has the capacity to own the overriding majority of shares in an Offshore Company (the percentage of which varies from country to country) the that person is required to declare in his local tax return profits made by the Offshore Company.

How CFC laws came about was around 30 years ago the big western countries began to realise that certain of their citizens were using nil tax Offshore companies to avoid having to pay tax at home on their non-local sourced (ie international) income. In particular the CFC laws target the use of Nominee Shareholders and Directors. If you live in a country which has CFC laws (regardless of whether you are the director/shareholder of the Company or not) if you have the capacity to own and control the company by reference to shareholdings then you would be required to declare and pay tax at home on your Offshore Company’s earnings.

There are several ways to get around CFC laws. Historically clients used commonly to deploy an Offshore (Discretionary) Trust to own the shares of the Offshore Company. However with more and more “Onshore” tax systems claiming tax from any Trust with an onshore resident beneficiary discerning clients these days usually prefer to establish Private Foundations (in particular Seychelles Foundations) as the ultimate holding entity as such entities should not caught by CFC laws or by CFT (Controlled Foreign Trust) Laws. For more details click on these links:

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

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

https://offshoreincorporate.com/seychelles-foundations-fact-sheet/

Countries with Controlled Foreign Corporation (“CFC”) Laws include:

Argentina

Australia

Brazil

Canada

China

Denmark

Egypt

Estonia

Finland

France

Germany

Hungary

Iceland

Indonesia

Israel

Italy

Japan

Korea

Lithuania

Mexico

New Zealand

Norway

Portugal

Russia

South Africa

Spain

Sweden

Turkey

UK

USA

Venezuela

Alternative cryptocurrencies and the price of ether continue to bleed this week, as traders position themselves for what could be the biggest event trade in cryptocurrency history: a change in the Bitcoin software.

On July 21, a new type of software called SegWit2x will be rolled out and, depending on which Bitcoin miners – those with the computing power to verify the legitimacy of the blockchain – accept it, Bitcoin could be in for some serious price adjustments.

Bitcoin slumped 4.5 per cent to $US2,520 a coin on Tuesday, with its fellow crypto-assets suffering a much more pronounced selloff.

Ether, which enjoyed a hefty bull run last month, has been in virtual freefall, plummeting 8 per cent on Tuesday, extending a a 22 per cent fall in the last week.

Ethereum is a blockchain network allowing the transference of smart contracts; these contracts are legitimised by the ether token. From a high of $US414, ether is currently fetching $US224 a token.

“People are getting the hell out of ether at the moment, they don’t really know how this software fork will play out,” said one trader.

SegWit2x is a software compromise between two warring factions within the cryptocurrency community.

It is an extension in the size of the blockchain – a digital ledger that has struggled to cope with the increasing number of transactions and seen processing fees soar – and also paves the way for some of the workload to be spread across other, emerging protocols.

But whether or not miners – mostly Chinese firms with multimillion-dollar server farms – will agree to run the software is what has traders on edge. These miners argue a simple increase of the blockchain size is enough to solve the transaction bottleneck, but a group of core developers – imaginatively called Core Group – insist the cap on blockchain traffic is what keeps the network safe from cyber hacks.

Additionally, Core says, if some of the data is managed on other, emerging protocols, new projects could develop and further the exploration of the cryptocurrency ecosystem.

Miners have been vocally reluctant about the plan, mostly because a move to other protocols would ultimately diminish their influence and put at risk the millions of dollars they’ve invested to support the blockchain and verify its transactions.

SegWit2x is a compromise for both parties, an increase and a slight data re-distribution, but whether it is taken up by all parties remains to be seen. Some miners  may ignore the update and continue to run the original software.

Should this happen, the Core developers will run an agenda called UASF (user activated soft fork) from August 1, which will reject transactions not compliant with SegWit.

If there are large volumes of rejected transactions, then a split in the Bitcoin currency is likely to occur.

If this happens, there will be two blockchains with two bitcoins operating in parallel and the expectation is traders will rapidly reprice the value of both, a move expected to prompt extreme volatility.

How To Use a Tax Free Offshore Company To Trade Cryptocurrencies

Cryptocurrency Trading is an activity which lends itself well to an Offshore Corporate Structuring Plan.

To summarise how it would work (assuming you intend to trade your own money or borrowed money) is:

• You set up a zero tax International Business Company (“IBC”)

• The IBC opens an account with the Cryptocurrency Exchange/s

• You are appointed as the IBC’s authorised trader (ie you place the buy and sell orders on behalf of the company)

• For all intents and purposes the IBCs trading profits are generated in a nil tax environment tax free/offshore (ie provided the IBC Is structured properly)

• When you need some living/spending money the IBC pays you a wage, or consulting fees or a commission (eg a percentage of trading profits generated)

• That living/spending money can be paid to your local bank account (which means it would be assessable income wherever you are tax resident though you should also be able to claim a sizeable amount of allowable deductions eg for home office, car, equipment, insurances, travel, stationary etc etc to reduce the amount of your “taxable” income at home)

• If you don’t want the authorities to know how much money you are earning by way of wages you could use an anonymous ATM or Debit/VISA card to withdraw your wages from an Auto Tele Machine

• The majority of trading profits could be reinvested Offshore potentially tax free.

How To Fund Your Tax Free Offshore Company (“IBC”)

Depending on your individual situation there are several ways to fund an IBC:

• You could set up a dual structure (ie an Offshore Company the shares of which are held by an Offshore Private Foundation). You would set up the Foundation in such a way so that it appears to be a Charitable Foundation and then make regular donations to the Foundation (which would then transfer that money to the IBC eg as share capital).

• Set up 2 International Business Companies Offshore (ie “IBCs”). The first IBC you would enter into a speculative (eg high risk/potentially high return) general (long term) investment with. This IBC would then invest money with your trading IBC. The investment with the first IBC could be structured in such a way as to ensure that you won’t be paid a return on that investment for quite a while. If the local Revenue Authority ever asks meantime whatever happened to the money you would just tell them I’m not yet entitled to a return.

• Convert your local money into bitcoins. Transfer ownership of the bitcoins to the IBC. Have the IBC convert the bitcoins into hard currency which the IBC would then use to invest in whatever.

• Engage a lawyer to do Due Diligence on the Offshore Company or Foundation you intend to send money to. Whilst he’s making inquiries to confirm that the entity exists etc, (as you might do prior to a real estate purchase) you park the money you intend to invest in the Lawyer’s Trust/Client/Escrow Account. Once he’s completed his inquiries you instruct the Lawyer to send the funds from his Trust/Client/Escrow account to the Offshore Company or Foundation’s Bank Account

• “Gift” the money to a family member (or close friend) overseas and then have that family member transfer the money to your Offshore Company

• If you are holding funds in your own name you could set up a personal account Offshore and then transfer the money from your Onshore bank account to your Offshore Bank Account. Same could be done in the case of funds being held in a Company account onshore (ie you set up an Offshore Privacy Haven Account in the name of your local Company and have funds transferred from the Company’s Onshore account to your Company’s Offshore account. If you open the account in the right place, onshore predators will really struggle to find out where the money went once it landed offshore.

• You could set up your IBC as an Investment Company and enter into an arms’ length general investment agreement (or loan agreement) with the IBC on commercial terms. Provided the IBC is incorporated in a Privacy Haven (and in a country which does not have a TIEA with your home country) no one should ever know that you actually own the IBC.

• You could withdraw your money from the bank in cash, use that cash to buy something of great value which is easily transportable (eg jewelry, gemstones, watches, an artwork/s, collectibles etc) fly overseas with these items (ideally to the country where your Offshore Company has its bank account), sell them to a broker or privately whilst abroad and then deposit that money into your Offshore Company’s Bank Account.

• If you are an online trader (eg Forex/Commodities/Derivatives/Share Trader) you could open a Brokerage Account in your own name, transfer funds to your personal brokerage account, then open a Brokerage Account (with the same broker) in the name of your Offshore Company and move monies (as an internal transfer, ie beyond the view of “onshore” authorities) from your personal Brokerage account to the Company’s Brokerage account.

Local laws can have an impact. Hence it would be wise to seek local tax/legal advice before committing to embark on such an endeavour.

The Seychelles Foundation Law embodies many of the key features of the Nevis Foundation Law (many of which were borrowed from the Panama Foundation Law) but with a number of additional (in our view, very attractive) features including:

• In Seychelles the key powers usually held by the Foundation Council can be reserved to the Founder PLUS the rights so reserved to the Founder of a Seychelles Foundation can be assigned. This enables you to remote control your Foundation with complete privacy because normally the Founder’s name appears in the Charter (which is publicly filed as part of the registration process). However with a Seychelles Foundation you can use a Nominee Founder (who then immediately following registration assigns his/her/its rights to you via a private Deed of Assignment)
• The Seychelles law specifically states that the Foundation is both legal and beneficial owner of any assets it holds. This is (a) a fantastic tax planning feature because traditionally onshore tax authorities have taxed such entities on the basis that the beneficiaries are the beneficial owners of the entity. It also means (b) when opening bank accounts or incorporating subsidiaries that you can avoid having to declare to the bank etc the names of the beneficiaries of the Foundation (which would usually be you/your immediate family).
• The Seychelles law also states that the beneficiaries are owed no fiduciary duty by the Foundation Council (which bolsters the above proposition ie that it is the Foundation which owns the assets/income for tax purposes)

The Seychelles law also provides additional asset protection provisions eg:

• It specifically says that a transfer of property to a Seychelles Foundation, shall not be void, voidable, liable to be set aside or otherwise defective in any manner by reference to a foreign rule of forced heirship or any other written law of a foreign jurisdiction
• It also says that a transfer of property to a Seychelles Foundation, shall not be voided by the founder’s bankruptcy or by the liquidation of the founder’s property; or by any action, proceedings or other claims against the founder brought by any creditor of the founder ie Per sections 71 to 74 of the Seychelles Foundations Act (these asset protection provisions don’t appear in the Nevis law)
• A Seychelles Foundation can be capitalized with as little as $1. A Nevis Foundation’s minimum authorised capital is $10,000.
• Seychelles permits registration of a Purpose Foundation ie one where no beneficiaries are named – in the Charter you simply state that the Foundation is being set up to achieve a specific (usually charitable) purpose (eg to feed street kids in India)

The Australian Securities and Investments Commission (ASIC) has just released its draft regulatory guide on crowd-source funding (CSF), which allows start-ups to raise money by issuing shares to investors.

The new rules pave the way for start-ups to legally raise seed capital by way of “crowd funding” ie by publicly inviting small investors to participate, and take equity, in the enterprise..

Eligible unlisted public companies with less than $25 million in consolidated assets and annual revenue will be able to raise up to $5 million a year under the new CSF regime, which will be implemented in late September 2017.

But ASIC says there are a number of rules that companies, and other people involved, must comply with, including a prohibition on multiple CSF offers. 

Current rules state that start-ups raising money through crowdfunding can issue shares only to “Sophisticated” investors ie wealthy investors, with assets of at least $2.5 million.

The new CSF regime, which passed through the Australian parliament in March, means anyone will be able to invest and receive shares in a company.

There will however be a cap for investors of $10,000 per company each year, and a five-day cooling off period.

Start-ups wanting to raise money through equity crowdfunding will also be forced to register as public companies with ASIC. Unlike public companies listed on the stock market however, start-ups that go public won’t have to host annual shareholder meetings or provide audited financial statements for crowdfunded capital raisings.

They also won’t be subject to the same public disclosure obligations as listed companies.

Many companies using the CSF regime will likely be start-ups or early-stage companies that will not have experience in raising funds from the public.

The new laws will be implemented on September 29, following the release of the final regulatory guide.

It is pleasing to see a major jurisdiction being one of the first to soften the regulatory rules relating to equity participation by 3rd parties in start-up businesses. Will this lead to a flood of investment in Australian startups? Will other jurisdictions follow suit and loosen the rules regarding the marketing/availability of shares in private companies? Time will tell…