November | 2017 | Offshore Companies International

Can a Second Residence Assist Me To Avoid Tax At Home?

We’re seeing a lot of interest in this field in particular clients looking for a second residency or a 2^nd passport. The UAE is doing a lot of business in this regard as a number of Emirates offer a nil tax Company product that comes with a residency permit.

The key question with a second residency is how it would all work from a taxation perspective ie who has the right to tax you and why and which country’s tax laws would/should apply?

As we see it there are 2 angles:

(a) Application of tax laws in theory

(b) Disclosure and practicalities

Re (a) most countries (particularly big western countries like the USA, EU, Canada, Australia, UK etc) have a very broad definition of “resident for tax purposes”. Regardless of what passport or residency permit you hold if you’re in that country for more than 6 months and or if you have a substantial connection to that country (even if you’re on the ground there for less than 6 months in any tax year) you can be classified as a “resident for tax purposes” making you liable to declare your worldwide income in and pay tax there.

Substantial Connection

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 mother country?
Do you regularly renew a driver’s license in your mother country?
Do you have children at school in your mother country?
Do you have a spouse/partner living full time in your mother 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

(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.

Disclosure & Practicalities

Re (b) the question here is will a 2^nd residence enable you to incorporate an Offshore Company and or open a bank account for your Company wherein your name won’t be recorded as being a resident of your home/birth country. Generally speaking in these instances you’d need to produce photographic proof of ID AND proof of residential address. If you can produce evidence of ID/Residential address from/as being in your country of 2nd residence, in the event of information exchange, your details won’t be given to the tax authorities of your home/birth country.

The ideal end game there would be that your mother country’s tax authorities would (hopefully) never find out about the existence of your Offshore Company or your connection to it giving them no chance to apply a potentially extensive tax residency law/definition in their favor.

Would you like to know more? Then please Contact Us:

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

SEYCHELLES IBCs – ACCOUNTING REQUIREMENTS

We are often asked by Seychelles IBC owners “what are my Accounting obligations”?

Seychelles Companies are not required to keep audited accounts. In theory a Seychelles IBCs is supposed to keep books of account but that requirement is not enforced (ie nobody ever actually checks or asks “Are you keeping Books of Account? If so please show me copies”.

The only requirement is you will have to tell your Corporate Service Provider where the Company’s “Accounting Records” are being kept.

To summarize by Accounting Records I mean the raw data from which a set of books of account could be created/drawn (By raw data I mean bank statements, receipts, invoices, vouchers, contracts, etc, see below).

Whether to keep accounts in effect is up to you; That said in our view every small business should keep books of account. Which is easy to do yourself these days. There so many DIY (Do It Yourself) Accounting packages on the market presently (eg MYOB, Quickbooks, MS Books etc), for anyone who can use a computer, it’s child’s play.

Here’s a synopsis of the relevant provisions of the new Seychelles IBC Act in so far as Accounting Requirements are concerned:

Section 2 of the Act: “Accounting records”, in relation to a company, means documents relating to: (i) the company’s assets and liabilities; (ii) all receipts and expenditure of the company; and (iii) all sales, purchases and other transactions to which the company is a party (e.g., bank statements, receipts, title documents, agreements, vouchers, etc).

Companies are not required by the Act to prepare or file annual accounts or to appoint an auditor. However, under section 174(1) of the Act a company is required to keep reliable accounting records that: (i) are sufficient to show and explain the company’s transactions; (ii) enable the financial position of the company to be determined with reasonable accuracy at any time; and (iii) allow for accounts of the company to be prepared (notwithstanding that a company is not required under the Act to prepare accounts). For such purposes, accounting records shall be deemed not to be kept if they do not give a true and fair view of the company’s financial position and explain its transactions.

A company shall preserve its accounting records for at least 7 years from the date of completion of the transactions or operations to which they each relate.

A company that contravenes the requirements to keep accounting records in accordance with section 174(1) of the Act is liable to a penalty fee of US$100 and an additional penalty fee of US$25 for each day or part thereof during which the contravention continues. A director who knowingly permits a contravention of the requirements to keep accounting records in accordance with section 174(1) of the Act is liable to a penalty fee of US$100 and an additional penalty fee of US$25 for each day or part thereof during which the contravention continues.

Section 175(1) of the Act: A company’s accounting records shall be kept at its registered office or such other place as the directors think fit. Where a company’s accounting records are kept at a place other than its registered office, the company shall inform its registered agent in writing of the physical address of that place (section 175(2) of the Act). It is sufficient if the company provides the Registered Agent with an emailed scanned copy of the completed, signed and dated Notice.

Where the place at which a company’s accounting records are kept is changed, the company is required to inform its Registered Agent in writing of the physical address of the new location of the accounting records within 14 days of the change of location (section 175(3) of the Act). It is sufficient if the company provides the Registered Agent with an emailed scanned copy of the completed, signed and dated Notice.

A company that contravenes section 175 of the Act (location of accounting records requirements) commits an offence and is liable on conviction to a fine not exceeding US$2,500.

Would you like to know more? Then please Contact Us:

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

Tax Free Offshore Companies For Expat Workers

In a previous article we looked at how Contractors can potentially minimize tax through Offshore Incorporation.

This article revisits the specific situation of expat workers ie persons working abroad, away from their home country, temporarily on a contract basis.

A compelling reason of itself to incorporate Offshore as an overseas contractor is to avoid being called on by your home Authorities to pay tax at home. You see, as an expat worker unless you’ve taken certain legal steps to become non-resident for tax purposes in your home country almost certainly you would still be liable to declare your contracting income in, and pay tax on that income in, your country of origin (see below which explains in details what resident for tax purposes means/is) .

In fact, if you are living in a country which does NOT have a Double Taxation Avoidance Treaty with your home country you could even be liable for double tax ie liable to pay tax on your income where you work and liable to pay tax again on that income in your country of origin. All such scenarios can potentially be avoided if you set up a tax-free IBC to act as your contracting entity.

The last thing you want to see happen when you return home is to be presented with a letter from your home tax authorities asking you to pay tax on the money that you earned whilst abroad. Such a scenario can be avoided with advance planning.

What is “Resident for Tax Purposes”?

We are often asked by individuals where (ie in what country/s) am I liable to pay tax?

The starting point is this: If you are regarded at law to be tax resident (ie resident for tax purposes) 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 would be considered non-tax resident for a particular tax year if you have spent less than half of that 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 license etc) in your mother country?
Do you keep current a golf/tennis/leisure club membership in your mother country?
Do you regularly renew a driver’s license in your mother country?
Do you have children at school in your mother country?
Do you have a spouse/partner living full time in your mother 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

(d) Hand in (and do 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 any 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 then do all the above things and leave the country indefinitely).

Would you like to know more? Then please Contact Us:

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

How To Invest in a Start Up Using a Tax Free Offshore Company

Investing in a Start Up is an activity that lends itself well to an Offshore Corporate Structuring plan.

How it works is:

(a) You incorporate a tax free Offshore Company (“OC”)

(b) You structure the Company in such a way as to ensure that the Company is seen to be managed and controlled from Offshore; This can usually be achieved by via deployment of a tax haven based Nominee Director (which is a service that OCI can/will provide)

(d) You advance funds to your OC

(e) The OC then advances funds to the Start Up Company

(f) The Fund Company utilizes your money to help it launch or expand

(g) The Fund Company pays a return (eg dividends ie a share of the profits) periodically to your OC (eg monthly or quarterly or 6 monthly or yearly).

(h) Returns paid to your OC can be banked and or reinvested Offshore potentially free from tax

Would you like to know more? Then please Contact Us:

www.offshoreincorporate.com

info@offshorecompaniesinternational.com