March | 2020 | Offshore Companies International

Income Earning Offshore Asset Protection Structures

Given the economic upheaval caused by the Corona Virus (COVID 19) pandemic, we have been contacted by a number of clients of late looking to set up a (or continue a) business whilst at the same time setting in place a solid asset protection solution.

The ideal scenario for most would be to set in place a Combo structure ie a tax- free Offshore Company PLUS a Private Foundation.

How it would work is:

The Company would/own/operate your business and receive all income in the first instance.

The Foundation would own (ie hold all shares issued by) the Company.

As money is earned (a) the Company pays you a living wage and (b) left over profits/monies are diverted to the Foundation:- The Foundation would either hold those monies at bank or divert the monies into certain investments as you may prefer.

Anyone trying to sue you personally would not be able to touch any of this money, even if you’re named as a beneficiary of the Foundation (in most cases the client his/her spouse and children are named as Foundation beneficiaries).

Why is that so?

Unlike its English cousin the Trust (where the beneficiaries hold a legally recognizable “beneficial” interest in Trust Assets and in certain instances can compel the Trust to pay them distribution), in the case of a Private Foundation, the beneficiaries:

(a) at law have no legal or beneficial interest in assets owned by the Foundation; and

(b) are not entitled to receive a distribution from the Foundation unless or until such time as the Foundation Council actually resolves to pay the beneficiaries a distribution.

In simple terms (if a Private Foundation is the shareholder of your tax-free Offshore Company) you don’t own the Company or any assets owned by the Company or the Foundation.

The end result?

Any person that you owe money to cannot seek recovery from your Offshore Company (or the Foundation)!

You could even transfer ownership of other “at risk” assets to the Foundation comforted by the knowledge that in most cases the would be predator would have little, if any, ability to claw back the asset/s.

Why is that so?

Most Foundation jurisdictions:

(a) do not recognize the operation of foreign law/judgments (ie the predator/creditor, even if he/she has a judgment against you in the country where you or the asset are located, would have to start a separate legal action/suit in the country wherein the Foundation is registered); and

(b) place a time limit on the ability of a Creditor to sue the Foundation (in most jurisdictions any action seeking return of an asset must be commenced within 12 months of the asset being transferred to the Foundation).

The most popular Foundation jurisdictions include:

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

Panama: https://offshoreincorporate.com/panama-tax-free-foundations/

If you wanted to make it even more difficult for the predatory creditor (and if your budget can stretch that far!), additionally, you could interpose an Offshore Trust between the Company and the Foundation. Trying to tap into assets held by such a structure would be the Litigation Lawyer’s equivalent of climbing Mount Everest! (Here is an example of such a structure: https://offshoreincorporate.com/how-to-create-the-ultimate-tax-effective-offshore-corp/).

In such a scenario Belize is usually the favoured Trust Jurisdiction because its law uniquely provides that once an asset is transferred to the (ie Belize) Trust the transfer can’t at any time be clawed back by a creditor.

(Most Trust jurisdictions say that a law suit seeking return of an asset by a creditor of the Trust Settlor/Creator can be brought against the Trust if commenced within 12 months of the asset being transferred to the Trust).

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

How To Use a Tax Free Offshore Company To Trade Futures & Options

Whenever there is a sudden downturn in the world economy (such as is occurring now thanks to the Corona virus) there is the potential to make a fortune on the Futures market.

If you’re a dedicated Futures Trader (or if you are looking to get in to the field) you’ll be pleased to know Futures and Options Trading are activities which lend themselves well to an Offshore Corporate Structuring Plan.

To summarise how it would work is:

You set up a zero tax International Business Company (“IBC”)
The IBC opens an account with a Broker
The Company is set up with a (nil tax jurisdiction based) “Nominee” director
You are appointed as the IBC’s authorised trader or Trading Manager (ie you are given the 100% authority to place the buy and sell orders on behalf of the company)
All legal contracts/agreements are signed, and all board meetings take place Offshore ie in the nil tax jurisdiction wherein the Nominee Director is based. The director ratifies all trades placed by you on a monthly basis.
For all intents and purposes the IBCs trading profits are generated by calls made ultimately by the Nominee Director in a nil tax environment tax free/offshore
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 ordinarily resident for tax purposes 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
You could also potentially draw down money from the Company tax free by way of loan or have the Offshore Company (or a subsidiary thereof) buy your investments (ie to avoid you having to receive money directly from the Company – which would likely have tax consequences).
The majority of trading profits would be banked and or reinvested Offshore potentially tax free.

Note:- to ensure that your name isn’t recorded in the Company registers as “beneficial owner” (and to get around CFC rules, should you live in a country which has them) ideally you would also set up a Private Foundation to act as shareholder of the Company.

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

How To Set up a Tax Free Yacht Broker Business Offshore

Acting as a Yacht Broker is a line of business which lends itself well to an Offshore Corporate Structuring Plan.

In this model structure (ie as set out below) it’s assumed that you will be acting as a middleman between a buyer and seller and if the buyer and seller do business you get paid a commission ie typically a percentage of the sale/deal proceeds.

To summarise how it would work is:

You set up a zero tax Offshore Company eg an International Business Company (“IBC”) with a nil tax jurisdiction based Nominee Director and a Nominee Shareholder (or a Private Foundation/Shareholder ie if you live in a country which has a CFC law)
You are appointed as the IBC’s Authorised Representative
On behalf of the IBC you negotiate terms with the Seller and or Buyer to pay your IBC a Commission if/when the Buyer and Seller do business
The Broker agreement/contract is signed Offshore by the Nominee Director
The source of the income is the contract.
Because the contract was signed offshore in a nil tax environment there should be no tax payable on income generated by the contract (a) where the Company is incorporated and (b) where you live (assuming you structure and administer the Company in a certain way).
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). More sizeable amounts could be accessed by way of loan or a 2nd Offshore Company could be formed to buy your onshore investments
If you don’t want the authorities to know how much money you are earning eg by way of wages you could convert your hard currency into Bitcoin and/ or you could use an anonymous ATM or Debit/VISA card to withdraw $ from an Auto Tele Machine (though technically that receipt would be assessable income for local tax purposes)

The majority of trading profits would be banked and or reinvested Offshore potentially tax free.

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

For maximum speed and to minimise the chance of mistake we use tailor made software to produce Incorporation packs:

Company/Trust etc specifications are entered in a central database
All Data entries are crosschecked by a second person to minimise the chance of errors
Corporate documents are produced at the click of a button without the need for manual typing
A Manager quality checks all Corporate documents for accuracy before they are dispatched

How To Set Up a BVI Incubator Fund

In 2015 the progressive jurisdiction that is the BVI (British Virgin Islands) recognized there was a gap in the Fund Setup Market for a lightly regulated model of Fund.

Hence regulations were passed allowing for the set-up in the BVI of 2 new models of Mutual Fund ie Incubator Funds and Approved Funds.

Prior to 2015 the only option for a successful trader/prospective fund manager wanting to dip his or her toe into the Fund Management Market was to set up a (non- licensed) Closed End Fund ie a Fund wherein the Investor was/is required to lock in his funds for a fixed investment period.

This limitation often caused a promoter difficulty in fund raising as most investors would prefer a mechanism that would entitle them to withdraw their funds on demand if desired or needed.

The (relatively) new BVI Regulations enable Incubator and Approved Funds to be set up and launched on a fast track, low cost basis with limited regulatory oversight by the BVI Financial Services Commission (“the Commission”).

Fund requirements

An Incubator Fund has a minimum investment requirement of US$20,000, a cap on net assets of US$20M and can take in no more than of 20 investors. An Incubator Fund does not need to appoint an Administrator or a Custodian or an Investment Manager or an Auditor.

An Approved Fund has a net asset cap of US$100 Million and no minimum investment requirement but is limited to no more than 20 investors. An approved fund is required to appoint an Administrator but does not need to appoint a Custodian or an Investment Manager or an Auditor.

Application process

An application for approval as an Incubator Fund or an Approved Fund must be lodged with the Commission and be accompanied by:

the constitutional documents;
details of the investment strategy;
a prescribed form of investor warning; and
an application fee (US$1,500).

An Incubator Fund or Approved Fund can commence business 2 days from the date of receipt of a completed application by the Commission.

Duration and conversion of incubator fund

An Incubator Fund has a limited life span of two years which can be extended for up to 12 months. An Approved Fund has no such limits. An Incubator Fund can convert to an Approved Fund, a Private Fund or a Professional fund, or may be wound up at the end of its term. An Incubator Fund can convert to a Private Fund or a Professional Fund or to an Approved Fund by lodging the required/prescribed application with the Commission.

Ongoing obligations

Part of what keeps the set up and admin costs low is that service provider requirements are minimal:- Each fund is only required to appoint an Authorized Representative in the BVI and an Approved Fund is required to have an Administrator at all times. Pleasingly, there are no mandatory custody requirements and there is no requirement for the issuance of an Offering Document. If/where the fund decides to not issue an Offering Document, the required investor warnings can be set forth in a separate term sheet.

The key regulatory requirements for an Incubator Fund and Approved Fund are:

An annual fee of US$1,000 is payable to the Commission on or before 31 March of each year
Must have a minimum of two directors at all times, one of whom must be an individual
The Fund Entity must notify the Commission of any change to any of the information submitted to the Commission in the set-up application; (eg you’d need to advise of any conduct which has, or is likely to have, a material impact or significant regulatory impact, changes to directors, changes to ownership/promoter structure etc).
Prepare and file annual financial statements with the Commission (note there is no requirement for an independent audit)
Twice a year you must file a return with the Commission

OCI Service Etc fees

OCI can assist you to register an Incubator Fund in the BVI. Set up cost typically would be circa $US15,000 including:

Incorporation of the fund Company
Regulatory and registry fees to incorporate the Company
Making the application to the FSC for the Fund licence (note if the application becomes complicated additional charges will apply)
FSC application fee
Providing an Authorized Representative (1^st year)
Drafting/suppling CRS Policies and procedures document
Legal fees re drawing & settling the Company Memorandum/Articles of Association and the Offering Document

Annual costs from 2^nd year would be circa $4,850 including annual government license fees. (Some potential additional fees you will need to consider are whether or not you will need FATCA/CRS reporting and who will act as the MLRO. Basic annual fees post year one will be US$3,200, (which again includes Government fees).

(The above assumes that the authorized share capital figure, as stated in the Company’s articles of Association will be no greater than $50,000. If you require a higher amount of authorized share capital additional fees are payable to the BVI registry both at incorporation and yearly thereafter, on a sliding scale).

Documents etc Required

The following documents are required for the application:

Instruction Sheet
FSC application form
Notarized passport and proof of address for each director, shareholder and beneficial owner
Bank Reference for each director, shareholder and beneficial owner,
Professional reference for each director, shareholder and beneficial owner
Police Certificate for each director, shareholder and beneficial owner
Resume for each director
Form A application for the Directors (2 minimum)
Offer document ie if you have prepared your own, (We can also assist with drafting of same. We can draft a standard offering document for $US1,500).

The application process can take anywhere from 8 to 16 weeks depending on the complexity.

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

How To Set Up a Software Development Business Offshore

Offshore Companies are commonly used to own/operate Software Development and Computer Programming/Coding Businesses. In principle here’s how it usually works:

A nil tax offshore company (commonly an International Business Company “IBC”) is incorporated to own/operate the business
You design/launch a website which is owned by the Offshore Company
The IBC owns all proprietary items (including also the/any Trademarks, Operating software/systems, soft products to be delivered to customers etc)
The website ideally should be hosted in a nil tax/private Jurisdiction (Iceland is currently the most popular destination for such web hosting, Singapore is also often favored)
The clients find you and/or contact you via the web
The IBC is seen to be managed and controlled from (and ideally beneficially owned from, see below) Offshore. This is achieved via the appointment of a (nil tax jurisdiction based) “Nominee” director.
Your standard client agreement/terms and conditions should provide (a) that the contract is not formed until the customers offer is accepted by the IBC and (b) that the source of the income is the contract
Acceptance would be provided by the Director signing the client service agreement or ratifying the Company’s entry into the service contact in question; In simple terms what that means is the situs of the Contract (ie the place where the contract, at law, is formed) is the director’s location ie a nil tax environment…
Hence the income – from which the contract is the source – has been/is derived, prima facie, in a zero tax jurisdiction
The client hires the IBC to do the coding/engineer the required software
All services would be, and would be seen to be, provided/delivered by the IBC, via the web or via email ie in a revenue neutral environment
An Offshore account (which can/will also be set up to receive card payments via a merchant account) is opened in a nil tax banking centre
Customers/clients contract with and pay the IBC; All such monies are banked free of tax in the first instance
You or your local company would/could be contracted by the IBC to manage sales/delivery of product/website maintenance/whatever
(If you need a regular income) You would invoice the IBC periodically (eg monthly) for this service which income would be assessable income in your home state – though a smart Tax Accountant should be able to assist you to claim a series of expenses against this income (eg home office, equipment, travel, phone/internet/utilities etc) to significantly reduce the amount of tax payable on this income
Often there is some kind of intellectual property (“IP”) created as part of, or underpinning, such a business (even if it’s just the website/design/logo). It may be advantageous to you, down the track, if ownership of the business and the IP were held by 2 different entities. What you can do there is set up a 2^nd IBC to own the IP. The first IBC (ie the Trading Company which gets paid by the Clients) pays license fees periodically to the 2^nd IBC which fees would be receipted tax free. This could be useful if you wanted to bring ownership of the web-business onshore or if you wanted to sell the business but keep a passive (potentially tax free) income stream
Ideally once you start to grow – and to add substance – you would be wise to set up your MD/Board and or a sales team to take orders and receive income in a low tax onshore environment (eg Hong Kong, Ireland, Singapore, Cyprus etc as per the Amazon/Google model).

As alluded to, in order to minimise the chances of the IBC being taxed onshore, ideally, the IBC should/would be (and be seen to be) managed and controlled from Offshore. How this can be achieved is by including a Nominee Director as part of the Corporate structure. For details of how that can work click on these links:

http://offshoreincorporate.com/faq/should-i-engage-nominees-or-should-i-direct-and-hold-the-shares-in-my-offshore-company/

http://offshoreincorporate.com/faq/how-can-i-protect-my-underlying-ownership-of-my-offshore-company-where-a-nominee-is-engaged-to-act-as-director-or-shareholder/

Ideally – so you can swear on oath in the event of a tax investigation, law suit or regulatory inquiry – I am not the beneficial owner of this Company, (which could get you around what might otherwise be a substantial tax or legal liability) you will want to set up a Private Foundation to act as the shareholder of your IBC. (This should also assist you to get around CFC rules ie if you live in a country which has such regs).

With a bespoke legal/admin structure in place you should only be liable to declare and pay tax on income paid to you by the company (and/or on any distributions paid to you by the Foundation); The rest of your software development earnings you should be able to bank, and or invest, Offshore in a nil tax environment.

Similarly, if a project goes bad and a client tries to sue you the good news is your personal assets should not be at risk as the client has contracted with a limited liability Company (ie the Company carries the legal risk, not you personally). Moreover, having your business incorporated Offshore in a foreign/strange land is of itself a deterrent to would be litigants. (Have you ever tried to sue/get money out of an “Offshore” Company? It’s the Litigation Lawyers equivalent of climbing Mount Everest!)

Local laws can have an impact. Hence you should seek local legal/tax/financial advice before committing to set up an IBC for such purposes.

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com