October | 2024 | Offshore Companies International

How to Use a Tax free Offshore Company to Run a Software As A Service (SaaS) Business

In this article we are going to learn about how to use a Tax free Offshore Company to run a Software As A Service business.

Software as a Service (SaaS) is a cloud-based method of delivering software where users subscribe to access applications on the Internet rather than purchasing them outright. Common SaaS examples include email, calendaring, and cloud-based collaborative/office tools (eg Slack, Microsoft Office 365 etc). Such a business model operates similarly to streaming services, offering flexible, subscription-based access from any compatible device. By hosting the software in the cloud, SaaS provides a complete solution that enhances accessibility and convenience, allowing users to connect and use these apps on a pay-as-you-go basis.

If you are going to learn how to use a Tax free Offshore Company to run a Software As A Service business here are the key things you need to know…

Most SaaS businesses operate on a Subscription base ie you pay a periodic fee (commonly a yearly fee) to gain access to the software.

Subscription Based businesses began in the media world many moons ago; Before the Information age people would subscribe to a particular magazine or news service or book club or record club ie the subscriber would pay a regular fee (eg a monthly fee or yearly fee) to regularly receive a particular newspaper or magazine or etc. (Eg when I was a boy my parents subscribed to a record club and received a certain number of new vinyl LP records every month).

With the technological revolution and in particular the advent of SaaS (Software as a service) products, a LOT of businesses are shifting away from the traditional cash flow model where revenue is derived from a customer’s one-time purchase to a subscription based revenue model where revenue flows in on a recurring basis. In the SaaS world subscribers pay subscription fees periodically in return for consistent access to, or for the delivery of, a particular service.

Examples of latter day subscription based models include:

Salesforce
Zoom
Microsoft
Adobe
Accounting program providers (eg MYOB/MS Books, Quickbooks etc)

How To structure a SaaS business using a tax free Offshore Company

So what are the mechanics in terms of how to use a Tax free Offshore Company to run a Software as a Service business?

With such a business, typically, the services are offered Online (ie via a website and/or an active online direct marketing campaign), the subscriber signs up online and the service is delivered online (ie via download or via email) or via post/courier.

Such a business lends itself perfectly well to an “Offshore” Corporate Structuring Plan.

Here’s how such a business can/will typically work from an “Offshore” Perspective:

A nil tax offshore company (commonly an International Business Company “IBC”) is incorporated to own/operate the business
You design/launch a website or Online Product/Sale portal 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)
Your website/landing page should 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 favoured)
The clients find you and/or contact you via the web
The IBC would be 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.
The client applies to become a subscriber Online (eg via your website)
Your standard sale agreement/website terms and conditions should provide that a contract is not formed until the customer’s offer is accepted by you (ie the Offshore Company)
Before the client clicks the “subscriber” button he/she clicks on a button acknowledging that he/she has read and agrees to be bound by your terms & conditions
Acceptance of the buyer’s offer would be provided by the Company (which is seen to be managed from “Offshore” via a nil-tax-jurisdiction resident Nominee Director) sending an email or text to the buyer, after he/she has paid online;

In simple terms what that means is that the situs of the Contract ie the place where the contract of sale (ie the agreement between you and the buyer for you to supply goods in consideration of the buyer paying), at law, is formed is the Company Director’s location ie a nil tax environment…

Hence the Subscription income flowing from each contract of sale is derived, prima facie, in a zero tax jurisdiction (every time a client buys and you send an email thanking him for payment that concludes a contract of sale at law).

Ideally the Company’s Board of directors would meet periodically (eg once a month to ratify (ie belatedly approve) all subscription contracts signed up/entered into in the period/month previous.

An Offshore account (which can/would also be set up to receive card payments via a merchant account) is opened in a nil tax banking centre (ie a jurisdiction/country which does not tax monies banked in the jurisdiction nor interest paid by local banks on bank deposits).

In terms of money flows how it would work is:

Customers/clients pay the IBC; All such monies are banked free of tax in the first instance
Ideally 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/your local Company 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 (as a contractor) to claim a series of expenses (ie tax deductions/allowable deductions) against this income (eg home office, equipment, travel, car costs, some meal costs, phone/internet/utilities etc) to significantly reduce the amount of tax that would otherwise be payable on this income (Assessable income less Allowable deductions = Taxable income)
Ideally once your business starts 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).

Management/Ownership Structure

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 (nil tax jurisdiction based, arms’ length) “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 eg imprisonment for tax evasion) 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 laws).

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

Similarly, if a product that you sell doesn’t perform and a customer tries to sue you the good news is your personal assets should not be at risk as the customer 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. (Have you ever tried to sue/get money out of an “Offshore” Company? It’s the Litigation Lawyer’s 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

Nevis Private Trust Companies (“PTCs”)

A Private Trust Company (“PTC”) is, essentially, a company which possesses Trustee powers and which does not conduct trust business with the general public, its sole purpose being to act as a trustee of a family Trust or a group/series of related Trusts.

As long as certain criteria are fulfilled the PTC will not have to obtain a licence to carry out Trust Company business.

A PTC can be particularly useful for wealthy families who either do not wish to relinquish control to professional Trustees or where the Trust fund is to be invested in assets, which a professional Trustee may be reluctant to deal with, such as works of art or family businesses.

Key features:

The board of the PTC may consist of family members or trusted advisors. The residence of the PTC’s directors may have an impact on the underlying Trust’s tax status so professional advice is recommended. Generally, a company is classed as being resident for tax purposes in the jurisdiction where mind, management and control are exercised. Care needs to be taken to ensure that the directors of the PTC are not deemed to be resident in a high tax jurisdiction;
Representatives of the Trust company business are appointed to the board to ensure appropriate governance;
The PTC may be owned in a variety of ways such as by a Purpose Trust or a Foundation for confidentiality purposes;
The professional service provider acts as an administrator of the structure and assists the board of the PTC with corporate governance and trustee considerations.

Advantages:

Control – By retaining the power to appoint the directors of the PTC the Settlor (https://offshoreincorporate.com/faq/what-is-a-settlor/ ), whether or not a director themselves, will experience a high degree of control over how the Trust is run. The Settlor and his/her family have an opportunity to be involved in the management, investment and disposition of the Trust assets.

In Depth Knowledge – Allows family members and their advisors to bring their varied knowledge onto the Board. Particularly useful if the underlying assets are complex, high-risk or part of the family business.

Succession Planning – By engaging younger family members in the management of family assets, and involving them in the decision-making process, a training programme is instituted preparing the younger generation to effectively and responsibly manage wealth.

Diversity of Asset Base – Professional Trustees may be reluctant to hold certain assets therefore a PTC allows greater choice as to what investments may be made with the Trust fund.

Continuity – The administrator may change but the PTC will remain as the Trustee providing continuity of asset ownership.

Nevis Private Trust Companies

A Nevis Private Trust Company is free of regulation in Nevis. This means that a standard Nevis International Business Corporation can be a PTC and the Nevis International Exempt Trust Ordinance (NIETO) states that for a Nevis Trust to qualify as a NIETO Trust the following criteria must be met:

There must be at least one Trustee, which can be:

(i) a Corporation incorporated under the Nevis Business Corporation Ordinance, Cap 7.01; or

(ii) a Limited Liability Company formed under the Nevis Limited Liability Company Ordinance, Cap 7.04; or

(iii) a Trust company licensed in Nevis; or

(iv) an Attorney-at-law or firm of Attorneys-at-law duly licensed by the Nevis Island Administration to carry on the business of a registered agent; or

(v) a Multiform Foundation established and registered under the Nevis Multiform Foundations Ordinance, 2004;

As regards connection with Nevis:

The Settlor and Beneficiaries must at all times be non-residents of St. Kitts and Nevis; and
The Trust property must not include any land situated in St Kitts and Nevis.

The assets and income of a Nevis International Exempt Trust are exempt from all exchange controls and all forms of taxation and stamp duty in St. Kitts and Nevis.

Key Features of the Nevis model of PTC include:

A Nevis Trust cannot be declared void, voidable or defective by reason of any forced heirship rules of the Settlor’s domicile;
The rule against perpetuities does not apply. A Nevis Trust may continue for one hundred years from the date of commencement;
Foreign Judgments against the Trust are not enforceable in Nevis. Any civil action to recover assets from a Nevis Trust must be brought anew in the Courts of the Federation of St. Kitts and Nevis.

The Proper Law of the Trust is the Law of the jurisdiction expressed by the terms of the Trust; or failing that, with which the Trust at the time it was created had the closer connection; or failing either, then the proper law of the Trust shall be the law of Nevis.

Fraudulent Transfers

In most onshore jurisdictions if an asset is transferred to a third party purely to defeat a Creditor’s claim over it, that transfer can often be overturned. This transfer is referred to in the Legal world as a Fraudulent Transfer or a Fraudulent Conveyance or a Fraudulent Disposition.

Where an asset has been transferred to a Nevis PTC the sole remedy available to a Creditor is to allege fraudulent transfer or disposition. BUT if the Trust is settled after the expiration of 2 years from the date of the Creditor’s cause of action, it is not deemed fraudulent. In any event, a Creditor seeking to set aside a transfer to a Nevis Trust must prove beyond a reasonable doubt, and with clear and convincing evidence, that the transfer constituted a fraudulent disposition. Moreover, a Creditor must deposit with the Ministry of Finance, a security bond of US$100,000.00 before he/she can bring an action against a Nevis Trust;

Protectors

The Nevis Law also provides for the appointment of a Protector ( https://offshoreincorporate.com/faq/what-is-a-protector/ ) who is responsible for monitoring the operations of the Trust. This provision allows the Protector to ensure that the purpose of the Trust is fulfilled. One of the outstanding features of the Nevis Law is that the same person can act as Settlor, Beneficiary and Protector. This particular aspect allows the Settlor to maintain control over the Trust assets if desired.

Confidentiality

The Nevis Law also provides for there to be confidentiality with respect to the Trust. Though a Trust register is maintained, it only records the name of the Trust and the date of settlement and is not a public document available for inspection. The only exception is where a Trustee of a specific Trust gives written authorization allowing the inspection of the entry of that Trust on the register. Additionally, the Law provides that all non-criminal judicial proceedings relating to the Trust shall be heard in private and that no details may be published without leave of the Court.

Nevis PTC Costs

The cost to set up and maintain a Nevis PTC would be as follows:

First Year

Incorporation – US$400

Government registration charges – US$270

Registered office/agent – US$470

Compliance maintenance – US$150

Administration and collections – US$110

Annually thereafter

Government registration charges – US$260

Registered office/agent – US$470

Compliance Maintenance – US$150

Administration and collections – US$110

Registration

If you intend to engross and register A NIETO (Nevis International Exempt Trust Ordinance) Trust it will need to be registered to qualify under the ordinance and must have a registered office in Nevis (which OCI can/will supply). At registration the Registrar of Trusts is informed of:

The name of the Trust
The name of the Trustee
The place of the registered office of the Trust; and
The date on which it was engrossed

The Trust Deed (ie the document which governs the operation of the trust) is not filed and remains a private instrument.

The procedure for registering a NIETO Trust is as follows:

- We draft and provide the Trust deed to the Compliance Manager in Nevis for review to ensure that it qualifies as a NIETO Trust;

- Assuming that the deed qualifies the client then engrosses it and provides us with a signed deed;

- We register the Trust, obtain the registration certificate and provide it to the client.

Note: The Nevis PTC can be the Trustee of NIETO and non-NIETO Trusts without the need for licencing.

The costs relating to the establishment of a Nevis NIETO Trust would be as follows:

First year

Review of the Trust deed for compliance with NIETO – US$1,000

Provision of registered office – US$470

Due diligence maintenance – US$170

Administration and collections – US$110

(+ Providing a Trustee if required $1,750)

Annually thereafter

Provision of registered office – US$470

Due diligence maintenance – US$170

Administration and collections – US$110

(+ Providing a Trustee if required $1,750)

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

DISCLAIMER: OCI is a Company/Trust/LLC/LP/Foundation Formation Agency. We are not tax advisers or legal advisers. You are advised to seek local legal/tax/financial advice in regards to your local reporting/tax requirements before committing to set up or use an Offshore Company or other entity.

How To Stake Cryptocurrency Using a Tax Free Offshore Company

Crypto staking is the practice of locking your digital Tokens to a blockchain network in order to earn rewards – usually a percentage of the tokens staked. Think of it as being the Cryptosphere version of fixed interest (term deposit) investments (ie where you commit to leave a certain amount of money with your Bank for an agreed amount of time and the Bank guarantees to pay you an agreed/fixed rate of interest upon maturity).

Cryptocurrency staking can take many forms, but it generally falls into two categories: active and passive.

Active Crypto staking is the process of locking your Tokens to a network for the purpose of actively participating in the network. Active participants may validate transactions and create new blocks to earn Token rewards.

Passive Crypto staking involves simply locking your Tokens to a blockchain network to help keep it secure and operating efficiently.

Here’s a basic example: Suppose a blockchain network is offering a 5% reward for a staking period of, say, a month. You decide to lock up and stake 100 Tokens in the network. After a month, you’re able to access your staked Tokens and you receive 5 additional Tokens as your reward.

Crypto Staking Using an Offshore Company

Straight up you’ll be pleased to hear that Offshore Companies are widely used in the Cryptosphere for Staking!

The starting point would be to set up a Company in a nil tax jurisdiction. Ideally, ie for tax optimization, that Company would be seen to be managed/controlled from Offshore (which would entail the appointment of an arms-length, nil tax jurisdiction based, “Nominee” Director) & beneficially owned from Offshore (which would entail the deployment of a Private Foundation to act as shareholder).

The Offshore Company would then acquire some Cryptocurrency. There are two ways to go about this. Either you would lend money (on an arms length basis) to the Offshore Company and it would acquire the Crypto or you could transfer Cryptocurrency owned by you to the Offshore Company (Check out this Article which explains how you might go about that: https://offshoreincorporate.com/how-to-transfer-ownership-of-cryptocurrency-to-an-offshore-company/ )

Once that’s done the following steps would apply…

Choose the form of Cryptocurrency you wish to stake. Not all Cryptocurrencies support staking, so your first step would be to choose an appropriate Token. Cryptocurrencies that use proof of stake or a similar consensus mechanism usually support staking.

Acquire the Cryptocurrency. Your next step would be to acquire the desired Crypto or exchange your current Crypto into your preferred staking Cryptocurrency. You can use one of many Crypto exchanges to complete this acquisition/exchange.

Select a staking platform. Choosing a staking platform is the most important part of this process. Your selected platform determines the type of staking and whether the Token storage is custodial or noncustodial.

Stake your Cryptocurrency. With the preferred Tokens in your digital wallet and a staking platform selected, you’re ready to follow the protocols of the platform to stake your Crypto. Staking a Token locks it to a blockchain network for a predefined time period.

Earn rewards. Your staked Cryptocurrency should (hopefully) then begin to generate rewards/returns in the form of more Crypto/Tokens!

All returns in this instance are generated by the nil tax Offshore Company. Those profits would be booked “Offshore” ie in a nil tax environment. Provided you take care in terms of how you go about structuring/administering your Offshore Company, potentially you should only have to declare/pay tax locally on any income that may be paid to by the Offshore Company. The remainder of your staking profits would be banked, and/or would be reinvested, Offshore potentially tax free.

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com