Cook Islands Foundations

Whilst best known for its Internationally renowned Asset Protection Trusts the Cook Islands also boasts an interesting Private Foundation product. In this article we will take a close a look at the Cook Islands model of Foundation including the legal structure, key features and common uses.

 

Advantages and Uses

The Cook Islands Foundations Act 2012 was enacted in June 2012. It is a modern and innovative piece of legislation drawing from the experiences and features of foundation law in other financial centres, and adding Cook Islands specialist asset protection provisions.

 

Validity of a Foundation in the Cook Islands (“CI”)

  • A CI Foundation is a separate legal entity from its founder.
  • A CI Foundation is valid even if the law in the founder’s jurisdiction does not recognise or prohibits foundations.

 

Multipurpose Use

A CI Foundation can be used for charitable or non-charitable purposes, inheritance and estate planning, wealth management.

 

Protection from Creditors

  • A two year statute of limitations on claims to set aside the foundation or attack the transfer of an asset to the foundation.
  • Courts cannot recognise or enforce a foreign judgment against the foundation.
  • Stringent fraudulent transfer rules that make it difficult for creditors to bring a claim for fraudulent transfer.
  • A CI Foundation stands independent from the founder’s personal circumstances. The foundation cannot be void or voidable in the event of the founder’s bankruptcy, insolvency, or liquidation.

 

Cook Islands Foundations – Management

  • Founder establishes rules that govern the operation of the foundation.
  • Foundation is managed by a board, allowing for input from a number of relevant persons.

 

Foundation Supervisor or Enforcer

The CI Foundations Law recognises someone to oversee the board’s management of the foundation, an ‘enforcer’ or ‘supervisor’.

 

Privacy

Strict privacy laws against disclosure of the affairs of the foundation.

 

Cook Islands Foundations -Investment Opportunities

  • A CI Foundation can derive earning from investments/broad investment powers may be authorised in the foundation rules.
  • A CI Foundation cannot be used for regular trade or commercial activity.

 

Tax Exemption

A CI Foundation and its beneficiaries are exempt from paying tax in the foundation’s jurisdiction.

 

Application of Foreign Law to a Cook Islands Foundation

  • The Foundations Act 2012 specifically provides that foreign laws (ie laws other than those of the Cook Islands) shall not apply to invalidate the establishment of the CIF or any dedication of assets to the CIF.
  • In addition forced Heirship laws of another jurisdiction cannot be enforced.
  • Foreign law will not apply notwithstanding that a dedication of assets to a CIF has the effect of avoiding, defeating (or potentially avoiding or defeating) a right, claim interest, obligation or liability conferred by that foreign law.

 

Cook Islands Foundation – Wealth Preservation Advantages

Certainty as to the time limitation periods in which creditors must commence actions in relation to “fraudulent transfers” against Founders of CIFs. In summary, a creditor must commence an action against a Founder within 12 months of the date of transfer of assets to the CIF and against the CIF itself within 24 months of the date of transfer of assets to the CIF, in order to have legal standing to argue a fraudulent transfer by the Founder.

 

The creditor bears the onus of proof to show that a transfer by a Founder was done with intent to defraud that creditor. The creditor must satisfy this onus of proof to a standard of “beyond reasonable doubt”.

 

A CIF will continue to exist notwithstanding that the Founder of the trust may be declared bankrupt.

 

In the event that a creditor is successful in arguing that a transfer to a CIF was done with intent to defraud creditors, the only remedy available to the creditor is an award of damages from the assets of the CIF.

 

Punitive damages cannot be recovered from a CIF.

 

The avoidance of forced heirship rights in the home jurisdiction of the Founder will not render a CIF void or voidable.

 

Special purpose domestic or offshore entities can be placed underneath the CIF and take advantage of the wealth preservation features offered by Foundations Act 2012.

 

Background

A foundation is formed by a person known as the founder (who may be either an individual or corporate body) who provides (through an “endowment”) the assets to be administered by the foundation. The foundation’s assets are to be administered through contractual, rather than proprietary, principles.

 

Unlike a trust, a foundation is a separate legal entity. It is managed by a council of members. A foundation can hold assets, enter into agreements with third parties and can sue or be sued in its own name. On the face of it a foundation is similar to a corporation. However, unlike a corporation, a foundation does not have any shareholders. A foundation can have beneficiaries, similar to a trust, or it can have purely charitable purposes. Contrary to trust beneficiaries, who have equitable rights, the beneficiaries of a foundation have contractual rights in relation to the assets of the foundation.

 

A founder may retain some control over the foundation’s assets through reserving certain powers under its rules. Powers that are commonly reserved include powers relating to the investment strategy of the foundation and the appointment or removal of beneficiaries. The founder may also be given the power to revoke the foundation.

 

Registration and Rules

The Act provides a registration regime for foundations in the Cook Islands. Each foundation shall have a foundation instrument which contains its basic details including name, objects, and the registered agent in the Cook Islands. The foundation instrument is filed with the Registrar.

 

A foundation must also have rules that comply with the Act. Under the Cook Islands Act, while there are certain matters that must be addressed in the rules, there is significant flexibility in how the rules in general are drafted. This allows client founders and their advisors to set out clearly how they want the foundation to operate, and how they want it to benefit the beneficiaries. The rules of the foundation are not required to be filed with the Registrar, but only held by the registered agent in the Cook Islands.

 

The rules of the foundation provide the substantive details of how the foundation will operate. The rules will include procedures as to the establishment of the council, the appointment of registered agent, the functions of any enforcer, and the rules as to endowment of further assets. The rules may also deal with how powers can be exercised by the council, and the distribution of assets of the foundation should it be wound up and dissolved.

 

Asset protection provisions

Many of the specialist and proven asset protection provisions contained in the Cook Islands International Trusts Act have also been brought into the Foundations Act, and apply to a registered Foundation and its founder.

 

The Act states that only Cook Islands law applies to any questions as to a foundation or the transfer of assets to a foundation. This is furthered by the exclusion of foreign law and the non-recognition of foreign judgments in relation to Cook Islands foundations. Therefore, as with Cook Islands International Trusts, a creditor of a founder is forced to commence proceedings against the founder and foundation in the Cook Islands High Court.

 

The Act then provides for a number of barriers to any such creditor bringing proceedings in the Cook Islands High Court. These include the all-important time limits. In particular the strict 2 year time limit for bringing an action against a foundation, as well as the deemed time limits where property is transferred to a foundation before a cause of action has accrued, or where property is transferred to a foundation more than 2 years after a cause of action has accrued.

 

Other important asset protection provisions for foundations include the standard of proof beyond reasonable doubt, the exclusion of punitive damages, and the requirement that all remedies against a founder, and all rights of appeal, have been exhausted.

 

Migration, Dissolution and Termination

An overseas foundation can be moved to and registered in the Cook Islands. This allows existing foundations to take advantage of the flexibility and protections contained in the Cook Islands Foundations Act. The equivalent of the Registrar in the overseas jurisdiction in which the foundation is established must provide written confirmation that the foundation is able, under the law of that jurisdiction, to be registered as a Cook Islands foundation. The overseas foundation must also comply with the requirements of its home jurisdiction to be registered. Upon registration in the Cook Islands, the overseas foundation is to be treated as a Cook Islands foundation. Furthermore, such registration does not in any way affect the identity or continuity of the foundation’s personality.

 

Conversely, the Act provides that a foundation cannot transfer its registration to another jurisdiction unless allowed under the foundation’s instrument and rules. A foundation also cannot transfer if it is bankrupt, a receiver or administrator is appointed, or proceedings have been commenced relating to the solvency of the foundation. A foundation cannot be removed from the register unless it has first notified its creditors of its intention to do so.

 

The Act provides for a number of situations in which a foundation is to be terminated and dissolved by its council members. The foundation rules can provide for events upon which the foundation is to terminate. A foundation may also be terminated upon bankruptcy of the foundation, the completion, failure or lapse of the foundation’s purpose, and upon the making of an order by the High Court for the winding up of the foundation. The High Court may order the winding up of the foundation upon the application of any of the foundation’s council members, founder, beneficiaries, enforcer or creditors, or upon the application of the Registrar.

 

Cost:

Set up $4,500

From 2nd year $2,900

 

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

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.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.

 

 

 

 

BVI REGULAR TRUSTS

GENERAL INFORMATION

 

The basic principles of British Virgin Islands trust law derive from those of the English law, as supplemented by BVI statute. The principles of the English common law apply in the BVI by virtue of the provisions of the 1705 Common Law (Declaration of Application) Act (Cap 13) and those of English equity apply by virtue of the West Indies Associated States Supreme Court (Virgin Islands) Act (Cap 80).

 

The original British Virgin Islands Trustee Act (the “Act”), which was based on the English Trustee Act 1925, has been updated by the Trustee Amendment Act 1993, 2003 and 2013 (the “Amendment Act”).

 

DEFINITION OF A TRUST

 

The trust is a well-established concept in common law originated in England during the Middle Ages. A trust, as per the Trustee Act, refers to the legal relationship created either during life or on death by a person (the “Settlor”) who places assets (the “trust fund”) under the control of a trustee or trustees to hold the trust fund for the benefit of certain persons (the “beneficiaries”) or for the achievement of a specified purpose.

 

TYPES OF TRUST

 

Discretionary trust: is a trust where the beneficiaries and/or their entitlements to the trust fund are not fixed, but are determined by the criteria set out in the trust instrument by the settlor.

 

Fixed trust: A fixed trust is a trust in which persons have fixed entitlements to all of the income and capital of the trust at all times during the income year. That is, the trustee is bound to make a distribution to the beneficiaries in a fixed or predetermined manner, as set out in the trust deed.

 

Charitable trust: is an irrevocable trust established for charitable purposes.

 

Purpose trust: is a type of trust which has no beneficiaries, but instead exists for advancing some non-charitable purpose of some kind.

 

COMMON USES

 

• Administration of assets

• Private investments

• Holding vehicle of assets or properties • Shareholding participations • Succession planning • Business preservation • Recurring payments to individuals in this or future generations for  subsistence, education, training, clothing and other relief • Substitute for prenuptial agreements

 

BENEFITS AND ADVANTAGES

 

• Taxation: The Trust is relieved entirely from local taxation.

• Asset Protection: The Settlor is able to provide long-term protection to his/her assets outside the country of his/her residence or domicile, free from the danger of expropriation by government agencies.

• Flexibility may be provided by including in the Trust Deed certain special clauses, i.e. the possibility of revoking the Trust, allowing the removal of the Trustee and the continuation of the Trust in another jurisdiction should it be thought that worldwide political developments make this a prudent precaution.

 

TAXATION

 

BVI trusts without any BVI resident beneficiaries are generally not liable to tax in the BVI. No estate tax, inheritance tax, succession tax, gift tax, rate, duty, levy or other charge is payable by beneficiaries who are not resident in the BVI in respect of any distribution to them by the trustee of any trust.

 

REVOCABLE OR IRREVOCABLE TRUST

 

Revocable Trust: this trust may be altered or revoked by its Settlor at any time (given the Settlor is not mentally incapacitated).

 

Irrevocable Trust: an irrevocable Trust, in contrast to a revocable Trust, is one in which the terms of the Trust cannot be amended or revised by the Settlor, until the terms or purposes of the Trust have been completed.

 

The Trust Deed should also specify if the Trust is to be irrevocable. If not, it should contain provisions setting out the manner in which its terms can be revoked or amended.

 

ACCOUNTING RECORDS

 

On March 30, 2015 the BVI Trustee (Amendment) Act No. 4 introduced the obligation for Trustees to maintain accounting records for trusts. The new obligations indicate that every Trustee shall maintain records and underlying documentation of the trust whether within or outside the BVI and retain these records and underlying documentation for a period of at least five (5) years.

 

The records and underlying documentation of the trust shall be sufficient to show and explain the trusts’ transactions and must enable the financial position of the Trust to be determined with reasonable accuracy.

 

The records and underlying documentation includes accounts and records (such as any invoices, contracts or other similar documentation) in relation to all sums of money received and expended by the trust and the matters in respect of which the receipt and expenditure takes place, all sales and purchases of goods by the trust and the assets and liabilities of the Trust.

 

A Trustee who, without lawful or reasonable excuse, fails to comply with this legal requirement commits an offence and is liable on summary conviction to a fine not exceeding one hundred thousand dollars (US$100,000) or to imprisonment for a term not exceeding five (5) years.

 

Cost would be as follows:

 

-           Set up fee                                                                           $US4,400 (plus $200 stamp duty)

This includes using our standard trust document adopted to fit the Settlor’s requirements or a trust document that has been approved by a BVI based lawyer.

 

-           Annual trustee fee                                                          $3,300

This is the basic fee.  Should there be more than a few activities, there will be an administrative charge based on either time spent or on agreed fees.

 

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

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.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.

 

 

BVI IBC’s ECONOMIC SUBSTANCE RULES EXPLAINED

 

On January 1st, 2019 The Economic Substance (Companies and Limited Partnership) Act 2018 (“ES Act”) came into force in the British Virgin Islands (“BVI”) to address tax system concerns of the European Union and the OECD. The BVI International Tax Authority (“ITA”) has been task with enforcing the ES Act in the BVI.

 

All Economic substance (“ES”) filings with the ITA are submitted by the Registered Agents only via the Beneficial Owner Secure Search System (“BOSSS)”, which is the existing portal used by the ITA for private filing of ultimate beneficial owners.

 

The rules have been refined over the course of the past 3 years. The purpose of this article is to clarify the current position in that regard.*

 

TARGETTED ACTIVITIES

 

The ES Act simply requires that Business Companies and Limited Partnerships (“Entities”) conducting specifically targeted relevant activities (as listed below) should show substance/presence in the British Virgin Islands unless they are tax resident in another jurisdiction. However, there is an exception to the rule with respect to two of the relevant activities, namely, intellectual property business and pure equity holding business in that once these types of entities do not earn any income during their financial period, they are not considered to be conducting a relevant activity.

 

Below are the targeted relevant activities, which are more broadly defined in the ES Act and Rules, (it is important to note that an entity can fall under more than one relevant activity at any given time, except for holding business, which will not apply as a relevant activity if the entity is conducting any other type of business activities besides holding business):

  • Banking business
  • Insurance business
  • Fund management business
  • Finance and leasing business (eg. earning interest from offering of credit)
  • Headquarters business (which relates to groups)
  • Shipping business (by sea only)
  • Holding business, i.e. pure equity holding of shares in other entities and earning dividend or in receipt of capital gains. (Please take note that an entity holding shares and not earning any dividend or in receipt of capital gains during the financial period, do not qualify as pure equity holding business).
  • Intellectual property business. (Please take note that if no income is earned from the intellectual property during the financial period, it does not qualify as intellectual property business).
  • Distribution and service center business (which relates to groups)

 

FILING/REPORTING

 

The ES Act requires that all Entities incorporated in the BVI must inform the ITA of their Economic Substance status, within six months after the end of their financial period, by submitting a declaration for filing through their Registered Agent in the BOSSS.

 

The ITA’s filing system does not allow for partial or early filings, therefore all filings must be done at the end of the financial period and only takes into account the status of the Entities at the end of the financial period, (eg. if the entity was conducting a relevant activity in the first half of the financial period and the entity changes its activities in the last half of the financial period to something other than one of the relevant activities then the entity must file as out of scope at the end of that financial period).

 

Discontinued and liquidated entities are required to file their declaration for their last financial period after liquidation or discontinuation. If the financial period has not ended at the time of discontinuation or liquidation, the entities must lodge their declarations with the Registered Agent for submission at the end of the relevant financial period. If an entity was conducting a relevant activity prior to discontinuation or liquidation it will be required to show substance on last financial period declaration.

 

Entities that were struck off of the Registry of Corporate Affairs before January 1st, 2016 are not subject to the ES filings. All other struck off Entities are obligated to file their declaration with the ITA.

 

The ITA is currently having discussions with other local authorities to determine the best way forward for these struck off Entities. We will provide an update as the information becomes available.

 

FINANCIAL PERIOD

 

The financial period for Entities incorporated from January 1st, 2019 is one year from the date of their incorporation. Reporting via BOSSS commences at the end of each financial period. Filings must be done within 6 months after the end of the financial period.

 

The financial period for entities incorporated prior to January 1st, 2019 is one year commencing no later than June 30th, 2019. Reporting via BOSSS commences at the end of each financial period. Filings should be done within 6 months after the end of each financial period.

 

There are also provisions available for changing the standard financial periods mentioned above, please inquire if necessary.

 

The filing/reporting requirement is an annual requirement to assist the regulators with their monitoring obligations.

 

ASSESSMENT REQUIREMENTS

 

The ITA has recommended that Entities obtain independent (legal) assessment of their status to ensure that they adequately comply before the filing deadline, especially if they are required to show substance, which should ideally start at the beginning of the financial period. However, entities can opt to self-assess and proceed with filing without the legal assessment. It is important to note that Registered Agents are not required to make assessments. Such assessment should be done by the directors or partners of the entities or other persons within the entity that are aware of the internal affairs of the entity, eg company lawyer or accountant.

 

For better understanding of the assessment process, we have created a (n internal) category system below. There are three assessment categories that an entity can fall within, as follows, (please pay close attention to the special instructions for pure equity holding Entities):

 

Category A: Entities that do not fall within the scope of the ES Act.

 

These Entities are only required to file their declaration with the ITA to confirm that they do not fall under the scope of the ES Act. A resolution of the directors or declaration of a related third party and any independent legal assessment or self assessment will be required for filing.

 

Category B: Entities that fall within the scope of the ES Act and are tax resident in the BVI

 

Entities that cannot prove that they are tax resident OUTSIDE of the BVI are automatically tax resident in the BVI and are required to show substance in the BVI as follows:

 

(a) the entity must be managed and directed from the BVI by;

(i) having a BVI qualified director or using an alternate qualified BVI director; or

(ii) the foreign director must travel to the BVI for meetings. It is important to note that the directors do not have to reside in the BVI but an adequate number of meetings of the directors must be held in the BVI. Therefore, it is necessary for a quorum of directors to be established in the BVI when having meetings, whether by BVI alternate director or by BVI director;

 

(b) the entity must have an adequate number of qualified employees (which can include the use of outsourcing);

 

(c) the entity must conduct the core income generating activities in the BVI (which can include the use of outsourcing);

 

(d) the entity must have adequate office facilities in the BVI (which can include the use of outsourcing); and

 

(e) the entity must have adequate expenditure in the BVI.

 

These entities will need to restructure to move the core income generating activities of their operations to the BVI in order to show adequate substance. It is important to note that an entity is not required to move the physical operations to the BVI, but to move functions of the operations that relates to the core income generating activities, (eg if a shipping company operates in India it is not required to move the shipping services to the BVI but it can move the billing aspect of the operations to the BVI.)

 

We recommend that Category B entities seek legal assistance on their restructuring plans, but it is not mandatory, the entity can decide on its own restructuring.

 

PURE EQUITY HOLDING BUSINESS – CATEGORY B

 

Pure equity holding Entities are given more relaxed substance requirements. They are only required to adhere to the BVI Business Companies Act and have adequate employees and premises for holding equity participation.

 

Entities conducting pure equity holding business that are receiving only dividend are considered passive in nature, therefore, having a registered agent in the BVI is considered enough substance.

 

Entities conducting pure equity holding business that are actively managing their participation such as re-investment of dividends, converting shares, selling shares, etc., the ITA will require evidence of more adequate substance to support such activities, such as qualified staff and office in the BVI. Pure equity holding business Entities are not required to have BVI directors but can do so if they so wish.

 

OUTSOURCING

 

Outsourcing services can be used for all Category B Entities to establish substance or a trade license can be obtained to establish an independent office in the BVI. If an entity decides to establish an independent office, it will be required to obtain a (trade) license from the appropriate authorities and subsequently register with Inland Revenue, Social Security and National Health Insurance.

 

Filings for Entities under Category B with the ITA should be supported by a resolution of the directors or declaration of a related third party and any independent legal assessment or self assessment. The financial information of the entity will also be required to show that the entity has adequate expenditure in the BVI in comparison with its foreign expenditure.

 

Category C: Entities that fall within the scope of the ES Act but are tax resident in another jurisdiction.

 

These entities are required to submit evidence of their tax residency, e.g. a letter from the tax authority in an EU approved foreign jurisdiction, supported by a resolution of the directors and any independent legal assessment. Please take note that the ITA will be informing the tax authority in the foreign jurisdiction, that the entity has indicated that it is tax resident in that jurisdiction.

 

SUPPORT SERVICES

 

We will be assisting with legal assessments, application for change of financial periods, outsourcing services, setting up of independent office, recruitment of qualified staff, applications for licenses, and registration with Inland Revenue, Social Security and National Health Insurance. Our fee sheet is available for review.

 

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

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.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.

 

*Information current as at March 3, 2022

 

 

BVI ECONOMIC SUBSTANCE GUIDANCE NOTES

On January 1st, 2019 The Economic Substance (Companies and Limited Partnership) Act 2018 (“ES Act”) came into force in the British Virgin Islands (“BVI”) to address tax system concerns of the European Union and the OECD. The BVI International Tax Authority (“ITA”) has been task with enforcing the ES Act in the BVI.

 

All ES filings with the ITA are submitted by the Registered Agents only via the Beneficial Owner Secure Search System (“BOSSS)”, which is the existing portal used by the ITA for private filing of ultimate beneficial owners.*

 

TARGETTED ACTIVITIES

 

The ES Act simply requires that Business Companies and Limited Partnerships (“Entities”) conducting specifically targeted relevant activities (as listed below) should show substance/presence in the British Virgin Islands unless they are tax resident in another jurisdiction. However, there is an exception to the rule with respect to two of the relevant activities, namely, intellectual property business and pure equity holding business in that once these types of entities do not earn any income during their financial period, they are not considered to be  conducting a relevant activity.

 

Below are the targeted relevant activities, which are more broadly defined in the ES Act and Rules, (it is important to note that an entity can fall under more than one relevant activity at any given time, except for holding business, which will not apply as a relevant activity if the entity is conducting any other type of business activities besides holding business):

  • Banking business
  • Insurance business
  • Fund management business
  • Finance and leasing business (eg. earning interest from offering of credit)
  • Headquarters business (which relates to groups)
  • Shipping business (by sea only)
  • Holding business, i.e. pure equity holding of shares in other entities and earning dividend or in receipt of capital gains. (Please take note that an entity holding shares and not earning any dividend or in receipt of capital gains during the financial period, do not qualify as pure equity holding business).
  • Intellectual property business. (Please take note that if no income is earned from the intellectual property during the financial period, it does not qualify as intellectual property business).
  • Distribution and service center business (which relates to groups)

 

FILING/REPORTING

 

The ES Act requires that all Entities incorporated in the BVI must inform the ITA of their Economic Substance status, within six months after the end of their financial period, by submitting a declaration for filing through their Registered Agent in the BOSSS.

 

The ITA’s filing system does not allow for partial or early filings, therefore all filings must be done at the end of the financial period and only takes into account the status of the Entities at the end of the financial period, (eg. if the entity was conducting a relevant activity in the first half of the financial period and the entity changes its activities in the last half of the financial period to something other than one of the relevant activities then the entity must file as out of scope at the end of that financial period).

 

Discontinued and liquidated entities are required to file their declaration for their last financial period after liquidation or discontinuation. If the financial period has not ended at the time of discontinuation or liquidation, the entities must lodge their declarations with the Registered Agent for submission at the end of the relevant financial period. If an entity was conducting a relevant activity prior to discontinuation or liquidation it will be required to show substance on last financial period declaration.

 

Entities that were struck off of the Registry of Corporate Affairs before January 1st, 2016 are not subject to the ES filings. All other struck off Entities are obligated to file their declaration with the ITA.

 

The ITA is currently having discussions with other local authorities to determine the best way forward for these struck off Entities. We will provide an update as the information becomes available.

 

FINANCIAL PERIOD

 

The financial period for Entities incorporated from January 1st, 2019 is one year from the date of their incorporation. Reporting via BOSSS commences at the end of each financial period. Filings must be done within 6 months after the end of the financial period.

 

The financial period for entities incorporated prior to January 1st, 2019 is one year commencing no later than June 30th, 2019. Reporting via BOSSS commences at the end of each financial period. Filings should be done within 6 months after the end of each financial period.

 

There are also provisions available for changing the standard financial periods

mentioned above, please inquire if necessary.

 

The filing/reporting requirement is an annual requirement to assist the regulators with their monitoring obligations.

 

ASSESSMENT REQUIREMENTS

 

The ITA has recommended that Entities obtain independent (legal) assessment of their status to ensure that they adequately comply before the filing deadline, especially if they are required to show substance, which should ideally start at the beginning of the financial period. However, entities can opt to self-assess and proceed with filing without the legal assessment. It is important to note that Registered Agents are not required to make assessments. Such assessment should be done by the directors or partners of the entities or other persons within the entity that are aware of the internal affairs of the entity, eg company lawyer or accountant.

 

For better understanding of the assessment process, we have created a (n internal) category system below. There are three assessment categories that an entity can fall within, as follows, (please pay close attention to the special instructions for pure equity holding Entities):

 

Category A: Entities that do not fall within the scope of the ES Act.

 

These Entities are only required to file their declaration with the ITA to confirm that they do not fall under the scope of the ES Act. A resolution of the directors or declaration of a related third party and any independent legal assessment or self assessment will be required for filing.

 

Category B: Entities that fall within the scope of the ES Act and are tax resident in the BVI

 

Entities that cannot prove that they are tax resident OUTSIDE of the BVI are automatically tax resident in the BVI and are required to show substance in the BVI as follows:

 

(a) the entity must be managed and directed from the BVI by;

(i) having a BVI qualified director or using an alternate qualified BVI director; or

(ii) the foreign director must travel to the BVI for meetings. It is important to note that the directors  do not have to reside in the BVI but an adequate number of meetings of the directors must be held in the BVI. Therefore, it is necessary for a quorum of directors to be established in the BVI when having meetings, whether by BVI alternate director or by BVI director;

 

(b) the entity must have an adequate number of qualified employees (which can include the use of outsourcing);

 

(c) the entity must conduct the core income generating activities in the BVI (which can include the use of outsourcing);

 

(d) the entity must have adequate office facilities in the BVI (which can include the use of outsourcing); and

 

(e) the entity must have adequate expenditure in the BVI.

 

These entities will need to restructure to move the core income generating activities of their operations to the BVI in order to show adequate substance. It is important to note that an entity is not required to move the physical operations to the BVI, but to move functions of the operations that relates to the core income generating activities, (eg if a shipping company operates in India it is not required to move the shipping services to the BVI but it can move the billing aspect of the operations to the BVI.)

 

We recommend that Category B entities seek legal assistance on their restructuring plans, but it is not mandatory, the entity can decide on its own restructuring.

 

PURE EQUITY HOLDING BUSINESS – CATEGORY B

 

Pure equity holding Entities are given more relaxed substance requirements. They are only required to adhere to the BVI Business Companies Act and have adequate employees and premises for holding equity participation.

 

Entities conducting pure equity holding business that are receiving only dividend are considered passive in nature, therefore, having a registered agent in the BVI is considered enough substance.

 

Entities conducting pure equity holding business that are actively managing their participation such as re-investment of dividends, converting shares, selling shares, etc., the ITA will require evidence of more adequate substance to support such activities, such as qualified staff and office in the BVI. Pure equity holding business Entities are not required to have BVI directors but can do so if they so wish.

 

OUTSOURCING

 

Outsourcing services can be used for all Category B Entities to establish substance or a trade license can be obtained to establish an independent office in the BVI. If an entity decides to establish an independent office, it will be required to obtain a (trade) license from the appropriate authorities and subsequently register with Inland Revenue, Social Security and National Health Insurance.

 

Filings for Entities under Category B with the ITA should be supported by a resolution of the directors or declaration of a related third party and any independent legal assessment or self assessment. The financial information of the entity will also be required to show that the entity has adequate expenditure in the BVI in comparison with its foreign expenditure.

 

Category C: Entities that fall within the scope of the ES Act but are tax resident in another jurisdiction.

 

These entities are required to submit evidence of their tax residency, e.g. a letter from the tax authority in an EU approved foreign jurisdiction, supported by a resolution of the directors and any independent legal assessment. Please take note that the ITA will be informing the tax authority in the foreign jurisdiction, that the entity has indicated that it is tax resident in that jurisdiction.

 

SUPPORT SERVICES

 

We will be assisting with legal assessments, application for change of financial periods, outsourcing services, setting up of independent office, recruitment of qualified staff, applications for licenses, and registration with Inland Revenue, Social Security and National Health Insurance. Our fee sheet is available for review.

 

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

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.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.

*Last amended March 3, 2022

 

 

Closed End Funds: How To Onboard & Exit Investors

At OCI we set up a lot of Private Investment Funds (Cryptocurrency based funds seem to be flavour of the month presently!).

 

For many a Closed End Fund presents an opportunity for a successful Trader to dip his/her toe in the water and to trade funds for multiple persons eg friends/family members.

 

A Closed End Fund is a Private Investment Company that resolves to collect a certain/specific amount of Investor capital (eg $US1 million) then trade/invest that capital for a fixed period of time (eg 12 months). During the Closed End Period (eg 12 months) the Fund Company can’t onboard new investors nor pay out existing investors.

 

In many jurisdictions this model of Fund Company does not require any form of Special Licensing (ie no “Fund License” or “Fund Manager’s License” is required).

 

For some – eg new Fund Promotors – the process for how to sign up a new investor (or to pay out an existing investor) can be a bit hard to come to grips with!

 

Simply explained, the process to onboard/exit an investor in the case of a non-licensed Closed End Fund typically is as follows:

 

  1. The Company targets to raise a set/fixed amount of share capital (eg $1 million USD)
  2. Each investor signs an Offering Document in the form of an Information Memorandum (“IM”) and provides KYC per the requirements
  3. Once the Fund is fully subscribed (ie once you have investors committed in total to invest the targeted amount of share capital say $1 million USD) you email all the investors and tell them to pay up within X number of days
  4. Once all the investors have paid the Company then issues shares to each investor (this entails calling a board meeting, Drafting/Passing a board resolution, signing a board resolution then share certificates have to be produced and be signed by the Company Director and the names of the shareholders have to be entered into a share register kept at the Fund Company’s registered office. This process can take a week+ )
  5. Once you’ve received all committed shareholder funds and share certificates have been issued the Company can start trading
  6. At the end of the fixed investment period you calculate NAV ie Nett Asset Value (https://www.investopedia.com/terms/n/nav.asp  )
  7. You (ie the Company) then buy back the shares from each investor ie pay back to each investor his/her capital + his/her return (ie the investor’s proportionate share of the Company’s nett profit for the fixed investment period based on the NAV) and start the process all over again

 

If you want more flexibility than this eg if you want to onboard/payout investors often or intermittently you’ll need to set up an Open Ended Fund.

 

The easiest/lowest cost options in this regard would be a BVI Incubator Fund ( https://offshoreincorporate.com/how-to-set-up-a-bvi-incubator-fund/ )  or a Panama PF 20 Fund ( https://offshoreincorporate.com/panama-private-funds/ ).

 

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

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.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 legal and reporting/tax requirements before committing to set up or use an Offshore Company (or other entity) for the above described, or any other, purpose/s.

 

 

 

UAE Company Setup Options for NFT Related + etc Enterprises

Recently we had a client looking to launch a large NFT (Non-Fungible Token) project and as part of the brief we were required to look closely at Incorporation Options in the UAE (United Arab Emirates) for such an Enterprise.

 

The main question to be considered in such a case is which free zone would be most suitable? There are a number of Free Zone Incorporation Options in the UAE – finding the one most suitable for a particular client’s business model can be a challenging and indeed time consuming process… a bit like plotting a sailing course across an exotic never-before-sailed ocean!

 

First up let’s do an overview of the potential zones and the related crypto/NFT activities as per the latest guidelines and available regulated companies…

 

We would like to initially present the environment for such activity and also to inform that first, in the respective free zone, a company should be established with the activity of software house, consulting, IT services. Then later the client can apply for further licenses ie in case the client is wishing to set up a regulated activity (see below).

 

In Dubai, to open a regulated Cryptocurrency related business establishment, the investor has to register a company in one of the supported zones (which are DMCC, DAFZA , Sharjah Research Technology or ADGM in Abu Dhabi) and then apply for/obtain a Cryptocurrency License to operate such business activities.

 

Another potential option for incorporation of a business in the UAE would be in one of the smaller zones such as the Meydan or Media City Free Zone etc wherein a free zone license can be done within 4-5 days

 

With the Cryptocurrency License all customers can be offered cryptocurrency-related services , such as storage, management, trading, Bitcoin solutions, software applications, advisory, services, etc.

 

Cryptocurrency license in the UAE are currently governed by stringent regulations from the UAE Government as well as the Central Bank.  In order to get the license, the client would need to comply with the following requirements:

  • There must be enough capital to operate the business for at least 6 months successfully
  • A strict KYC Norm has to be adhered to
  • Disclosure to Value-Added-tax, Anti-Money laundering, and other Government authorities on request must be fulfilled
  • Secured information of client’s financial information – safeguarding against cybersecurity

 

The above can be considered as time consuming and as costly as any other brokerage licensing procedure but is doable if you have the right contacts (eg OCI has a colleague in the UAE who has been recognized/approved by ADGM and DIFC to act as executive and non executive director for such businesses). Hence if/when you decide to move further with such an application you’ll be pleased to know that we have good experience and success in respect of brokerage licenses already to fall back on!

 

The UAE has also taken a step forward in legalizing NFTs following the announcement of issuing crypto licenses. However as mentioned, at that point the smart client would choose to firstly set up a company in one of the above-mentioned zones and open a bank account (as later it is more difficult with such licenses). Then, if necessary, we can move on with the licensing procedure.

 

At that stage we would typically suggest that the client sets up a company in DMCC, DAFZA or in Sharjah (with the right contacts this can be done within 1-2 weeks potentially).

 

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

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.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.

 

BAHAMAS PRIVATE FOUNDATIONS – REVIEWED

The Bahamas introduced its foundation law in 2004, following a detailed review of Foundations’ legislation in comparable jurisdictions:- The authors of the Bahamas Foundations legislation took into account the specific requirements of Private Clients and their need to exercise a degree of control which a Trust may not permit.

 

Foundations have been used for the past 100 years. Their use in international tax and asset protection planning began in Liechtenstein in the late 1930s, moved to other European countries in subsequent years and more recently to Panama, Belize, Nevis, Mauritius, Anguilla, Seychelles and the Netherlands Antilles. Their most active initial use was to provide protection for assets as well as confidentiality during the Second World War. Foundations have since become well-known and acceptable in many civil law jurisdictions, especially those located in Europe and Latin America, where Trusts are less well known.

 

Uses of Foundations

 

Common uses for Private Foundations include:

  • Tax and estate planning
  • Asset protection planning
  • Maintenance of corporate control
  • Assistance to charities
  • Separation of voting and economic benefits in investment holding companies
  • Ownership of Private Trust Companies
  • Operation of employee share option schemes
  • Holding assets off-balance sheet in connection with the securitisation of mortgage

 

Bahamas Foundations Legislation Summary

 

A Bahamas Foundation is a registered legal entity. Assets placed within the foundation are solely owned by the foundation.

 

Bahamas anti-forced heirship rules apply to transfers to a Bahamas Foundation.

A Bahamas Foundation can be established for either an indefinite period or for a fixed period.

 

A Bahamas Foundation can be established for charitable, commercial or private purposes.

 

The Founder can be an individual, a corporation or a Nominee.

 

The establishment of the Foundation becomes effective after all registration formalities have been completed.

 

The Founder may reserve certain powers. Alternatively, the law provides for the Foundation to have a Protector in whom powers can be vested in the event that a Nominee Founder is used.

 

One natural person must also be appointed as an Officer of the Foundation in addition to its Secretary.

 

A Foundation Council, or an alternative supervisory or governing body/person, including a Protector, can be appointed.

 

Vested Beneficiaries of a Bahamas Foundation must be notified of their interest and will be entitled to request information from the Officers of the Foundation.

 

Proper records and accounts must be kept by the Officers of the Foundation which can be inspected by an Officer, Foundation Council Member, Founder, auditor or any other supervisory person (e.g. Protector) at any time.

 

Confidentiality provisions restrict any person acquiring information in his capacity as an Officer, Protector, Council Member, Attorney or Auditor of the Foundation from disclosing information relating to the Foundation without the express consent of the Founder and Beneficiaries.

 

A Bahamas Foundation has the ability to re-domicile to another jurisdiction. Similarly, a Foreign Foundation can redomicile to and become a registered Bahamas Foundation

 

Bahamas Foundation Registration

 

The registration process for a Foundation in Bahamas is comparable to that for a Bahamas company – The Foundation is registered with the Registrar General’s Office and the name of the Foundation must first be reserved at the Registrar prior to the submission of the necessary documentation. The Registrar will confirm that the foundation name is valid for use and has been reserved for a period of 90 days.

 

After the Foundation name has been reserved the required documentation must be submitted to the Registrar.

 

Required Documentation for a Foundation

 

  1. An application for registration
  2. A statement signed by the Secretary of the Foundation or any Attorney engaged to form the Foundation which contains extracts from the Charter of the Foundation as follows:

• Name of the Foundation

• Date of Charter and Articles (if any)

• Summary of the Foundation’s purposes

• Name and address in the Bahamas of the Foundation for service of documents

• Name and address of the Secretary

• Name and address of the Foundation Council

• Address of Registered Office

• Value of initial assets, and

• Period for which the Foundation will be active ––A list of the name(s) and address(es) of the Officer(s) of the Foundation

 

3. A statutory declaration certifying to the Registrar that:

• The Foundation Charter contains a statement that the value of the assets of the Foundation may not be less than US$10,000 or the equivalent in any other currency.

• All of the requirements of the Foundations Act in respect of the registration of the foundation have been complied with.

 

The Foundation Charter or Articles may, but need not, be filed with the Registrar to complete the registration process.

 

After the documentation is accepted by the Registrar, a Certificate of Registration will then be issued specifying the name and number of the Foundation and stating that the Foundation has been registered in accordance with the provisions of the Bahamas Foundations Act, 2004: – At that stage the Foundation will be regarded as a registered entity and can carry on its business as outlined by the Charter.

 

OCI can assist to set up and administer your Bahamas Foundation. Cost would be:

 

Set up including First years basic admin: $US3,450

From 2nd year $1,800

 

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

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.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.

 

Bahamas International Business Companies

The Bahamas, a former British colony independently governed since 1973, comprises of an area of ocean across a 1,225 km arc from 78 km east of Palm Beach, Florida, to just north of Haiti and is made up of an archipelago of nearly 700 islands and 2,400 cays. It is an ideal location for individuals and businesses looking for an Incorporation location that offers tax benefits, a solid name and confidentiality. (The Bahamas has been an active and well respected International Offshore Financial Centre since the 1930s).

 

Financial Services is a key economic pillar of the country plan contributing roughly 20% of Bahamas GDP. The Bahamas have aggressively promoted the islands as an international financial center and the business and professional sectors are finely attuned to the needs of the offshore sector.

 

There is no income tax in the Bahamas, nor are there capital gains, VAT or Sales tax. As such, the Bahamas is an attractive jurisdiction from which to conduct international business/trade. Moreover with a solid reputation, the Bahamas offshore company is globally accepted and highly regarded.

 

Investors choose to conduct offshore/international business through the offshore corporation, more formally known as the Bahamas International Business Company, IBC. There are other Bahamas companies that can be used for offshore activities, but the Bahamas offshore company (IBC) is the most popular and most popular company launching, comparable to a Panama SA Company. Generally, the Bahamas offshore company takes on the form of a private company (limited by shares).

 

The current legislation governing the Bahamas IBC is the International Business Companies Act 1989 (as amended).

 

Applicable Tax Rates:

 

  1. Corporate tax rate – 0%;
  2. Personal income tax – 0%;
  3. VAT rate – (7.5%-12%);
  4. No inheritance, capital gains and estate tax;

 

All Bahamas offshore companies are exempt from foreign exchange controls, stamp duties and other local taxes. Another attractive benefit the Bahamas provides for foreigners is tax exemption to both the corporation and its shareholders for twenty years after the process of incorporation is complete.

 

Bahamas offshore corporations may be managed and operated from within the Bahamas, which is unlike other offshore companies from other jurisdictions. Further, the Bahamas IBC is allowed to invest and own interest in other Bahamas Companies.

 

There are limitations and restrictions for the Bahamas offshore company are similar to other offshore corporations in that the Bahamas IBC must have a Bahamas registered agent. The Bahamas International Corporation cannot do any business in Bahamas, or with Bahamas residents. The Bahamas Company may not own or have any ownership interest in Bahamas property.

 

Key Features Include:

  • The Bahamas is a pure tax haven and has no direct taxation in the form of income tax, capital gains tax, gift tax or inheritance tax
  • International Business Companies are not subject to exchange controls
  • No minimum paid up capital required in order to complete registration
  • Only one director and one shareholder are required, both of whom can be foreigners and need not reside in the Bahamas
  • Incorporation is fairly quick and can typically be completed within 2 to 5 days
  • The Bahamas has excellent communications. There are direct flights from Europe as well as many US cities. Miami is only 30 minutes away and New York is less than three hours away
  • The official and spoken language is English
  • Shares for Bahamas Company may be issued in any legal tender, and must be registered
  • No requirement to file annual returns or financial statements.

 

Other features Include:

 

– Bearer shares are not permitted.

– Registered shares can be held in nominee form.

– Exemption of company and Shareholders from all Bahamian taxes and duties.

– Board meetings can be held anywhere in the world and can be conducted by telephone.

– Purchase and ownership by the company of its own shares is permitted.

– Statutory power is given to IBCs to engage in any lawful activity.

– Corporate domicile can be changed to another jurisdiction.

– The word Limited, Corporation, Incorporated,Société Anonyme, Gesellschaft mit beschrankter Haftung, Sociedad Anónima or the abbreviations “Ltd”, “Corp”, “Inc”, GmbH” or “S.A.” can be used in a company’s name to denote limited liability.

– Amendments to the Memorandum and Articles of Association can be easily made.

– The Board of Directors can determine, by resolution, the rights attaching to classes of shares.

– IBCs can conduct business with Bahamians directly and may also own Bahamian real estate, but will in these cases be subject to local exchange controls and stamp duty.

– Details of the Directors and Officers of an IBC must be filed with the Registrar and are open to public inspection (though Nominees can be deployed) – Incorporation under the Act is straightforward and can normally be completed in two to three days.

– Company names can be reserved by telephone or fax.

– A company is deemed incorporated on the day incorporation papers are filed with the Registrar of Companies. The certificate of incorporation is issued shortly after the filing of incorporation papers and payment of the relevant government fee. – Shelf companies are available for immediate delivery.

 

Benefits of Incorporating in the Bahamas:

  1. Politically stable, very reputable jurisdiction
  2. Favourable tax jurisdiction
  3. Details of shareholders and beneficiaries are not available to the public
  4. No minimum capital requirements
  5. Minimum requirement of only 1 shareholder and 1 director
  6. Legal system based on English Common law
  7. No currency control.

 

Set up etc Costs

 

To incorporate a Bahamas Company with OCI will cost as follows:

  • Incorporation $US950 (including Applying to Registrar for up to three alternative names, preparing and filing of two copies of memorandum and articles of association, confirming incorporation, preparation of subscriber’s minutes to appoint first Directors, provision of special IBC company register, forwarding of original and three certified copies of original Memorandum and Articles, general correspondence and communication with instructing party in respect of the above as well as filing the Record Keeping Declaration with The Bahamas Registry).
  • Annual Registered Agent & Registered Office $900 The annual fee is payable in advance and includes: Acting as Registered Agent, Provision of Registered Office, Filing of Annual Licence Return
  • Government Incorporation Fee $430
  • Government Name Reservation Fee $25
  • Disbursements $245 (Corporate seal, photocopying, courier and telephone etc)

 

Total: $2550

 

OCI Bahamas IBC Services

 

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

 

Services:

 

  • 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
  • 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

 

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”)

 

Full  Nominees Package (ie including Professional Corporate “Nominee” Director, Shareholder & Company Secretary): + $400 p/a.

 

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

 

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

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.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.

 

 

Belize IBC & LLC s – New Compliance & Etc Requirements

The Belize Legislature has passed into law*certain Compliance changes as regards Belize Incorporated IBCs. In this Article we will discuss the details, the impacts and the options.

 

To begin with there are now a number of new documents that must be collated. These are the items that we must meet/collect for each company:

 

  • IPAG (Intellectual Property Assets Grandfathering Program form) – to be done by all companies incorporated before January 2019.
  • IP Declaration form – to be done by all companies incorporated on or before 16 October 2017.
  • TIN application form (Tax Identification Number) – all companies
  • Economic Substance Reportingform – depends on what kind of activity the company is engaged in
    • Form B – Included entities, which are those companies engaged in a relevant activity (banking business; insurance business; fund management business; financing and leasing business; headquarters business; distribution and service center business; shipping business; as a holding company, engaged, or where one or more of its subsidiaries is engaged in one of the relevant activities stated.)
    • Form C -  Pure Equity Holding Companies, which are companies which only hold equity participations and earn only dividends and capital gains or related incidental income
    • Form D – Non-included entities, which are those companies not engaged in a relevant activity
    • IBC Tax Return– to be submitted by all companies before 31 March 2022 (except those companies that apply for tax exemption)
      • a company that was incorporated prior to 16 October 2017 must submit a tax return to reflect gross receipts (gross revenue) earned between 1 July 2021 – 31 December 2021.
      • A company was incorporated on or after 17 October 2017 must submit 2 tax returns. One to reflect gross receipt for all of 2020 and another for 2021.
      • Tax Exemption – a company (except an included entity or a PEHC) may apply for tax exemption by completing Form E and the Annual Confirmation of Tax Exemption form. It is advised that companies apply for tax exemption before 31 March 2022. Note, this application captures the tax jurisdiction of the ubo. This information will be shared by our authority with said tax jurisdiction.
      • Tax Exemption – a company that is a registered tax resident in another jurisdiction (not blacklisted by EU) may apply for tax exempt status by submitting an Information Return form and supporting evidence of its tax residence outside of Belize.

 

Tax rates:

BusinessActivity Tax Rate
Trade or Business 1.75%
Professional Services 6.0%
Commissions (if revenue is less than US $12,500) 5.0%
Commissions (if revenue is  US $12,500 and above) 15.0%
Rental Income 3.0%
Long Term Lease – Real Estate 1.75%
Radio, On-air 0TV, Newspaper Revenue 0.75%
Domestic Airline Revenue 1.75%
Insurance Institutions General Revenue 1.75%
Telecommunications Revenue 19.0%
Fuel/lubricant Revenue 0.75%
Tour operators and Travel agents 6.0%
Real Estate Business – Real Estate Broker and Agents, earning Commissions 15.0%
Real Estate Business – real estate sales, developers, condominium owners and fractional Interest, Long term Leases, Time Share operators 1.75%
Foreign sourced Income: Dividends/Interest/Royalties 5.0%
Annual Net Gain 5.0%
Pure Equity Holding Company, Holding Company not engaged in a relevant activity 0%

 

BELIZE COMPLIANCE CHANGES – YOUR QUESTIONS ANSWERED

 

What are the set up and annual Compliance/reporting tax payable requirements in Belize for a new Belize IBC?

  1. Consider the activity. If the company is a relevant activity, then economic substance must materialize as soon as possible.
  2. TIN. All companies (does not matter what activity) must apply for a TIN.
  3. Preferably at anniversary of incorporation, the company must file ES forms. (B,C,D)
  4. By 31 March every year, the company must file a tax return. OR it must apply for tax exemption (if it is not engaged in a relevant activity)
  5. Usual annual renewal fees apply, no late penalties. However, it must be paid before any other filing service or request of the registry is done.
  6. KYC (passport, utility bill)

 

What are the set up and annual Compliance/reporting tax payable requirements in Belize for a new Belize LLC?

No changes to LLCs. Not included in ES legislation. No tax.

 

What kind of business can a new IBC do as of right? What kind of business can a new IBC NOT do as of right?

IBC can do any business except IP business (holding IP etc.). Relevant activities require economic substance.

 

What kind of business can a new LLC do as of right? What kind of business can a new IBC NOT do as of right?

An LLC can do any business not prohibited by law.  LLCs can hold IP assets.

 

What kind of assets can a new IBC hold? What kind of assets can a new IBC NOT hold? An IBC cannot hold any IP Assets.

 

What kind of assets can a new LLC hold? What kind of assets can a new LLC NOT hold?

No restriction.

 

The Belize LLC – Under the Microscope

 

Simply put, moving forward, it would appear that the preferred Corporate Vehicle for anyone looking to incorporate in Belize would be an LLC.

 

An LLC (Limited Liability Corporation) is, effectively, a hybrid of a Limited Company and a Partnership.

 

It’s like a Company in that that liability of the Company is limited to the capital invested and assets purchased by the Company.

 

Like a partnership it’s a flow through entity: An LLC does not have to file a tax return; the nett profits are passed through to the members of the LLC (members are to an LLC what shareholders are to a Limited Company) who are responsible for taxes (if applicable) in their country of tax residence. (ie same tax treatment as partners in the case of a Partnership).

 

From a member/partner’s perspective an LLC is superior from a liability perspective to a Limited Partnership (“LP”) because in the case of a Limited Partnership (which is constituted by a Limited Partner and a General Partner) one partner can be made liable for the debts of the partnership. In the case of an LLC the liability of the members is limited to the extent of the member’s capital contribution (unless a personal guarantee has been given by a member to a supplier of the LLC).

 

LLC members can fully participate in the management of the LLC (which is different to an LP – in the case of an LP the Limited Partner usually can’t participate in the management of the enterprise without risking his/her Limited Liability status).

 

Key Benefits include:

         Privacy: There is no public register of owners/members or Directors/Managers in Belize

         Tax Effectiveness: Belize LLCs are not liable to corporate or business or any other form of tax in Belize

         Simplicity: There is no requirement in Belize to prepare annual accounts or appoint an auditor

         Flexibility: Belize LLCs can be used to own/operate a wide range of businesses as of right

         Asset Protection: Before you can sue a Belize LLC you have to pay a deposit being an amount equal to the greater of (i) one half of the amount claimed or $US50,000 whichever is the greater

 

Other features of the Belize LLC Law include:

 

  1. A Belize LLC:

(a)    can be structured according to its own rules rather than being dictated to by statute

(b)   is a legal entity with separate rights and liabilities distinct from its members & managers. (This means noone other than the LLC itself can be made liable for the debts of the LLC)

(c)    Somebody suing a Belize LLC member at best can only have the members rights assigned to him; he can’t participate in the management of the LLC

  1. Belize doesn’t recognize foreign judgments. Only a judgment made by a Belize Court can be given against a Belize LLC
  2. LLCs from other jurisdictions can migrate to Belize and vice versa (ie a Belize LLC can redomicile and become eg a Nevis LLC)
  3. Civil legal proceedings against a Belize LLC must be held in private (and there are penalties for unauthorised disclosure).

 

Set Up cost: $UD1,200 From 2nd year $890

 

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

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.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.

*Information current as at 3 March 2022

 

 

 

Wyoming DAO LLCs

Are you looking to form a DAO?

 

A decentralized autonomous organization, or a “DAO,” is a Blockchain based “organization” encoded as a transparent computer program, controlled by the organization members rather than by any outside entity or authority.

 

Without incorporating a DAO looks like a Club or Partnership ie an unincorporated association wherein each of the members is jointly and severally liable in the event that the DAO is successfully sued pr incurs some other liability.

 

In order to ensure that the members can avoid personal liability – and so that the liability of the group collectively might be Limited – it is submitted that the preferred legal structure for most DAOs would be to incorporate as a Company.

 

Why Incorporate a DAO LLC?

 

It is anticipated that most DAOs will want to incorporate as a Company. As things presently stand the Wyoming DAO LLC would appear to be the most flexible vehicle for such purposes.

 

A DAO LLC is a type of limited liability company (LLC) in which there is no single commanding body behind decisions. All decisions are made by majority vote by either those who have invested in the organization or through a computer algorithm, depending on the type of DAO. A DAO effectively runs itself based on a set of rules that are implemented upon its creation and then updated by either stakeholders of the organization or by an algorithm over time.

 

A DAO completes actions through a series of “smart contracts”, which are different from traditional legal contracts in that they exist and operate autonomously through the internet without need for manual human action. Despite this autonomy, there are still some actions a DAO cannot complete autonomously, for example some interactions with the legal system.

 

This autonomous action allows for a DAO system to operate outside of the administrative structure of a traditional organization. Instead of top-down management, every member has an equal part in deciding the action of the organization, or all management can be conducted by a computer program outside the control of the establishing party. In either case, no single person or party makes decisions within the DAO.

 

This has both advantages and disadvantages in the efficiency of decision making. Being more responsive to the needs of stakeholders is a common advantage when a DAO is managed by a group, but is often met with potential for less-informed and slower changes. When managed by an algorithm, it is possible for mistakes to be made that a human would not, but this often comes with the benefit of increased objectiveness and success-oriented action. It is important to note that although a DAO LLC is technically still an LLC, the operations of the two vary drastically in practice.

 

Creation of a DAO LLC

 

A DAO LLC is formed very similarly to a traditional LLC, with the primary difference being the two new steps of establishing the rules behind the DAO and funding the DAO prior to it becoming operational.

 

Establishing the rules involves deciding how the DAO will operate at the time of the formation and, although this can be changed later on, doing so often involves significant action from stakeholders.

 

Funding the DAO involves creating a token which represents and tracks the investments of stakeholders in the DAO, and is a way for stakeholders to participate in and influence the actions of the DAO.

 

DAO’s are not controlled by any single entity; although there must be an entity to create the DAO, this founder does not control the DAO after its creation. Although it is common for the founder of a DAO to participate in said DAO by contributing to the initial funding, this is not necessary. It is possible for a founder to create a DAO, but have no part in the management of said DAO following its creation.

 

Because DAO’s rely heavily on the initial ruleset implemented during formation, it is extremely important that the code behind this rule set is carefully written and that all potential bugs and security flaws are fixed before the system is deployed. Having a strong initial base for the DAO is essential to the success of the DAO moving forwards.

 

OCI Wyoming DAO LLC Formation Services

 

Decentralized autonomous organizations are completely legal, however as with all new technologies, DAO’s are subject to significant changes in regulation. Current Wyoming legislation under Bill-SF0038 (effective 07/01/2021) dictates that the management of a DAO LLC has many of the same requirements of traditional LLC’s, with some additional criteria for the more complex management structure and backend required for its operation.

 

A Wyoming DAO LLC can be formed quickly, correctly and inexpensively.  We charge $US1,500 and it includes the following:

  • Option To Select Member Managed or Algorithmically Managed Structure
  • Inclusion of Publicly Available Identifier of Any Smart Contract Directly Used to Manage, Facilitate, or Operate the DAO in Articles of Organization As Required by Law
  • Anonymous Filing of Articles of Organization Which Meet All Legal Requirements
  • For Member Managed DAO, Operating Agreement Which Meets All Legal Requirements
  • Resignation of Organizer Document
  • 1st Year of Registered Agent Services As Required By Wyoming Law
  • 5 Pieces of Mail Scanning
  • Free Use of Our Address

 

NOTE: This option should ONLY be used by seasoned blockchain entrepreneurs with prior experience creating DAOs and Smart Contracts who are seeking to add the protections of Wyoming limited liability protections.

 

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

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.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.