HOW TO SET UP AN ONLINE COACHING BUSINESS TAX FREE OFFSHORE

The past few years have seen a steady advance in the popularity of Business/Life Coaching Services.

 

With most schools and many Universities failing to properly provide students with the personal and financial skills needed to survive or succeed in the “real world”, a clever substrata of Entrepreneurs has begun to arise filling the gap in this ever widening market.

 

Whether you are a life skills coach, business coach or in the business of providing financial education, in the tech/virtual era many if not most such businesses can be based “Online”.

 

Any business where customers are sourced and services (and/or products) are delivered online can typically benefit from incorporating Offshore ie iin a nil business/corporate tax environment.

 

In principle here’s how it can work:

 

  • A nil tax offshore company (commonly an International Business Company “IBC”) is incorporated
  • The IBC owns/operates the web based business (eg ownership of the web-domain and the website/artworks or trademark/s or any products/sole distributor rights are held by or transferred to the IBC)
  • An Offshore account (which received payments via a merchant account) is set up in a nil tax banking centre
  • The Company is (seen to be) managed and controlled from a nil tax jurisdiction (which will entail the deployment of a nil tax jurisdiction based “Nominee” director). You are employed as a Sales/Coaching Consultant or in some Consulting Capacity
  • Ideally the server would be located in a country which does not tax businesses on the basis of server location (eg Singapore)
  • Customers contract with and pay the IBC. When the customer places an order the terms and condition are drafted in such a way as to make the “situs” of the contract (ie the place where the contract was formed) a/the nil tax jurisdiction.
  • You communicate with the client online and deliver all products/services via email or via the web.
  • All such monies are banked free of tax in the first instance.
  • You or your local company would be contracted by the IBC to manage sales/delivery of product/website maintenance/whatever.
  • You would invoice the IBC periodically (eg monthly) for this service which income would be assessable income in your home state – though a smart Tax Accountant should be able to assist you to claim a series of expense against this income (eg home office, equipment, travel, phone/internet/utilities etc) to significantly reduce the amount of tax payable on this income.
  • Often there is some kind of intellectual property (“IP”) created or behind the website based business (even if it’s just the website/design). It may be advantageous to you down the track if ownership of the business and the IP were held by 2 different entities. What you can do there is set up a 2nd IBC to own the IP. The first IBC (ie the Trading Company) pays license fees periodically to the 2nd IBC which fees wold be receipted tax free. This could be advantageous if you wanted to bring ownership of the web-business onshore or if you wanted to sell the business but keep a passive (potentially tax free) income stream
  • Ideally once you start to grow your business, and to add substance, you would be wise to set up your MD/Board and or a sales team onshore 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)

 

To minimise the chances of the IBC being taxed onshore ideally the IBC should be (and be seen to be) managed and controlled from offshore. How this can be achieved is including a Nominee Director etc as part of the Corporate structure. See this page for details of how that can work:

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/

 

(and if you live in a country which has a Controlled foreign Corporation law you’ll also want/need to include a Foundation as part of the Corporate structure).

 

Local laws can have an impact. Hence you’d be wise to seek local legal/tax/financial advice before you commit to incorporate such a business “Offshore”.

 

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

 

The Law of Principal and Agent Explained

In last week’s Article we looked at how an Onshore Agent Company and Offshore Principal Company can be deployed to open a Paypal Account Facility.

 

(As alluded to last week) this week we look in detail at the nature of a Principal/Agent relationship and how it works both at Law and Practically.

 

A Principal-Agent relationship is an arrangement in which one entity (the “Principal”) legally appoints another (The “Agent”) to act on its behalf.

An agent creates legal relations between a principal and a third party. The agency exists when one party is authorised by the other to act on their behalf in respect of acts that affect their rights and duties in relation to third parties. The existence of the agency may be openly acknowledged, or the agent may enter into the contract without revealing that they are contracting on behalf of another. At common law, the latter situation falls within the doctrine of the undisclosed principal.

The relationship between the principal and the agent is called the “agency,” and the law of agency establishes guidelines for such a relationship. The formal terms of a specific principal-agent relationship are often described in a contract.

For example, when an investor buys shares of an index fund, he is the principal, and the fund manager becomes his agent. As an agent, the index fund manager must manage the fund, which consists of many principals’ assets, in a way that will maximize returns for a given level of risk in accordance with the fund’s prospectus.

Authority

An agent who acts within the scope of authority conferred by his/her principal binds the principal in the obligations he/she creates against third parties.
There are essentially two kinds of authority recognised in the law: actual authority (whether express or implied) and apparent authority.

Actual authority

Actual authority can be of two kinds. Either the principal may have expressly conferred authority on the agent, or authority may be implied. Authority arises by consensual agreement, and whether it exists is a question of fact. An agent, as a general rule, is only entitled to indemnity from the principal if she has acted within the scope of her actual authority, and may be in breach of contract, and liable to a third party for breach of the implied warranty of authority.

Express actual authority

Express actual authority means an agent has actually been expressly told she may act on behalf of a principal.
•    Ireland v Livingstone (1872) LR 5 HL 395

Implied actual authority

Implied actual authority, also called “usual authority”, is authority an agent has by virtue of being reasonably necessary to carry out his express authority. As such, it can be inferred by virtue of a position held by an agent. For example, partners have authority to bind the other partners in the firm, their liability being joint and several, and in a corporation, all executives and senior employees with decision-making authority by virtue of their position have authority to bind the corporation.
•    Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549

Apparent authority

Apparent authority (also called “ostensible authority”) exists where the principal’s words or conduct would lead a reasonable person in the third party’s position to believe that the agent was authorized to act, even if the principal and the purported agent had never discussed such a relationship. For example, where one person appoints a person to a position which carries with it agency-like powers, those who know of the appointment are entitled to assume that there is apparent authority to do the things ordinarily entrusted to one occupying such a position. If a principal creates the impression that an agent is authorized but there is no actual authority, third parties are protected so long as they have acted reasonably. This is sometimes termed “agency by estoppel” or the “doctrine of holding out”, where the principal will be estopped from denying the grant of authority if third parties have changed their positions to their detriment in reliance on the representations made.
•    Rama Corporation Ltd v Proved Tin and General Investments Ltd [1952] 2 QB 147, Slade J, “Ostensible or apparent authority… is merely a form of estoppel, indeed, it has been termed agency by estoppel and you cannot call in aid an estoppel unless you have three ingredients: (i) a representation, (ii) reliance on the representation, and (iii) an alteration of your position resulting from such reliance.”
•    Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480
•    The Raffaella or Egyptian International Foreign Trade Co v Soplex Wholesale Supplies Ltd and PS Refson & Co Ltd [1985] 2 Lloyd’s Rep 36
•    Armagas Ltd v Mundogas Ltd or The Ocean Frost [1986] AC 717, an agent cannot clothe himself with ostensible authority simply by saying that he has authority
•    Hudson Bay Apparel Brands Llc v Umbro International Ltd [2010] EWCA Civ 949

Watteau v Fenwick

In the case of Watteau v Fenwick, Lord Coleridge CJ on the Queen’s Bench concurred with an opinion by Wills J that a third party could hold personally liable a principal who he did not know about when he sold cigars to an agent that was acting outside of its authority. Wills J held that “the principal is liable for all the acts of the agent which are within the authority usually confided to an agent of that character, notwithstanding limitations, as between the principal and the agent, put upon that authority.” This decision is heavily criticised and doubted though not entirely overruled in the UK. It is sometimes referred to as “usual authority” (though not in the sense used by Lord Denning MR in Hely-Hutchinson, where it is synonymous with “implied actual authority”). It has been explained as a form of apparent authority, or “inherent agency power”.

The doctrine of the undisclosed principal

In ordinary agency, where the principal and the existence of the agency relationship are disclosed, the agent is merely the instrument through which the principal becomes a party to the contract. Therefore, the principal acquires rights and liabilities under the contract.  Where the principal is undisclosed, to all intents and purposes, the agent is the party to the contract who will assume the rights and liabilities.
The doctrine of the undisclosed principal is at variance with one of the fundamental rules of the law of contract.  The rule of privity of contract allows only the parties to the contract to acquire rights and liabilities under that contract. Under the doctrine of undisclosed principal, the principal may be sued or may sue on the contract that is made by its agent, despite the fact that upon strict interpretation, the agent is the contracting party and the undisclosed principal is a third party to that contract.

Commentators have suggested that the basis of the doctrine is similar to assignment, without the evidence of a transfer, the undisclosed principal being the implied assignee of the agent. In his landmark text “Bowtead & Reynolds on agency the noted commentator Bowstead, W suggests that the doctrine developed simply for commercial convenience,  and is now firmly established despite being criticised as “unsound”, “unjust” and “inconsistent with elementary principles”.  In Armstrong v Stokes, Blackburn J stated in respect of the legality of the doctrine: “It has often been doubted whether it was originally right to hold so: but doubts of this kind come now too late.”
As in any agency relationship, for the undisclosed principal to sue or be sued on the contract, the agent must have acted within its authority in entering into the contract. The authority can be either express or implied.

The agent of an undisclosed principal will be personally liable under the contract to the vendor, as the agent has contracted personally.  The agent loses the right to sue if the principal intervenes on the contract. Therefore, both the agent and the undisclosed principal may sue and be sued on the contract.  Upon the vendor discovering the existence of the undisclosed principal, the vendor has the option to choose between the agent or the principal to enforce the rights under the contract.  If the vendor seeks to enforce the contractual rights or liabilities against the Agent, the Agent will be personally liable.

 

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

The above information is provided by way of courtesy and should not be construed as legal advice nor be relied upon. If you need to know or would like to know where you stand in terms of the law of Principal and Agent you should seek local specialist legal advice. Whilst all due care has been taken in its preparation the publisher Offshore Companies International Limited shall not be liable for any loss that may flow directly or indirectly as a result of  any person reading, acting upon or relying upon the above information

 

How To Open a Paypal Account for a Tax Free Offshore Company

Most clients these days want or need to be able to offer their clients/customers the ability to pay for products or services via Paypal.

 

We are often asked How can I open a Paypal account for my Offshore Company?

 

There in effect two ways to go about this, the direct route and the indirect route.

 

The Direct Approach

 

The first thing you’ll to do is make sure you choose a jurisdiction that has a Paypal Office; Paypal now has offices or presences in most nil tax (and low tax) Offshore Company jurisdictions including:

 

Hong Kong

Seychelles

Belize

Nevis

The BVI

Dominica

Anguilla

Costa Rica

St Vincent

Cayman Islands

Panama

The USA

The UAE

Vanuatu

The Cook Islands

The Marshall Islands

Samoa

Switzerland

Estonia

Ireland

Gibraltar

UK

Cyprus

Malta

 

For the full list check here: https://www.paypal.com/au/webapps/mpp/country-worldwide

 

Please note to get a Paypal account opened in the name of your tax free (or low tax) Offshore Company you will need to firstly open an account at a bank in the same country as wherein the Company is incorporated.

 

The Indirect Method

 

The indirect way to go about setting up a functional Paypal Account for your Offshore Company is to set up a 2nd Company (eg an “onshore” Company) to act as  “Undisclosed Agent” for the Offshore Company.

 

In this scenario the Onshore Company acts as an Undisclosed Agent for the Offshore Principal Company; It collects the payments from customers, banks the payments eventually into its own Corporate Bank Account, keeps a percentage (eg 2.5-5%) and then sends the remainder of the monies to the tax-free Offshore Principal Company.

 

Jurisdictions which are popularly used to do this include the UK, Ireland and Australia.

 

The arrangement is facilitated by the English Common Law Doctrine of Principal and Agent. For details on how that aspect of the law weeks check next week’s feature article.

 

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

 

Discretionary Foundations & Privacy

For various reasons clients often prefer that their names not be visibly associated with an Offshore Company.

 

In particular, it can be problematic on several fronts if, at the end of a paper trail, your name appears in an Offshore Company’s Statutory records as the “beneficial owner” of the Company.

 

Regulators the world over are forever looking to implement new ways to learn who, at the end of a Corporate Family Tree, the ultimate owners of a Company are. No doubt, if you’re looking to set up an Offshore Company, you won’t want your name to be exposed as the ultimate beneficial owner of said Offshore Company. Well that can still be achieved….

 

For many years we used to Offshore (Tax Free) Discretionary Trusts as the preferred vehicle for clients who wanted or needed to ensure that, at the end of the paper trail, their names did not appear as the “beneficial owner” of the Company.

 

(For those not in the know) A Trust is an arrangement whereby one person (commonly called a “Settlor”) makes arrangements for/with a second person (called a “Trustee”) to hold/manage certain assets (that would otherwise be owned/held by the Settlor) for the financial gain of others/third parties (called “Beneficiaries”).

 

But with much of the developing world having passed Controlled Foreign Trust Rules and or Transferor Trust Rules (rendering many Offshore trusts liable for tax onshore regardless of who the beneficiaries are) the deployment of an Offshore Discretionary Trust has become somewhat problematic, particularly for clients for whom privacy is of paramount importance.

 

Enter the birth of Discretionary Foundations!

 

The Private Foundation is in essence Europe’s version of a Trust. Just like a Trust a Foundation is a 3 headed creature:- it’s set up by one person (called a “Founder”), managed by a second person (Called a “Councillor”) and, just like a Trust, a Foundation typically has beneficiaries, that is, persons who are designed to benefit financially from the establishment of the Foundation.

 

Unlike a Trust however a Foundation is a separate legal entity, ie it can sue and be sued. Moreover (under European Common Law) a Foundation is presumed to be both the legal AND beneficial owner of any asset that it holds (one Jurisdiction – ie Seychelles – has taken this a step further by stating specifically in its Foundations Act -section 71 – that any Foundation domiciled in Seychelles is deemed to be both the legal AND beneficial owner of any asset it holds).

 

What does this mean?

 

What it means is this: Usually when we open a bank account for a Company the bank asks us “Who is the beneficial owner of the Company”? But if the shareholder of the Company is a Seychelles Foundation we can say to the bank, “Hey Mr Banker by operation of law (that is section 71 of the Seychelles Foundations Act, see copy attached) the legal AND beneficial owner of this Company is the shareholder. Why? Because the shareholder is a Seychelles Foundation.”

 

That said I/we can foresee the day when you/we may have to declare to a bank or your local authorities if you are the “beneficiary” of an Offshore Trust or Private Foundation.

 

What you can do here is (when you first set up your Foundation), in the Foundation’s establishment documents you can provide for the Foundation Councillor to have a broad discretion in terms of who to install as beneficiaries and when. This would enable you to deploy a tax-free charity or a tax exempt/incomeless person (eg your minor children) as the initial beneficiary/s of your Foundation.

 

Potentially (and in particular if the Councillor etc of the Foundation is based in a nil tax jurisdiction) this can enable you to create a situation whereby:

(a) you should only have to pay tax at home when your Offshore Foundation or Company pays you “income”; and

(b) your name should not be revealed/reported as beneficiary of, or beneficial owner of, any Offshore Company.

 

And if you want to be extra careful you can even make yourself “Protector” of the Foundation meaning the Councillor would have to seek your permission before changing beneficiaries (but more on that another 60 seconds).

 

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

 

HOW TO SET UP A TAX FREE PURPOSE FOUNDATION OFFSHORE

Any discussion about Charitable Purpose Foundations must necessarily begin with an examination of What is a Purpose Foundation?

 

A Purpose Foundation (like its forerunner the Purpose Trust) is one set up, not to benefit specific natural persons or corporate entities, but rather to raise funds for a ( and/or to carry out some form of) specific (usually Philanthropic or Charitable) Purpose.

 

Historically any Purpose Trust or Foundation set up to achieve a Purpose other than a Charitable Purpose has been held by the Common Law Courts to be unenforceable.

 

However, of late, some jurisdictions have passed laws specifically allowing for the establishment of a Foundation which is established to carry on a specific Purpose, Charitable or otherwise.

 

An example of a non-charitable purpose Foundation would include a Foundation which is established to maintain the Founder’s collection of antique automobiles, or perhaps one for the purpose of constructing a home for the maintenance and care of his/her cats and dogs and all their offspring.

 

In the Common Law world a Trust (ie the forerunner and close cousin of the Foundation) must have beneficiaries whose identity can be established with certainty. If the identity, or method of determination, of the ultimate beneficiaries of a Trust is so vague that neither the Trustee nor a Court could readily determine whether any given individual at any time was or was not a beneficiary, the Trust would be unenforceable under Common Law and therefore, invalid, unless, of course, its purpose was charitable.

 

Historically, a Charitable Trust, although it may have no named beneficiaries, could be enforced by the local Attorney General. In the foregoing examples, however, certainly neither the antique automobiles nor the cats and dogs could sue the Trustee to enforce the Trust, and none of them is capable of having a Personal Representative.

 

Interestingly one jurisdiction (ie Seychelles) has specifically catered in its Foundations Law for any attempt by a foreign Court to declare a (non-Charitable) Purpose Foundation invalid by including a provision in its law which says that “Notwithstanding a provision of a written law or of a written law of any other country, a Foundation, other than a Foundation with beneficiaries being beneficiaries in terms of section 59, shall be a Foundation established to carry on a specific Purpose”.

 

That being said, if your heart is set on establishing a Purpose Foundation – and your aim is to fly under the radar or to claim tax deductibility for any “donations” made to the Foundation – the wiser choice would be to establish your Foundation as a Charitable Purpose Foundation. Certainly such a Foundation would be far more likely to survive a legal a challenge compared with those which have historically been struck down as Non-Charitable Purpose Trusts in the Common Law Courts.

 

In a Charitable Purpose Foundation the objects of the Foundation must be set out in the Charter (that is the document which is publicly filed giving birth to the Foundation). Here is an example of such objects:

 

 

(a)               To provide assistance and relief for children in ill-health;

 

(b)               To raise funds for, and to financially assist, children in ill-health;

 

(c)                To promote the health and well-being of children, including promotion of the provision of proper health care and treatment for children;

 

(d)               To make distributions to non-U.S. entities and institutions that are organized and operated exclusively for charitable purposes and which further the purposes referred to in sub-paragraphs (a) to (c) above.

 

When used in combination with a Tax Free Offshore Company (ie where the Foundation is set up to hold the shares of the Company) a Purpose Foundation can assist you to do tax effective business abroad without having to declare yourself (or your family members) to be, at law, the underlying beneficial owners of your Offshore Company. This affords one unparalleled Tax Deferral and Asset Protection opportunities.

 

The down side of a Charitable Purpose Foundation is that, once registered, it can’t later morph into a Foundation with named/specific beneficiaries.

 

The law of your home state can impact on your reporting requirements. Hence it would be wise to seek local legal and tax advice before committing to establish a Purpose Foundation.

 

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

 

Belize IBC Act Changes February 2019

A new IBC Regime came into force on 1st January 2019 in Belize.

 

Following several consultations with our legal advisors and some guidance received from the Belize International Financial Services Commission (“IFSC”) and the Belize Income Tax Department, we can now provide the following clarifications on the impact of the new regime on Belize IBCs.

 

Under the new IBC regime in Belize:

 

1. Belize IBCs can now:

  • Acquire real property or an interest in real property in Belize
  • Hold an interest in any Belize company, whether domestic or international
  • Conduct business with any Belize resident person
  • Open and operate a domestic bank account in local Belizean currency
  • Engage in direct investment and trade in Belize

 

2. IBCs that hold a license issued by the IFSC (e.g. Trading in Securities, Forex, Brokerage, etc.) are now required to establish a physical presence in Belize before the end of 2019;

 

3. IBCs that do not hold a license from IFSC may decide to be physically present in Belize;

 

4. IBCs that do decide to be physically present in Belize will consequently be deemed as persons resident for tax purposes in Belize;

 

5. IBCs that decide to remain outside of Belize and carry out their core income generating activities outside of Belize will not be deemed resident in Belize and will thus not be liable to taxes on income derived outside of Belize;

 

6. IBCs, whether physically present in Belize or not, may apply for a Certificate of Good Standing, subject to payment of registry renewal fees;

 

7. IBCs, physical presence and date of incorporation notwithstanding, may apply for a TIN and thus file annual tax returns along with unaudited financial statements subject to requirements 8 and 9 below;

 

8. Accounting records – this requirement has already been established with the Accounting Records Maintenance Act of 2013 and remains in effect. (ie a Belize IBC shall maintain accounting records and must keep a note in its registered office revealing a street address where those records are kept).

 

9. The Commissioner of Income Tax may require the following companies to be audited by an independent audit firm:

(a)  IBCs with income of at least USD6m;

(b)  Entities operating in a designated processing area in Belize with income of at least USD250,000;

(c)  Any other entity-

  • Listed on a stock exchange;
  • Restructuring or liquidating or selling all assets via auction;
  • Regulated by the IFSC;
  • Preparing consolidated Financial Statements;

That the commissioner may direct to be audited and having regard to total revenues, assets and employees;

 

10. IBCs incorporated on or before 16th October 2017 remain tax exempt up to 30th June 2021 and can still obtain a Tax Exemption Certificate up to 30th June 2021;

 

11. Any IBC incorporated on or after 17th October 2017 that requires a Tax Exemption Certificate must give evidence that:

  • the IBC is not physically present in Belize;
  • the IBC’s core income generation activities are conducted in a country where taxes under the Income and Business Tax Act would become applicable had it been located in Belize; and
  • the IBC is paying the rate of taxes payable;

 

12. Each Belize IBC must keep at its registered office up-to-date registers of directors, shareholders and ultimate beneficial owners (duly signed by a director).

 

Tax Resident Companies

 

For IBCs that choose to be physically present in Belize or those that carry out a licensed activity, the following rules are applicable/relevant:

 

1. Belize has a territorial tax system;

 

2. The Belize Income and Business Tax Act Cap55 (IBTA) provides:

(a) A Tax exemption on income below USD37,500 per year;

 

(b) Interest on a bond and dividends paid or received by an IBC is tax exempt and free from withholding tax provided it is not paid or received in Belize by a tax resident;

 

(c) Royalties and commissions paid to a non-resident are tax exempt and free from withholding tax;

 

(d) There is no capital gains tax in Belize;

 

(e) IBCs that are physically present and are resident in Belize for tax purposes: i. Must file monthly business tax returns;

ii. Income below USD37,500 is tax exempt;

iii. IBCs with income greater than USD37,500 per year will be subject to the payment of business tax every month as per the tax rates applicable to business type, this will count as a credit toward annual tax assessments. Business tax will be on gross receipts. Business tax rates range from 1.75% to 19%, depending on business type. E.g. Most business pay at 1.75% of business tax rate; professional services business pays 6%.

iv. Annual tax returns (annual assessments) 3% on net Income up to USD1.5m; 1.75% on Net Income greater than USD1.5m; tax payable in USD. This assessment is done yearly, before March 31, and requires completion of corporate tax return accompanied by an audit report.

 

3. General Sales Tax Act (GST): IBCs with income greater than USD37,500 per year will be required to register as a General Sales Tax Agent, and depending on income source, will be required to charge 12.5% GST on its sales to consumers in Belize and will also be able to nett of general sales tax paid on its purchases. The net amount of general sales tax is payable to the GST department on a monthly basis.

 

For the avoidance of doubt, an IBC is therefore only liable to taxes in Belize if it is a person resident in Belize. Furthermore, the IBTA was also amended to provide that, “…where a company is engaged in a trade, business, or profession where the revenue or income is derived outside Belize, the company shall not be liable for payment of income tax in Belize.”

 

Intellectual Property

 

A further update on the new IBC regime addresses intellectual property (IP) assets. Statutory Instrument No. 11 of 2019 came into force as of 1st January 2019 and essentially abolishes the IP regime. Key provisions to note include:

  • IBCs incorporated on or after 17th October 2017 are not allowed to acquire, hold, own or deal with any IP asset.
  • IBCs incorporated prior to the aforementioned date shall not acquire any new IP asset and are required to apply to the IFSC for approval to continue holding current IP assets up to 30th June 2021.
  • For IP assets, for each case, the company will have to send letter to IFSC to seek guidance. They may be required to establish physical presence, but only upon instruction from IFSC.

 

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

How To Set Up a Franchised Based Business Offshore

 

Entrepreneurs whose business model involves developing then commercializing a Franchise Prototype model can benefit enormously from Offshore (tax free) Incorporation.

 

Typically how it works is you set up (i) a nil tax Master Franchise Company and (ii) a nil tax IP Holding Company Offshore. But more on that later, first up let’s look at the concept of a Franchise…

 

What is a Franchise?

 

A successful small business is typically one comprised of a series of demonstrable (usually documented) interconnected systems. Once formulated and documented/recorded these business systems can form the basis of a Franchise prototype. For someone looking to set up a small business it’s often though less risky to buy a Franchise because the systems have been successfully deployed already.

 

The most successful franchise-based business model is McDonalds Hamburgers.

 

McDonalds for example have written documented systems which explain, in fairly simple terms, to staff members:

  • How to greet a customer
  • How to put together a burger (ie stages of production and who does what)
  • How to make a coffee
  • How to pour an ice cream Sundae
  • How to cook chips
  • How to deal with a disgruntled customer
  • Etc etc etc

All these things are inventions of the mind ie Intellectual Property (“IP”).

In addition, Franchisees are given the inalienable right to be part of the McDonalds advertising/marketing system. The (successfully developed over many long years) know-how behind this marketing system (a unique commercial upper hand which sets McDonalds apart from its competitors) is at its heart also an invention of the mind ie IP.

 

Further the Franchisee also gets to use and benefit from the inimitable McDonalds (guaranteed to bring in customers of itself) Laughing Clown/Golden arches etc logos. These too are IP.

 

The Franchisor/Franchisee Relationship – Typical

 

In the above scenario the Franchisor typically supplies the Franchisee with 4 things:

  1. A Manual which enables the Franchisee to run the business (using just teenager labor in McDonalds’s case), ie Intellectual Property (“IP”)
  2. Exclusive Products (ie products with unique, well-known brand names such as “BigMac” & “Quarter Pounder” etc) which are guaranteed to bring in value ie attract customers, ie IP
  3. An advertising/marketing program/system guaranteed to, at all times, bring customers through the Franchisee’s door, ie IP
  4. The right to use the Franchisor’s Trademarks (these trademarks are also IP)

 

Usually what happens here is:

  • The IP is held by one Company. (The “IP” Company). This Company is usually based in a zero-tax jurisdiction
  • The IP Company provides an exclusive use License to a/the Master Franchise Company (which is usually also incorporated in a zero tax or low tax jurisdiction) providing the Master Franchise Company with the right to market/commercialize this IP
  • The Master Franchise Company (ie the “Franchisor”) sells a Franchise to a Franchisee and collects an up- front payment plus a percentage of profit or revenue moving forward. In return for these payments the Franchise owner (ie the Franchisee) is entitled to use the Franchisor’s IP
  • The payments made to the Master Franchise Company are usually received in a nil tax or low tax environment
  • In return for having the exclusive right to use/commercialize the IP the Master Franchisor Company pays royalties or license fees to the IP Company.

 

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

 

Asset Managers – Trading Under a PoA – Why Do I Need a Contract?

Powers of Attorney are commonly used by Traders (eg Forex Traders) to trade funds for a third party to avoid having to apply for a Fund or Broker’s License.

 

How it works is:

 

(a)  In the case of forex etc trading an account is opened in the name of the third party investor (“the Account Owner”);

 

(b)  The Trader sets up a tax-free Offshore Company (“IBC”);

 

(c)  The Account Owner (ie a third party investor referred to in a PoA as “the Principal”) signs a Power of Attorney with the Trader’s IBC which appoints at law the Trader’s IBC as the Account Owner’s Authorized Trader and attorney-in-fact (the “Agent”);

 

(d)  The Trader trades the Account Owner’s account and charges a trading fee as agreed (which is commonly a percentage which could be anywhere from 20% to 50%);

 

(e)  The Trading Fee is banked into the Trader’s IBC’s Bank Account free from tax

 

The Trader/Agent is given full power and authority on behalf of the Principal to buy, sell (including short sales) and trade in a range of things as specified in the PoA/Authority document including for example:

  • Currencies
  • Stocks
  • Mutual funds
  • Index funds and securities
  • Bonds
  • Options (including uncovered option writing)
  • Physical commodities
  • Financial instruments
  • Commodity futures contracts
  • Financial futures contracts
  • Equities and single-stock futures contracts
  • Foreign commodities
  • Foreign commodity futures contracts
  • Forward contracts
  • Contracts in unregulated foreign exchange markets, and options and other derivatives on each of the foregoing, on margin or otherwise,

 

If you are going to trade someone else’s money under a Power of Attorney, before a Power of Attorney gets signed, first and foremost, you will need to have a legal contract in place (ie signed by both you and the investor) which clearly sets out:

  • The services you are going to provide
  • How you are going to provide those services
  • That you are entitled to get paid for those services
  • What you are going to get paid for those services
  • How you are to receive payment
  • What out of pocket expenses you are entitled to be reimbursed for
  • When you are entitled to invoice/receive payment
  • That the client will provide you with a Power of Attorney
  • What the terms of the Power of Attorney will include
  • In what circumstances the contract can be cancelled by you
  • In what circumstances the contract can be cancelled by the investor
  • How the Power of Attorney can be revoked and by whom
  • Whether you can assign the benefit of the contract (and how you can assign the benefit of the contract)
  • Proper law forum (ie what Country’s courts are to hear the case if there is a legal dispute)
  • etc

 

OCI’s in house Lawyer can draw and settle this contract for you for a price of $1,000. Or you could retain an outside lawyer to do this for you.

 

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

 

 

 

 

 

 

How To Dropship Using a Tax Free Offshore Company

 

By “Dropshipping” we mean a business where the customer orders something either via email or directly via your website and you then arrange for the manufacturer to post or airmail or courier the item direct to the customer.

 

In principle here’s how dropshipping can/will work via a tax free Offshore Company :

 

  1. A nil tax offshore company (commonly an International Business Company ie “IBC”) is incorporated (Let’s say the Company is called “IBC Trading Limited”)
  2. IBC Trading Limited (hereinafter “IBC”) owns/operates the business (eg it owns the web-domain and the website/artworks or trademark/s or any sole distributor rights are held by or transferred to the IBC)
  3. You post terms and conditions on your website and or in your order form that effectively say the client is buying from IBC and that the contract is concluded Offshore (ie in a nil tax environment).
  4. The client submits his order via the website or via email
  5. IBC sets up an Offshore bank account, in a nil tax banking centre, which receives customer payments (including ultimately those made via a merchant account)
  6. Ideally the website and server are hosted/located in a country which does not tax business on the basis of server location (eg Singapore)
  7. Customers contract with and pay IBC. All such monies are banked free of tax in the first instance
  8. IBC pays the manufacturer for the goods. The manufacturer ships (or couriers or posts or airmails) the product or goods direct to IBC’s customer
  9. You or your local company would be contracted by IBC to manage sales/delivery of product/website maintenance/whatever.

10.You would invoice the IBC periodically (eg monthly) for this service which income would be assessable income in your home state – though a smart Tax Accountant should be able to assist you to claim a series of expense against this income (eg home office, equipment, travel, phone/internet/utilities etc) to significantly reduce the amount of tax payable on this income.

11.Often there is some kind of intellectual property (“IP”) created or behind the website based business (even if it’s just the website/design). It may be advantageous to you down the track if ownership of the business and the IP were held by 2 different entities. What you can do there is set up a 2nd IBC to own the IP. The first IBC (ie the Trading Company) pays license fees periodically to the 2nd IBC which fees would be receipted tax free. This could be advantageous if you wanted to bring ownership of the web-business onshore or if you wanted to sell the business but keep a passive (potentially tax free) income stream

12.Ideally once you start to grow, and to add substance, you would be wise to set up your MD/Board and or a sales team onshore to take orders and receive income in a low tax onshore environment (eg Hong Kong, Ireland, Singapore, Cyprus etc ie as per the Amazon/Google model)

 

To minimise the chances of the IBC being taxed onshore ideally the IBC should be (and be seen to be) managed and controlled from offshore. How this can be achieved is including a Nominee Director etc as part of the Corporate structure. See this page for details of how that can work:

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/

 

To get around local CFC (“Controlled Foreign Corporation) laws and or prevent the existence of IBC’s bank Account coming to the attention of your local authorities you will also want/need to set up a Foundation to hold the shares of your tax free IBC/Offshore Company.

 

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

 

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

 

SEYCHELLES IBC ACT CHANGES

This update summarizes recent amendments to the International Business Companies 2016 (the Act), which is the Seychelles legislation providing for international business companies (IBCs). The Act has been amended by the International Business Companies (Amendment) Act 2018, Act 12 of 2018 (the 30.11.2018 Amendments) effective 30 November 2018 and by the International Business Companies (Amendment) Act 2018, Act 15 of 2018 (the 1.1.2019 Amendments) effective 1 January 2019 (together the Amendments).

 

SUMMARY OF AMENDMENTS

 

1. Continuation of no public access to Registers of Directors filed with the Registrar

 

1.1 Section 152 of the Act (read with sections 352 and 390) has been amended to provide indefinitely for no public access to IBC Registers of Directors filed with the Registrar. Prior to the 30.11.2018 Amendments coming into force, no public access to filed Registers of Directors was only guaranteed until 30 November 2018.

 

1.2 The penalties for breach of the obligation to file a copy Register of Directors have been reduced to US$250 (from $500) and a daily penalty of $25 (instead of $50) for each day or part thereof during which the contravention continues.

 

2. Deemed dissolution date extended from 5 to 7 years after striking off

 

Section 275 of the Act has been amended to provide that an IBC struck off the Register is deemed to be dissolved after being struck off continuously for seven (instead of five) years.

 

3. Registrar to have wider powers to restore struck off companies

 

Section 276(1) of the Act was amended to extend the Registrar’s power to restore a company struck off the Register to all struck off companies except for those struck off under section 272(1)(a)(iii) or (iv) of the Act, being companies struck off for involvement in fraud or for jeopardizing the reputation of Seychelles as a financial centre. These wider restoration powers of the Registrar avoid the extra time and cost of an application to the Supreme Court of Seychelles for a restoration order.

 

4. Increasing restoration order application period from 10 to 12 years

 

Section 276(2)(a) of the Act was amended to permit an application to the Supreme Court of Seychelles for an order to restore to the Register a struck off or dissolved company to be made within twelve years (instead of ten years) of the date of the striking-off notice published in the Gazette.

 

5. IBCs become Seychelles tax resident but continue to pay no Seychelles tax on foreign sourced income

 

5.1 The ban on IBCs carrying on business in Seychelles has been removed. An IBC is now tax resident in Seychelles and no longer tax exempt. If an IBC carries on business in Seychelles it must pay Seychelles business tax. Significantly however, if an IBC only earns foreign sourced income, it is not liable for Seychelles tax on any of its income or profits. Seychelles has a territorial tax system such that a Seychelles tax resident is liable for Seychelles tax on Seychelles sourced income but not on foreign sourced income

 

5.2 While the 1.1.2019 Amendments were prompted to ensure that Seychelles meets the standards set by the Base Erosion and Profit Shifting Standards initiative of the Organisation of Economic Co-operation and Development, they strengthen Seychelles IBC attractiveness and have no adverse fiscal impact on IBCs that only earn foreign sourced income. Despite the removal of the former section 361 tax exemptions, an IBC that solely derives its income outside Seychelles is not liable for Seychelles tax on its foreign income. Under Seychelles’ territorial tax system, a tax resident is liable for Seychelles tax on Seychelles sourced income but not on foreign sourced income. Seychelles does not tax capital gains.

 

5.3 IBCs continue to be exempt from Seychelles stamp duty on instruments relating to: (i) the formation of a company; (ii) transfers of property to or by a company; (iii) transactions in respect of the shares, debt obligations or other securities of a company; (iv) the creation, variation or discharge of a charge or other security interests over any property of a company; and (v) other transactions relating to the business or assets of a company (section 362 of the Act), except that no stamp duty exemption applies to an instrument directly or indirectly relating to Seychelles immovable property (real estate).

 

5.4 The former prohibition against IBCs carrying on business in Seychelles has been removed (but see paragraph 5.6 below for business restrictions). However, if an IBC earns assessable income (income sourced from Seychelles) it is legally required to:

 

(a)  within one month of deriving the first assessable income (income sourced from Seychelles), notify the Registrar in writing that it is deriving assessable income and the nature of the activities giving rise to such assessable income;

 

(b)  within one year of deriving the first assessable income, submit to the Registrar an Annual Return accompanied by the documents to be annexed to the Annual Return as required under the Companies Act 1972, including annual audited financial statements;

 

(c)  pay Seychelles tax on its assessable income.

 

5.5 Business Tax Act 2009 (BTA) has recently been amended by the Business Tax (Amendment) Act 2018, Act 14 of 2018 (BTA Amendment Act 2018). The following provisions of the BTA as amended by the BTA Amendment Act 2018 can be noted:

 

(a) “assessable income” only includes income derived from sources in Seychelles (sections 2 and 11 of the BTA);

 

(b) “non-taxable business income” means income not sourced in Seychelles and not included in the assessable income of a business (section 2 of the BTA);

 

(c) An amount derived by a resident person (including an IBC) in carrying on business is derived from sources in Seychelles if derived from activities conducted, goods situated or rights used in Seychelles, regardless of the residence of the parties participating in the transactions and regardless of the place where the agreements are executed (section 5(1) of the BTA);

 

(d) The remittance of an amount to a person outside Seychelles, out of non-taxable business income (see (b) above) is not subject to Seychelles tax (section 5(4)(a) of the BTA); and

 

(e) Whereas section 8(1) of the BTA provides for business tax (withholding tax) on certain payments by a resident person (including dividends, interest and royalties) to non-resident persons, section 8(4) of the BTA provides that subsection (1) shall not apply if dividends, interest, royalties or other payments are made by a resident person from income that is not sourced in Seychelles.

 

5.6 While an IBC may carry on business in Seychelles and earn Seychelles-sourced income (subject to the above-mentioned reporting and taxpaying obligations), pursuant to section 5(2) of the Act an IBC continues to be prohibited from:

 

(a)  carrying on banking business as defined in the Financial Institutions Act 2004 in or outside Seychelles;

 

(b)  carrying on insurance business as defined in the Insurance Act 2008 in Seychelles or, unless it is licensed or otherwise legally able to do so under the laws of the country in which it carries on such business, outside Seychelles;

 

(c)  carrying on business providing international corporate services, international trustee services or foundation services as defined in the International Corporate Service Providers Act 2003 except:

 

(i) to the extent permitted under the International Corporate Service Providers Act 2003; and

 

(ii) in the case of carrying on such business outside Seychelles, if the company is licensed or otherwise legally able to do so under the laws of each country outside Seychelles in which it carries on such business;

 

(d) carrying on securities business as defined in the Securities Act 2007 in Seychelles or, unless it is licensed or otherwise legally able to do so under the laws of the country in which it carries on such business, outside Seychelles;

 

(e) carrying on business as a mutual fund as defined in the Mutual Fund and Hedge Fund Act 2008 unless it is licensed or otherwise legally able to do so under the Mutual Fund and Hedge Fund Act 2008 or under the laws of a recognized jurisdiction as defined in the Mutual Fund and Hedge Fund Act 2008; or

 

(f) carrying on gambling business as defined in the Seychelles Gambling Act 2014, including interactive gambling business, in or outside Seychelles unless it is licensed or otherwise legally able to do so under the laws of the country in which it carries on such business.

 

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