With the increased regulation of Brokerage businesses onshore smart Brokers the world over (including Forex Brokers, Stockbrokers, Options Brokers and more) are looking to (or should be looking to) reincorporated Offshore ie in a much less regulated environment.

Why?

1.           Fewer rules: Means less time/money lost on admin and reporting

2.           Greater trading freedom: Means you can offer better margin terms to your clients

3.           Ease of Set up: It’s a lot easier to obtain a broker’s license “Offshore” than it is Offshore

4.           Less Set up cost: Means more money available to develop your business

5.           Tax Benefits: Most Offshore Financial Centres offer nil or very low tax operating environments for Brokerage Businesses

Generally speaking if you intend to invest or trade other people’s money that is a licenseable activity.

But it is possible to perform such activities without a license in some of the jurisdictions we’re working with (See below for details).

That being said if you are prepared to consider going down the licensing road that would be most wise as it will deliver you a much wider range of banks (and brokers/fund managers) to choose from.

NON-LICENSED OPTIONS

In terms of the non-licensing road there are 3 specific options worthy of consideration:

1.           If your main aim is to be a middle man between the Investor and the actual Trader you could set up a “White Label Brokerage”. This could be done via incorporating a basic International Business Company (eg a Belize or Seychelles or Nevis or Dominica IBC); or

2.           Alternatively you could set up a Private (non-licensed) Closed End Fund.  A Private Closed End Fund is a Limited Company that offers shares to a set number of investors who committ to invest for a minimum investment period. At the end of the agreed investment period the investor can either withdraw his capital or reinvest for a further period; or

3.           Another possibility is to utilise an IBC which could be contracted to trade an investor’s money in the broker’s account under Power of Attorney (this is sometimes known as a PAM Account). In this scenario the Trader is given a Power of Attorney which enables him or her to trade (but not withdraw) the investor’s money. The Trader and the Investor also enter in an agreement whereby the Trader agrees ti trade the investors funds and in return is permitted to charge the investor an agreed percentage of profits payable periodically;

Re the above options cost will be anywhere from $900 to $8,000 depending on what kind of structure you require.

Note if you/your client are just going to be an Introducing Broker (ie where you refer clients to a broker and the broker pays you some kind of introductory commission) you should not need any kind of special license.

LICENSED OPTIONS

If you wants the widest choice of banks, broker and fund managers you could/should also consider setting up/obtaining:

1.           An IBC + Broker’s License in Belize; or

2.           An IBC + Broker’s License in Seychelles (known in Seychelles as a “Dealer’s License); or

3.           An IBC + Broker’s License in BVI; or

4.           A Panama Financial Services Company; or

5.           A Licensed Private Fund in Seychelles

Prices for the above range from $US7,500 to $25,000.

See below info re Option 1 ie Belize Broker’s Licenses Over the next few weeks we will provide info re options 2,3,4 and 5 inclusive.

BELIZE BROKERAGE LICENSES

With this license, the company will be able to accept funds from the client to trade.

Here’s what you need to know:

1.            Company Details – IBC:

•             Share Capital must be at least $100,000

•             Bearer shares are strictly prohibited. Registered shares only.

•             No nominees permitted

2.            Application Procedure:

1.            The applicant must open an account at a bank in Belize.

2.            The applicant must deposit $100,000 in a bank in Belize, and leave it unencumbered for the duration of the license.

3.            The applicant must complete IFSC application form.

4.            The applicant must complete the biographical affidavit

5.            Applicant submits biographical affidavit, company documents, proof of deposit, and application fee of $500 to IFSC through our handling.

3.            Requirements:

a.            Business Plan

i.              Financial projections  for the next 5  years

ii.             Complete description of activities, including markets

iii.            Description of organizational structures, and details on executive team

b.            Bank account in Belize (ii – v required of each shareholder, director, beneficial owner, signatory)

i.              Completed bank application form

ii.             Notarized copy of passport

iii.            Bank reference

iv.           Professional reference

v.            Utility bill

c.             Additional info on principals:

i.              A curriculum vitae or a brief summary of applicants experience in forex

4.            Payments to IFSC:

a.            Application fee of $500 (as mentioned above)

b.            Annual license fees:

i.              $5,000 

ii.             Annual fees are due and must be paid by Jan 1 each year.

5.            Timeframe:

                1. Company formation – 1 day

                2. Bank account approval: Upon receipt of approved application forms and KYC documents (scans ok to initiate) – 3-4 weeks

                3.  Bank account funding: From approval, we wait for the bank account to be funded. Then the bank will confirm the deposit. This time varies depending on how quickly the client sends the funds.

                4. When the funds are received and confirmed, the IFSC may take up to 4 weeks to grant the license.

6.                 Fees:

The cost of obtaining a Broker’s license in Belize would be as follows:

•            Incorporation of IBC (with capital of $100,000)  : $ 1,500

•            Our fee for handling the application:                      $ 3,500

•            Bank account in Belize:                                              $    500

•            Yearly local representative fee:                                $ 4,000

•            Government application fee :                                    $    500

•            Government license fee, yearly:                               $ 5,000

HOW TO USE AN OFFSHORE COMPANY FOR ONLINE TRADING

Online Trading is an activity which lends itself well to Offshore Corporate Structuring.

No matter whether you trade forex or metals or commodities or oil/petroleum or futures or options an Offshore Corporate Structure can assist you to mimimize the amount of tax you would otherwise have to pay at home.

To summarise how it would work is:

•            You set up a zero tax International Business Company (“IBC”)

•            The IBC opens an account with a Broker

•            You are appointed as the IBC’s authorised trader (ie you place the buy and sell orders on behalf of the company)

•            For all intents and purposes the IBCs trading profits are generated in a nil tax environment tax free/offshore (ie provided the IBC is structured properly)

•            When you need some living/spending money the IBC pays you a wage, or consulting fees or a commission (eg a percentage of trading profits generated)

•            That living/spending money can be paid to your local bank account (which means it would be assessable income wherever you are ordinarily resident for tax purposes though you should also be able to claim a sizeable amount of allowable deductions eg for home office, car, equipment, insurances, travel, stationary etc etc to reduce the amount of your “taxable” income at home)

•            If you don’t want the authorities to know how much money you are earning by way of wages you could use an anonymous ATM or Debit/VISA card to withdraw your wages from an Auto Tele Machine

•            The majority of trading profits could be reinvested Offshore potentially tax free.

A lot of people these days offer products for sale on Amazon.

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

Let’s look at atypical example…

In this example the client sells Jewelry online via Amazon.

How it works is:

•          Any jewelry you want to manufacture/sell should be manufactured by/purchased by the Tax Free Offshore Company (“IBC”)

•          The company would be incorporated in a nil tax jurisdiction and would be managed/controlled from an Offshore (ie nil tax) jurisdiction (which would entail the appointment of an Offshore/Tax Haven based Nominee Director – which is a service OCI would provide)

•          The agreement with Amazon would be signed Offshore, by the Nominee Director, in the nil tax environment

•          Any individual contracts to buy or sell or market the jewelry directly would be signed/concluded offshore (eg signed or ratified by the Nominee Director in a nil tax environment)

•          In effect any/all profits generated have been generated online

•          In the case of an online business typically tax liability lies only in the country from which the Company is managed and controlled

•          As the Company has been structured with a (tax haven based) Nominee Director/Shareholder (ie management and control would be “Offshore” ie in a nil tax environment) any profits generated have been earned (and ideally banked) Offshore ie in a nil tax environment

Note Amazon only accepts sellers from certain jurisdictions. The full list can be viewed here: https://www.amazon.com/gp/help/customer/display.html?nodeId=200417280

Nil or low tax jurisdictions acceptable to Amazon include:

•          Costa Rica

•          Cyprus

•          Hong Kong

•          Ireland

•          Mauritius

•          Panama

•          Singapore

•          USA (eg Delaware, Wyoming, Nevada, Colorado, Arkansas, Oregon etc LLCs which when used with an IBC can produce a nil tax result)

 HOW TO UTILIZE MONEYS BANKED BY YOUR IBC   

There are 6 ways to bring home money from an IBC:

1.         Set yourself up as an arms’ length consultant and have the IBC pay you consulting fees periodically. This means you would only have to pay tax on what you bring into your home country (and even that tax you should be able to minimise as a lot of what otherwise-might-be personal expenses could be written off as business costs, eg home office, utilities, car, phone, electrical/office equipment, stationery, computers travel etc etc etc). The rest of the IBC’s income can remain offshore and be (re)invested offshore potentially tax free. Say your target capital base is 3 million Euro and every year you leave at least half the IBC’s income offshore. Because you’re not paying tax yearly on all the IBCs income instead of taking 20 years to accumulate 3 million Euro, with the power of compounding, you could accumulate 3 million within 5 to 7 years. This is what my/our smarter clients do ie they pay a little bit of tax at home each year on their overseas earnings but most of their income is kept offshore and reinvested offshore.

2.         Bring back the money as a loan. Yes this can be done but great attention to detail will be required particularly with respect to lending parties, loan terms and documentation.

3.         Use an anonymous debit card and withdraw cash from automated teller machines. This can still work in some places though it should be noted that some of the bigger countries now have the ability to trace and connect one to such withdrawals.

4.         Have your IBC buy Bitcoins and then make a transfer of bitcoins to you (you would need to firstly set up a bitcoin account). You can then buy valuable goods and services using bitcoin and none of these purchases would be seen by your local authorities.

5.         Have your IBC form and fund a subsidiary ie 2nd tax free Offshore Company and then have that 2nd Offshore Company buy any substantial assets you’d like to have onshore (eg cars, real estate, shares, general investments etc). Yes in theory you could have your IBC buy these things but, given most likely there will be a Consultancy Agreement in place between you and the IBC (and payments going from the IBC to you which will be visible to your local tax authorities) the smarter thing to do would be to have a 2nd (seemingly unrelated) IBC buy these items for you.

6.         Another option is to take the long hold view. What this entails is letting your capital base build over a period of years; Then, when you get to the stage where you are ready to close down your Offshore business, (or you are ready to retire) you can do one of two things: Either

(a)       Expatriate your home country and become “non-resident for tax purposes”, shift to a country which has no income tax and/or CGT (eg Panama, Seychelles, Monaco, etc etc etc) and draw down the capital from your offshore entity (and bank the money tax free); or

(b)       Expatriate your home country, become “non-resident for tax purposes”, and become a PT ie a Perpetual Traveller. How this can work is you spend say 4-5 months a years in one country, 4-5 months a year in another country and the rest of your time travelling. This way, assuming you are not seen to have substantial ties with any one country, you should not be considered as tax resident in any one country. Then you simply draw down the capital from your offshore entity (and bank the money tax free).

Note, provided you have successfully become a non-resident for tax purposes of your home country, there’s nothing stopping you from changing your mind a year or 2 later about the expat life and returning to your home country with a bunch of tax free dollars in your back pocket.

Note unless you (have expatriated or) live in a country that does not have CFC laws (and/or unless or are structured in a tax effective/compliant manner) you may still be required to declare and pay tax at home on your IBC’s earnings.

Background

The Federal Territory of Labuan is an island group, 92 sq km in size, with a population of 78,000 situated off the north-west coast of the former British Borneo and Brunei Darussalam. Labuan is part of Malaysia and comprises seven small islands of which Pulau Labuan is the largest. Labuan lies off the north-west coast of Borneo, 8 kms from the Malaysia state of Sabah and is strategically located roughly equidistant from Bangkok, Hong Kong, Jakarta, Kuala Lumpur, Manila and Singapore. It is mostly flat with a good harbour and is accessible by air, with daily services from Kuala Lumpur and from most Asian capitals.

Labuan is located on the major shipping and air routes of the Asian Region and is Malaysia’s only deepwater harbour. It has a warm humid tropical climate, with daily temperatures averaging 30°C with two monsoon seasons ie from April to June and from September to December. The main language is Bahasam Melayu but English, Tamil and various Chinese dialects are widely spoken. Many documents and publications are available in English (including the Labuan offshore Legislation).

Political & Economic History

In 1984 the administration of Labuan was taken over by the Federal Government of Malaysia which consists of thirteen states and two federal territories (ie Kuala Lumpur and Labuan). Malaysia has an unusual political system with power held in the hands of nine hereditary sultans, who elect a head of state every five years from among their number. Legislative power is exercised by a bicameral parliament comprising of a House of Representatives (Dewan Rakyat) and a Senate (Dewan Negara), Executive power is held by the Prime Minister who governs with the assistance of a ministerial cabinet. Appointments are for a five year term.

Malaysia is economically strong and considered politically stable. Under the auspice of LOFSA (the Labuan Offshore Financial Services Authority) the Malaysian government has invested heavily in improving the physical infrastructure of Labuan which is now completely modernised and boasts a state of the art telecommunications system including an Internet Gateway which provides an e-commerce platform. More than 50 of the world’s top banks have branches in Labuan.

Advantages of Labuan Companies:

o   All offshore business transactions attract no stamp duty and capital gains are not subject to any form of tax

o   Not subject to Malaysian exchange controls

o   Malaysia enjoys tariff reductions in the ASEAN Free Trade Area (AFTA), and has signed more than 60 Double Taxation Avoidance Treaties (“DTAs”)

o   Malaysia boats an English style legal system

o   Labuan IBFC offers a wide range of financial products and services (including both conventional and Islamic)

o   Corporate documents are written in English

o   There is no requirement to disclose to the authority the names of the beneficial owners of the Company

o   Company names can be in a foreign language

Features of Labuan Companies:

o   Speedy setup: A Labuan Company can be incorporated in as little as 3 days.

o   It may use “(L)” as part of its name. An offshore company may also have as part of its name the word “Berhad” or “Bhd” but must then add the word “(L)”.

o   There are no minimum share capital requirements. The share capital may be denominated in any currency except Malaysian Ringgit. Separate classes of shares may be created with differing rights to dividends or otherwise. A minimum of one shareholder is required to establish a company. Shareholder can be individuals or corporations. Shareholders need not be resident.

o   Companies require a minimum of one director.

o   Corporate Directors are permitted

o   Directors may be resident in any country

o   Only one shareholder minimum is required

o   A Local secretary is required (which OCI Provides)

o   Directors meetings can be held anywhere

o   The standard authorised capital is US$ 10,000; divided in to 10,000 shares of US$ 1. The minimum issued capital is one share, which may be fully or partly paid.

o   An annual return in the prescribed form made up to a date not earlier than 14 days before the date of lodgment is required to be lodged each year and not later than 30 days prior to the anniversary of the date of incorporation of the company.

o   Classes of Shares Permitted: Registered shares of par value, preference shares, redeemable shares and shares with no voting rights.

o   There is no exchange control in Malaysia. The Malaysian currency is the Ringgit (RM). Save for certain exceptions, offshore companies in Labuan are required to carry on business in a foreign currency.

Procedure to Incorporate

To incorporate an Offshore Company in Labuan you must submit to the Registry:

• ·       Memorandum and Articles of Association,
• ·       Consent form to act as a director,
• ·       Statutory Declaration of Compliance with the Companies Act
• ·       Certificate of Identity
• ·       Statutory declaration by persons before appointments as directors
• ·       The incorporation fee.

Company Name Options & Restrictions

Labuan Company names must include one of the following words, or an abbreviation thereof:
Corporation
Incorporated
Limited
Public Limited Company
Societe Anonyme
Sociedad Anonima
Aktiengesellschaft
Naamloze Vennootschap
Perseroan Terbat

Names resembling the name of an existing company or names that in the opinion of the Registrar suggest Royal or government patronage are not permitted. Names, which the Registrar considers undesirable, will be rejected. Certain names/words require consent or a license ie Bank, building society, insurance, assurance, reinsurance, fund management, investment fund, trust, trustees, Chamber of Commerce, university, municipal or their foreign language equivalents. Re Suffixes to Denote Limited Liability any of the following may be used:Limited, Incorporated, Corporation, Sociètè Anonyme, Sociedad Anonima or their relevant abbreviation. If the Malaysian word Berhad is used then it must be preceded by “(L)” to denote that the company is incorporated in Labuan.

Business Restrictions

A Labuan Offshore Company should only carry on business in, from or through Labuan. A Labuan Offshore Company may not:

(a)  Do business with a resident of Malaysia (except as permitted by the Offshore Banking Act 1990);

(b) Carry on the business of Banking or Insurance or such similar business unless it is licensed so to do under the Offshore Banking Act 1990 or the Offshore Insurance Act 1990;

(c)  Do business in the Malaysian currency save for defraying its administrative and statutory costs;

(d) Carry on the business of shipping or petroleum operations in Malaysia

(e)  Operate as a trust company.

Exceptions to carrying on business with residents of Malaysia:

A Labuan Offshore Company is not treated as carrying on business with residents of Malaysia if:

(i)                it makes or maintains deposits with a person carrying on business in Malaysia;

(ii)               it makes contact with professional advisers carrying on business in Malaysia;

(iii)            it prepares and maintains books and records in Malaysia;

(iv)            it acquires or holds any lease or property for operational purposes or accommodation of its employees;

(v)              it holds directors’ or members’ meetings within Malaysia;

(vi)            it holds shares, debt obligations, or other securities in a company incorporated under the Offshore Companies Act 1990 or in a domestic company, or holds shares, debts obligations or other securities for the purposes of a transaction entered in to in the ordinary course of a money-lending business.

Taxation

Labuan Offshore Trading Companies pay 3% tax on net audited profits or the sum of RM 20,000 (where no audit is required). Non-Trading companies are tax exempt.

The locality of profits from trading in goods and commodities is generally determined by the place where the contracts for purchase and sale is effected. “Effected” means more than where the contract is signed and includes the location of negotiation, conclusion and execution of the terms of the contracts.

If a Labuan Company earns commission by securing buyers for products or by securing suppliers of products required by customers, the activity which gives rise to the commission is the arrangement of the business to be transacted between the principals. The source of the income is the place where the activities of the commission agent are performed.

Double Taxation Agreements

To date Malaysia has signed 74 double taxation treaty agreements (DTAs), making its DTA network the most extensive in the region. Labuan companies can now make an irrevocable election to be taxed under the Malaysian Income Tax Act 1967 (ITA), thereby affording the Company access to all of Malaysia’s DTAs. A Labuan holding company which has a co-located office in Kuala Lumpur must make the election to be taxed under the ITA.

Malaysia’s DTA partners include: Albania, Argentina, Australia, Austria, Bahrain, Bangladesh, Belgium, Brunei, Canada, Chile, China, Croatia, Czech Republic, Denmark, Egypt, Fiji, Finland, France, Germany, Hungary, India, Indonesia, Iran, Ireland, Italy, Japan, Jordan, Kyrgyzstan, Kuwait, Kyrgyz, Laos, Lebanon, Luxembourg, Malta, Mauritius, Mongolia, Morocco, Myanmar, Namibia, Netherlands, New Zealand, Norway, Pakistan, Papua New Guinea, Philippines, Poland, Romania, Russia, San Marino, Saudi Arabia, Seychelles, Singapore, South Africa, South Korea, Spain, Sri Lanka, Sudan, Sweden, Switzerland, Syria, Taiwan (Income Tax Exemption Order), Thailand, Turkey, UAE, UK, USA, Uzbekistan, Venezuela and Vietnam.

Financial Records

A set of accounting records must be kept in Labuan.

A trading company, which pays 3% of audited net profits, is required to appoint an auditor and file audited financial statements. However trading companies which elect to pay tax of RM 20,000 p.a. are not required to file financial statements. Such companies are exempt from appointing an auditor if they have not carried out licensed activities and the members of the company have resolved that no auditor be appointed.

There is a filing fee for “adoption of accounts” and if the accounts of the Labuan Company have been audited, and for the “lodgement of the said audited accounts”.

A non-trading Labuan Company is not required to appoint an auditor nor file audited financial statements.

OCI Labuan Company Formation Services

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

Services:

• ·       Unlimited name availability inquiries
• ·       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”)

Price (all inclusive): $US 2,750

With tax effective offshore company management (ie including Professional Corporate “Nominee” Director, Shareholder & Company Secretary): $ 3,150

From second year: $1,850 (+ Nominees as/if required)

If you’d like to know more about Labuan companies Please email us at info@offshorecompaniesinternational.com 

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

DEVIN NUNES raised eyebrows in 2013 when, as chairman of a congressional working group on tax, he urged reforms that would make America “the largest tax haven in human history”. Though he was thinking of America’s competitiveness rather than turning his country into a haven for dirty money, the words were surprising: America is better known for walloping tax-dodgers than welcoming them. Its assault on Swiss banks that aided tax evasion, launched in 2007, sparked a global revolution in financial transparency. Next year dozens of governments will start to exchange information on their banks’ clients automatically, rather than only when asked to. The tax-shy are being chased to the world’s farthest corners.

And yet something odd is happening: Mr Nunes’s wish may be coming true. America seems not to feel bound by the global rules being crafted as a result of its own war on tax-dodging. It is also failing to tackle the anonymous shell companies often used to hide money. The Tax Justice Network, a lobby group, calls the United States one of the world’s top three “secrecy jurisdictions”, behind Switzerland and Hong Kong. All this adds up to “another example of how the US has elevated exceptionalism to a constitutional principle,” says Richard Hay of Stikeman Elliott, a law firm. “Europe has been outfoxed.”

The Foreign Account Tax Compliance Act (FATCA), passed in 2010, is the main shackle that America puts on other countries. It requires financial institutions abroad to report details of their American clients’ accounts or face punishing withholding taxes on American-sourced payments. America’s central role in global finance means most comply.

FATCA has spawned the Common Reporting Standard (CRS), a transparency initiative overseen by the OECD club of 34 countries that is emerging as a standard for the exchange of data for tax purposes. So far 96 countries, including Switzerland, once favoured by rich taxophobes, have signed up and will soon start swapping information. The OECD is also leading efforts to force multinationals to reveal more about where and how profits are made, and the deals they cut with individual governments, in order to curb aggressive tax-planning.

Because it has signed a host of bilateral data-sharing deals, America sees no need to join the CRS. But its reciprocation is patchy. It passes on names and interest earned, but not account balances; it does not look through the corporate structures that own many bank accounts to reveal the true “beneficial” owner; and data are only shared with countries that meet a host of privacy and technical standards. That excludes many non-European countries.

All this leads some to brand America a hypocrite. But a fairer diagnosis would be that it has a split personality. The Treasury wants more data-swapping and corporate transparency, and has made several proposals to bring America up to the level of the CRS. But most need congressional approval, and politicians are in no rush to enact them. Some suspect that their reluctance, ostensibly due to concerns about red tape, has more to do with giving America’s financial centres an edge.

Meanwhile business lobbyists and states with lots of registered firms, led by Delaware, have long stymied proposed federal legislation that would require more openness in corporate ownership. (Incorporation is a state matter, not a federal one.) America will often investigate a shell company if asked to by a foreign government that suspects wrongdoing. But incorporation agents do not have to collect ownership information. This is in contrast to Britain, which will soon have a public register of companies’ beneficial owners.

America the booty-full

No one knows how much undeclared money is stashed offshore. Estimates range from a couple of trillion dollars to $30 trillion. What is clear is that America’s share is growing. Already the largest location for managing foreign wealth, it has picked up business as regulators have increased information-exchange and scrutiny of banks and trust companies in Europe and the Caribbean. Money is said to be flowing in from the Bahamas and Bermuda, as well as from Switzerland.

A recent investigation by Bloomberg, a news provider, found several wealth managers whose American arms have benefited, including Rothschild, a British firm, and Trident Trust, a provider of offshore services. New business has been booked through subsidiaries in states with strong secrecy laws and weak oversight, such as South Dakota and Nevada. Another investigation, by Die Zeit, a German newspaper, concluded that for the tax cheat looking to pull money out of Switzerland, America was now the safest bet. “It’s going nuts. Everyone is doing it or looking into it,” says a tax consultant, speaking of the American loophole. Some transfers are being requested for legitimate reasons of confidentiality—for instance, by Venezuelans who fear extortion or kidnap if their wealth is known. But much is of dubious legality.

America is much safer for legally earned wealth that is evading taxes than for lucre that was filthy from the start. It has shown little appetite for helping enforce foreign tax laws and, unlike some other countries, does not count the banking of undeclared money as money-laundering. “Foreigners looking to evade tax in America are usually safe because of its secrecy,” says Jason Sharman of Griffith University in Australia. “But for those with dirtier money there is a small though real risk the US will investigate and apply the full force of the law, which is a scary prospect.”

Dividing the spoils

Foreign banks losing business to America can sometimes share in the profits, explains one tax consultant. A Swiss bank, say—generally a smaller one, as big ones are too scared—tells its client to close an account and open one with an American custodian bank. The client then appoints the Swiss bank as investment manager on the custodian account, and that bank instructs the custodian which funds to buy, often the Swiss bank’s own products. The Swiss bank earns fees for advice and fund-management; the custodian picks up business; and the account is deemed for regulatory purposes to be American, meaning it avoids the disclosure rules that apply only to countries signed up to the CRS.

Only a few other financial centres have declined to commit themselves to the CRS, among them Bahrain and Nauru. Hong Kong has signed but will implement it one tax-treaty partner at a time rather than using a multilateral shortcut; some regard this as a delaying tactic. Undeclared Asian and Middle Eastern money is moving to Taiwan and Lebanon, respectively, both of which are outside the club. Panama, which vies with Miami for Latin American money, looks set to back out of its tentative commitment to the CRS, using America’s double standards as an excuse (see article).

Frustration with America has grown in Europe, which forms the core of the CRS. A group in the European Parliament argues that, if America refuses to reciprocate fully, it should be hit with a reverse FATCA: a levy on payments originating in the EU that flow through American banks. “We don’t want a tax war, but nor can the US have it all its own way,” says Molly Scott Cato, one of the MEPs. One obstacle is that tax measures must be approved unanimously by the EU’s 28 member states.

Others point out that the CRS itself has flaws. It was drafted in a rush, and one expert thinks it would fail to catch 80% of tax-dodging. Financial firms have been calling to report loopholes that could benefit less scrupulous rivals, most of which will be closed before it comes into force or soon after, promises the OECD. (Keeping banks’ compliance costs within reasonable limits means that some will inevitably remain.)

The Economist

With the impending exit of the UK from the EU increasing numbers of clients are looking at the Irish Agency Company/IBC ahead of the UK Agency Company/IBC Model as a means of doing Tax Effective Business in Europe.

What is an Agency Company? 

An Irish company is formed specifically to operate as a nominee or agent for a principal company – in effect the Irish company acts as a fiduciary or agent for the principal company.

How is it used and implemented?

The two companies sign an agreement which specifies the terms of the agreement between them. All business and sales is then conducted in the name of the Irish company, but on behalf of the principal company. The customer enters into a contract with the Irish company, is invoiced by them and pays the invoices into the bank account of the Irish company. Income is then remitted to the principal company by the Irish company after deduction of an agreed commission.

Ownership and Control of the Company

The Irish company is managed and controlled by the principal company and its officers, as is the bank account of the Irish company. It should be noted that the Irish company cannot trade within Ireland or with any Irish businesses.

The Irish company will pay tax on the profits which it makes on the fees retained in accordance with the agency or nominee agreement.

Why is it Used?

1. This structure is ideal for use as a European Trading structure where the receipts of invoices from a Non EU company would not be acceptable.

2. This limits the difficulties normally experienced while directly dealing with Non EU companies.

Apart from the practicality point of view as stated above there are also tax advantages

• Low tax vehicle – Tax is only payable on 5-10% of turnover of the parent company.
• Ideal where receipt from Non EU company would not be acceptable.
• Excellent for situations where an onshore profile is required.
• Can be used effectively in EU VAT triangulation situations.

Corporate Structure

The Irish Agency Company is a popular trading vehicle with minimum exposing to Irish tax. An lrish Agency Company is only a subject to lrish taxation on the agency fee that it receives, for example 5% on the gross profit, minus administrative costs of the Irish company. Nevertheless high taxation rate 25%, an lrish company in an Agency structure is a tax efficient and cost effective method for structuring the provision of services, commissions and general trading.

Key Advantages

•    Irish company can conduct Agency Contract with Offshore principal.
•    All business is conducted in the name of the Irish company. Ready-made Irish Ltd. with VAT available.
•    Corporate tax applies only on the agency commission that Irish company receives.
•    Financial statements will only disclose the agency fee as turnover. While turnover of the offshore principal is not exposed in the statutory accounts.

Typical Structure

An lrish company in an agency structure can be used for the supply of services, commissions and the purchase and sale of goods. The lrish company will enter an agency agreement with an offshore principal. The lrish company will undertake as agent to enter into contracts, commission agreements, etc. on account of and on behalf of the offshore principal:

•    Contracts for the purchase of products or services are concluded by the offshore principal directly or through the lrish company on the instruction of the offshore principal.
•    Contracts for the sale of products or the provision of services are concluded by the offshore principal directly (but formalized by the lrish company on the instruction of the offshore principal).
•    The lrish company to be instructed by the offshore principal for all action required to be taken.
•    lrish company will issue invoices with its VAT number. The lrish company will also sign documents and handle funds.
•    The lrish company cannot deal with lrish suppliers/service providers or lrish customers.

Taxation

An lrish company in an agency structure will only be subject to lrish taxation on the agency fee that it receives.  The agency fee will generally be equivalent to 5% of the gross profit on transactions undertaken on behalf of the offshore principal. An lrish company in an Agency structure cannot rely on any of the lrish double tax treaties.

OCI Irish Company Package Inclusions

The incorporation fee as quoted below includes the following documents:

• ·       Original Certificate of Incorporation
• ·        2 bound copies of the Memorandum and Articles of Association
• ·       PDF copies of the above documents
• ·       Share Certificate/s
• ·       Minutes of Directors First Meeting
• ·       Luxury Company Seal

The fee also includes us supplying Irish Registered agent and office service for the 1st year + mail forwarding and full Company Secretarial Service. 

The registered office/registered agent/annual company secretarial service includes specifically the following:

• ·       Electronic Filing of the Companies Registration Office (CRO) Annual Return using our Company Secretarial Software.
• ·       Sending updated information and documents on time to the CRO and other relevant bodies
• ·       Looking after all Company Secretarial matters e.g. miscellaneous changes in directors, registered office, shareholders, increase in share capital
• ·       Holding, updating and maintaining the company’s registers including the register of members, registers of directors and company secretaries and their interests in shares and contracts in the company
• ·       Preparation of Annual General Meeting (AGM) Proxy Forms, notices and minutes
• ·       Keeping of AGM, EGM and Directors minutes with register (if required)
• ·       Keeping custody of the Company Seal (if required)
• ·       2.5 hours of company secretary time included
• ·       Monitoring of company on CORE system (protects against fraud)
• ·       Provision of Corporate Company Secretary

Price all inclusive $US1,650

Plus (if required):

·       For a non-Irish resident Nominee Director: $US1,000 (or)

·       For an Irish resident Nominee Director: Price on application

Every now and then it’s good to revisit and re-evaluate the benefits of Incorporating Offshore.

Whilst more thought is now required when planning an Offshore Corporate Structure than what was required say ten years ago, those with years of experience in the Offshore Company Formations Industry will tell you that that solid demand will continue for Offshore Company Formations.

Why?

Because:

(i) Businesses and individuals are increasingly residing, owning assets and carrying on business in multiple countries (i.e. love it or hate it, globalisation is irreversible)

(ii) Continued scope for legitimate tax planning and reduction

(iii) Cost-effectiveness of offshore companies compared to onshore companies

(iv) Less red tape and admin in respect of offshore companies than onshore companies, despite increased compliance paperwork for offshore companies

(v) Asset protection & estate planning,

(vi) Despite some dilution in privacy, offshore companies continue to offer significantly more privacy than onshore companies.

An Offshore Corporate Structure (capable of facilitating your privacy, investment, tax planning, succession planning and/or asset protection objectives as/if applicable) can certainly be tailored to your specific needs.

The key is to ensure you consult with an Experienced Professional Offshore Formation Specialist prior to committing to incorporate Offshore.

Shortcuts can be costly…

Cyprus has revamped its Tax Laws to facilitate a new category of tax payer ie a “non-domiciled” resident individual.

The move mirrors the UK law of yesteryear whereby expat businessmen were lured to live in London “as non- domiciled” leaving them non liable for tax in the UK on non-UK earnings.

The introduction of non-domicile status  by the Cypriot Law makers presents an opportunity for high-income earners to relocate to Cyprus and achieve thereby genuine “substance” in the eyes of the law.  This should facilitate substantial reductions in personal (and by relation Business/Corporate) tax bills.

The ability to show “substance” in international structures and tax planning is becoming more vital. Certain tax authorities and courts around the world are attacking structures which lack ‘substance’. Simply put its all well and good to claim that you or your Company are based Offshore (ie in a nil or low tax environment) eg via deployment of an Offshore Registered Office and or Incorporation. But authorities are increasingly wanting to see actual business activity happening (eg key persons/decision makers being based) on the ground in the nil/low tax country (ie “substance”).

Historical Position

Hitherto Cyprus tax resident natural persons have been subject to a special form of taxation (ie in addition to normal income tax) on certain types of income (known as the “Special Contribution for Defence” or “SDC”), at the following rates:

•            30% on passive interest income

•            17% on dividend income

•            3% on 75% of rental income

The SDC law also included provisions for the deemed distribution of profits of Cyprus tax resident corporations where the owners of such companies are Cyprus tax resident individuals.

An individual is considered a Cyprus tax resident if they are physically present in Cyprus for 183 days or more during a calendar year. This general rule only applies to an individual if he or she is both a resident for tax purposes in Cyprus and is also domiciled in Cyprus. (Domicile = the place you call home). Consequently non-domiciled Cyprus resident individuals (eg non Cypriots living in Cyprus) can benefit from this new status. 

When domiciled in Cyprus:

An individual can be considered as domiciled in Cyprus either (i) by domicile of origin; or (ii) by domicile of choice. In order to understand the concept of ‘domiciled in Cyprus’, one must look to the Wills and Succession Law Cap. 195 which provides:

•            A person at any time can have either the domicile which he/she acquired at birth (domicile or origin) or the domicile which he/she acquired or maintained as a result of actions taken by him/her (domicile of choice)

•            For a legitimate child, who was born when the father was alive, the domicile of origin of the child is the domicile of origin of the father, at the time the child was born

•            A person may acquire a domicile of choice with his establishment in any country outside Cyprus with the intention of permanent or indefinite residence in such a country.

For the purposes of the SDC Law only, an individual who has a domicile of origin in Cyprus as described above may still be considered not to be domiciled in Cyprus if:

•            He/she had the domicile of origin in Cyprus on the basis of the Wills and Succession Law but has obtained a domicile of choice in another country, provided he was not a tax resident of Cyprus for at least 20 years before the tax year in which he became a tax resident of Cyprus

•            He/she has not been a tax resident of Cyprus for a period of 20 years prior to the introduction of the amendment to the SDC Law (July 17, 2015)

Notwithstanding the above, an individual who has been a tax resident of Cyprus for at least 17 years out of the last 20 years prior to the tax year will be considered to be “domiciled in Cyprus” and as such will be subject to special contribution for defence from the 18th year.

The advantages of being a Non-domiciled Tax Resident

Non-domiciled individuals who become tax residents in Cyprus will not pay any taxes (subject to the double tax treaty in place with the country from which the dividends are paid out of) on:

•            Any dividends received from anywhere in the world: no taxes apply on dividends received even if the profits being distributed are out of accumulated profits from previous years; exemption becomes available immediately after declaring your Cyprus tax residency and non-domicile status.

•            Any interest income from anywhere in the world: all interest income from bank accounts in Cyprus and abroad is not taxable in Cyprus and may potentially be non-taxable in the country where the bank account is located.

•            Any rental income from Cyprus or abroad: rental income from property situated in Cyprus will be exempt from defence tax but is still taxable under income tax for individuals (certain deductions available); rental income from property situated outside Cyprus is tax free in Cyprus.

Exemption to the Personal Income tax

In addition to the advantages of being a Cyprus non-domiciled tax resident the Cyprus personal income tax regulation provides additional exemptions which provide further benefits:  For example remuneration from any employment exercised in Cyprus by an individual who was not a resident of Cyprus before the commencement of the employment, is exempt from personal tax for a period of 10 years for employment commencing as of 1 January 2012 provided that the annual remuneration exceeds €100,000 (note also the exemption concerns 50% of the remuneration).

For employment commencing as of 1 January 2015, the exemption does not apply if the said individual was a Cyprus tax resident for 3 (or more) tax years out of the 5 tax years immediately prior to the tax year of commencement of the employment nor in the preceding tax year.

In certain cases it is possible to claim the exemption where income falls below €100.000 per annum.

Capital invariably flights to where Capital gets the best deal. These changes to Cyprus’s tax laws invariably will attract wealthy foreigners and deal makers alike.

The nett result can only be an increase in business activity (and all that flows from that) within the geographical confines of Cyprus.  

The Isle of Man is an extremely stable self-governing British dependent territory, located in the Irish Sea at the geographical centre of the British Isles with a legal system based on English common law.

It is not and has never been part of the United Kingdom but is technically a Crown Dependency and is independent in all matters except foreign affairs and defence, both of which are the responsibility of the United Kingdom Government and for which the Isle of Man pays an annual contribution. 
 
The Isle of Man is politically and legislatively independent of Great Britain; It boasts its own Westminster style of Parliament (known as the Tynwald) which is the oldest legislature in the world in continuous existence. 

The Isle of Man (“IOM”) Company law historically is based on English Company Law but, so as to better compete in an expanding global marketplace, the IOM Government introduced new corporate legislation in 2006 with the introduction of “2006 Act Companies“, to complement the existing company legislation. The new Company Law is more geared towards flexibility and simplicity.

Companies incorporated in the Isle of Man must comply with the Companies Acts and regulations in force which guarantees that high standards of Corporate Governance for all IOM Companies (including the filing of an annual return ie annual accounts must be provided to  the IOM Government’s Income Tax Division).  

Isle of Man registered companies are the conventional form of business entity for the purposes of conducting local and international business from the Island and enjoy numerous benefits including:

• ·       Separate legal personality
• ·       Can be incorporated either as a Private Limited Company or as an LLC
• ·       Provided the Company is not being set up (a) to provide banking services or (b) to own/operate a local retail business or (c) to do local real estate business a 0% corporate tax applies in IOM. (If structured correctly an IOM Company can enable you to bank worldwide profits without having to pay Corporation tax)
• ·       No capital gains tax, inheritance tax or stamp duties
• ·       No Exchange Controls
• ·       Bank Accounts can be opened for IOM Companies in the IOM with reputable international banks
• ·       There are no authorised or issued share capital requirements + shares may be issued
• ·       Ease of incorporating an Isle of Man company (usually within 3 working days subject to satisfactory due diligence)
• ·       The Isle of Man is part of the EU’s Customs Union making it ideal for businesses looking to do business in Europe (a UK VAT number can be obtained)
• ·       Provided there are no local shareholders there is no tax levied in IOM on retained profits
• ·       No requirement to specify a company’s objects in the Memorandum of Association so a company is not restricted in its business activities
• ·       Third parties take comfort from the similarities to English company law
• ·       Only 1 Director is required
• ·       A Non IOM resident can be appointed as Company Director
• ·       Only one shareholder is required
• ·       Corporate Directors are permissible
• ·       Nominee shareholders can be used to protect the identity of the owners
• ·       The Isle of Man is a well-regulated highly regarded jurisdiction giving IOM Companies and air of respectability in the International Market Place.

Common Uses for IOM Companies

Most common use of the Isle of Man offshore companies:

• Holding investments, e.g. portfolios, UK commercial property and other companies shares – these activities are not taxed in IOM;
• Simplified trading within the EU due to the zero rate of tax on trading income and the ability to quote an EU accepted VAT number;
• Holding intellectual property (As the Isle of Man is a signatory to the Paris Convention on Patents and Trademarks).

Doing Business in Europe?

The Isle of Man is part of the UK for VAT purposes only. The consequence of this is that it is possible to very quickly (and relatively cheaply) obtain a UK VAT number using an Isle of Man company (in a matter of weeks rather than months).

Moreover if VAT registration is desired the Isle of Man is the only country which provides a 0% tax environment in which it can be achieved.

VAT registration is of course also possible in all EU countries and some tax saving can still be achieved through the use of, low tax EU countries, such as Malta (where the effective tax rate can be as low as 5%) or the UK (where tax transparent structures can achieve an effective rate of 0% however much greater delays should be anticipated with UK registration as opposed to Isle of Man registration).

OCI Isle of Man Company Formation Services

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

Services:

• ·       Unlimited name availability inquiries
• ·       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
• ·       Company Secretary
• ·       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 (Speak to our In House Lawyer at any time for advice on how to manage/administer your Company etc)

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”)

Price (all inclusive): GBP 2,440

(With tax effective offshore company management ie including Professional “Nominee” Director, Shareholder & Company Secretary: GBP 1,000)

From year 2 (including government fees, provision of IOM registered office/agent service, maintenance of statutory records, compliance, filing of Annual Return and any tax/license declaration): GBP 990

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

Hong Kong has signed agreements with six jurisdictions to automatically exchange financial account information in tax matters.

The agreements expand Hong Kong’s Automatic Exchange Of Information (AEOI) network to include Belgium, Canada, Guernsey, Italy, Mexico, and the Netherlands. These countries join Japan, Korea, and the UK as “reportable jurisdictions” for AEOI purposes in Hong Kong.

Before these agreements can take effect however HK will have to pass local legislation compelling its Banks to share the relevant information. Given how much Hong Kong’s Banking Sector contributes to the local economy (and the amount of power the Banks can bring to bear as a lobby group) it remains to be seen whether the relevant legislation will ever be passed.

If you live in any of the affected countries (ie Belgium, Canada, Guernsey, Italy, Mexico, the Netherlands, Japan, Korea, or the UK) and are concerned about maintaining financial privacy, and you have currently a personal account in Hong Kong (or a Company bank account where you are the beneficial owner of the Company) you have in effect 2 choices:

1.       Close your account and move it to a bank in a country which has not (i) signed an EOI Treaty with your home country or (ii) signed on to the OECD’s Multi Competency Authority Agreement aka the MCAA (ie the vehicle which gives rise to Automatic Exchange of Financial Information – you can check the list of countries which have signed by clicking on this link: https://www.oecd.org/tax/automatic-exchange/international-framework-for-the-crs/MCAA-Signatories.pdf )

2.      (If you are the beneficial owner of a Company which banks in Hong Kong) Set up a Seychelles Foundation to hold the shares of your Company.

Why Register a Seychelles Foundation?

If you are a resident or citizen of a country which has the ability to track Offshore Bank account beneficiary details and you would like to keep private details of your Offshore earnings (or if you plan to set up a very sensitive business eg one that might illegal if owned/operated from where you live) again a Seychelles Foundation can help:

How so?

It all comes down to the legal structure/operation of the Seychelles Private Interest Foundation.

Bottom line is notwithstanding that individuals (or a class of beneficiary) may be named as beneficiaries in the Regulations:

1. The beneficiaries have no legal or beneficial interest in property owned by the Foundation (unless or until such time as that property is transferred to them – see section 71 of the Seychelles Foundations Act).
2. The Foundation is a legal entity in its own right not a mere Trustee (See section 23 of the Seychelles Foundations Act)
3. The Councillor of the Foundation owes no Fiduciary duty to the beneficiaries (see section 63 of the Seychelles Foundations Act. Note you can download a copy of the Seychelles Foundations Act by clicking on the relevant button in this linked page: http://www.seylii.org/sc/legislation/act/2009/32 )

 What does all this mean?

If a Seychelles Foundation owns a Company and the Company owns property or money in the bank as a matter of law the Legal AND Beneficial owner of the Company (and any funds it has at bank) is the Foundation.

Re opening a Paypal account for your Offshore Company or IBC, here’s how that usually works (Note the below scenario assumes that you have chosen a Nominee Director as part of your Company package):

1.       The client/company owner (“you”) is usually appointed (via Consultancy Agreement) as an Authorised Representative of the Company. 

2.       The Consultancy agreement gives you the authority (amongst other things) (a) to negotiate purchase and supply contracts on behalf of the Company and (b) to approach a bank or merchant account or payment provider seeking an account on behalf of the Company (In essence the Consultancy Agreement gives you the power to do anything except sign a legal contract on behalf of the Company).  

3.       Presumably you will want/need to approach Paypal asking for (a) a merchant account facility (ie where clients can pay your Company via card) and/or (b) a Paypal payment facility ie whereby you can pay others via Paypal or receive payment from others via Paypal.

4.       Paypal will probably ask you to provide “Due Diligence” or “KYC” as regards the Company. Usually you will have to provide them with (a) proof that the Company is currently registered and “in good standing” (ie still alive at law) and (b) proof of who the Director/s Shareholder/s and beneficial owners of the Company are.

5.       Paypal’s DD/KYC requirements can vary from country to country. Once you know what they require as regards your Company (if you don’t have that info/documentation yourself) email your International Corporate Service Provider (eg OCI) who can/will arrange for the requisite KYC/DD Docs to be supplied to you for passing on to Paypal.

6.       Paypal will probably also need the Company to sign a service agreement. That you will need to get the Director to sign. 

If time is of the essence what can also happen is you could be provided with a Limited/Specific Power of Attorney which will enable you to temporarily stand in the shoes of the Director and do, on behalf of the Company, anything and everything required to open a Paypal Account on behalf of the Company.