We are often asked How do I go about setting up a Charity Offshore? 

Charities are commonly registered Offshore as either Charitable Purpose Trusts or Charitable Purpose Foundations. See below for details. 

Purpose Trusts

A Purpose Trust is a particular type of trust which, unlike a conventional trust, can be formed to hold assets for a purpose without conferring a benefit on any specific person. An example of such a purpose is to hold shares in a company.

Purpose Trusts are currently used, among other things, in conjunction with asset financing transactions and securitisations.

They are also used to hold the shares in a Private Trust company (PTC) structure, where confidentiality and control issues are important. The advantage of using a Purpose Trust in such a scenario is that there are no registration or disclosure requirements of such trusts at law generally speaking. Therefore the ownership of the PTC will be confidential, and the shares in the PTC will be immune from an attack on the Settlor (ie the person who sets up the Trust).

Charitable Purpose Foundations

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

Unlike Trusts (which are a creature of English common law) Foundations are a by-product of European civil law jurisdictions (most notably Liechtenstein) and have existed since the Middle Ages when they were used mostly for charitable purposes. These days Private Interest Foundations are more commonly established to protect family wealth (and as highly effective Tax Minimisation tools – see below).

Like a company a Private Interest Foundation is a separate legal entity (that is it can hold property & sue and be sued in its own right) and its operations are governed by a Charter and Regulations (similar to the Memorandum and Articles of Association of a company). Usually a Private Interest Foundation (“PIF”) can only be used as an asset holding entity (though it can carry out certain commercial functions depending on its country of registration).

Management

The day to day management of a PIF is overseen by a Councillor or a Council (like a board of directors in the case of a company). However instead of shares a Foundation, like a Trust, has Beneficiaries who are ultimately entitled to the assets and income of the Foundation. Importantly the creator of the Foundation (usually called a “Founder”– see below) can still steer the direction of the Foundation post registration by being appointed as a Financial Adviser or Protector. Additionally the Founder can have certain powers reserved to him from the outset (eg the rights to appoint or remove Councillors, to exclude or change Beneficiaries or to appoint and remove Protectors).

The key difference between a Foundation and a Trust is that in the case of a Foundation the legal owner of the Foundation’s assets is the Foundation itself, a separate legal entity (usually) based in a nil tax jurisdiction. This is different to the situation of a Trust where the underling owner of trust assets are the (presently entitled) beneficiaries.  This can have a significant impact in terms of tax liability (see below).

Purpose Foundations/Trusts – Legal Basis

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 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 such as those which have historically struck down Non-Charitable Purpose Trusts in the Common Law Courts.

Objects 

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 wellbeing 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 you 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 or Purpose Trust.

In continuing our examination of the United Arab Emirates as an emerging Offshore Tax Free Company Jurisdiction this week’s article looks at the UAE’s  latest Company offering the Umm Al Quwain Free Trade Zone Company.

The Umm Al Quwain Free Trade Zone (UAQ FTZ) is located in Umm Al Quwain (one of the UAE’s seven emirates) and is renowned for its modern infrastructure and impressive natural beauty (which is attracting tourists in ever increasing numbers).

Being a relatively new Free Trade Zone in the UAE, Umm Al Quwain offers competitive fees and the privilege of signing documents remotely. This means an Umm Al Quwain FZ company can be set up without the shareholders being present at the time as long as they have visited the UAE in the past.
Some of the key benefits of licensing a company in Umm Al Quwain (UAQ FTZ) include:

• Double tax treaty benefits (the UAE has signed DTAs with 80 other countries)
• 100 per cent foreign ownership
• Zero corporate and personal income taxes
• Allows up to 50 shareholders
• 100 per cent import and export tax exemption within the FTZ
• Fast registration process
• Proximity to two international airports, Dubai and Sharjah, and major sea ports
• No restrictions on hiring foreign employees

Types of licences allowed when registering an Umm Al Quwain Company 

1. COMMERCIAL LICENSE (TRADING LICENSE)
There are two types of license, which fall under this category: Commercial License and General Trading License.

Commercial License: This authorizes the import, export, distribution and storing of items specified on the license. A Commercial License can have three different product lines or 10 similar product lines.

General Trading License: This enables the licensee to trade in a wider range of activities and gives the freedom and flexibility to trade in any commodity, which is permitted within the UAE.
Note: Commodities which require special approval or clearance from various UAE authorities e.g. explosives and armaments cannot be traded with a General Trading license.
Usual activities include i.e. Trading with Automobiles, Seeds Trading, Coal & firewood trading, cotton and natural fibers trading, etc.

2. CONSULTANCY LICENSE
This is for entities which offer expert or professional advice and is issued to all manner of professionals including artisans and craftsmen. It allows two similar activities. Activities usually registered include Marketing Consultancy, Management Consultancy and IT Consultancy.

3. FREELANCE PERMIT
This allows an individual to operate as a freelance professional, and conduct business in one’s birth name as opposed to a brand name or company. The Freelance Permit is designed for individuals who operate in technology, media and film sectors, and is issued to talent roles, creative roles and selected administrative roles.Activities usually registered include Actors, Artists, Photographers and Producers.

4. INDUSTRIAL LICENSE
This enables the licensee to import raw materials, then manufacture/ process / assemble / package the specified products, and export the finished product. It allows the holder to import raw materials for the purpose of manufacturing, processing and/or assembly of specified products.

5. SERVICE LICENSE
This license is for service providers. It permits the licensee to carry out the services specified in the license within the Free Zone, such as Logistics; Courier Services; Insurance Service Provider; Travel Agency; Tour Services; Car Rental etc.

Obtaining an Umm Al Quwain tax resident certificate and residence permits

An Umm Al Quwain FZ can issue residence permits and obtain tax residence certificates from the UAE authorities for its foreign owners and executives. A FZ company, must have physical presence in the UAE and, in that respect, it must own or hire premises.

Private accommodation is not necessary for Umm Al Quwain Free Trade Zone Authority when applying for residence but many do this to reinforce their case for substance and legitimacy.

As far as the company is concerned, it must have physical presence in the UAE. In that regard, the most interesting and cost effective options are proposed by free zones situated in a number of emirates including Umm Al Quwain Free Trade Zone (UAQ FTZ). Usually, these options consist of “flexi desks” or “flexi offices”.

Furthermore, and if a local bank account is maintained with movements, the foreign owners and executives can apply to the UAE Ministry of Finance to receive UAE tax residence certificates.

 
A UAE residence permit and a tax residence certificate can be useful to foreign owners and executives who wish to register their tax residency in the UAE. It is worth noting, that banking institutions in UAE and many outside consider UAE tax residence certificates as sufficient proof of tax residency in the UAE.

The most common structure we are asked to form is an IBC (ie a Tax Free Offshore Company) + a Tax Free Private Foundation Combo. When advising on the formation of such an entity often we are asked Do I need a bank account for my Foundation?

In most cases your Foundation shouldn’t need a bank account right away. Why? Because usually the money flows in and through the company (see below which explains how/why).

The Company usually only pays a dividend to your Foundation:

(a) If the Company carries litigation risk and you want to park some money safely away from creditors/lawyers; or

(b) If you want to buy an investment; or

(c) If you’ve retired or moved to a tax free jurisdiction and you want to start drawing some Distributions from the Foundation

Offshore Company (IBC) Cash Flows

For most clients the money flows in and through the IBC/Tax Free Offshore Company.

Typically there are 6 ways that clients will access money via/from the IBC:

1. Set yourself up as an arms’ length consultant and have the IBC pay you consulting fees periodically. This means you should only have to pay tax on what the company pays you (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).

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 (+ technically this is income that should be declared at home).

4. Have your IBC buy Bitcoin and then make a transfer of Bitcoin to yourself (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 should be seen by your local authorities.

5. Have your IBC form and fund a subsidiary ie 2^nd tax free Offshore Company and then have that 2^nd 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 2^nd (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, UAE, 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).

(And 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).

Local laws can have an impact. Hence it would be wise to seek local legal/financial advice before committing to establish a Corporate Structure such as that described above.

Intellectual property (“IP”) is a creation of the mind and includes things like inventions, literary and artistic works, designs and symbols, software code, names and images used in business.

IP is commonly protected in law by way of patents, copyright and trademarks which enable the person who came up with the idea to securely earn recognition and/or financial benefit from whatever it is he/she has invented or created.

An Offshore IP company is an ideal vehicle for the administration and management of licenses and intellectual properties including computer software, technical know-how, patents, copyrights and trademarks.

Practicalities

So how does it work from a practical perspective?

At core the Offshore IP Company (which is usually set up in a nil or low tax country) is used to divert income from Trading Companies or Businesses trading in developed or high tax countries.

The first step is to transfer ownership of the IP rights to the Offshore Company/Entity.

Once that’s done the Trading Business then enters into a legal agreement (contract) with the IP Company whereby, in return for being allowed to use the IP, the Trading Company agrees to pay the Company royalties or license fees. The income arising from these agreements can then be accumulated offshore in a nil or low tax environment.

Timing is of critical importance – It is clearly preferable to acquire the IP (for example, a patent) at the earliest possible time (e.g. at the patent pending stage) before the IP becomes highly valuable. That way the capital payment for the acquisition of the IP (e.g. patent) can be set at a lower amount i.e. before its true worth has been determined in/by the market. (These capital payments may even be deferred and or staggered by way of an instalment contract such as would enable the IP Company to use subsequent royalty payments to fund the cost of the IP).

If a deal is struck for the Offshore IP Company to buy the IP before the IP gives rise to a product or service which is offered/advertised in the market the IP might even be transferred for nominal consideration enabling the IP inventor/creator to transfer patent, copyright or trademarks in favour of the low/nil tax company before the IP suffers significant appreciation in value.

Alternatively you might transfer ownership of IP to a tax free Offshore Company (“OC”) for an agreed price but subject to a deferred or gradual payment arrangement. How that would work is you would transfer ownership of the IP up front and agree for the OC to pay you in stages in consideration of a price premium and/or in consideration of the OC engaging you in an ongoing/consultancy capacity.

However you transfer ownership of IP to an OC the transaction should be seen to be on commercial terms for fair market value. If you are unsure of market value you could either brief a licensed Valuer for an opinion or advertise the IP for sale publicly. The highest bid would be fair market value. At the end of the day in the market place a piece of property is only worth what someone else is prepared to pay for it!

Zhou Shuoji is not a bitcoin believer. He says the cryptocurrency will never replace its traditional forebears, and he calls most of its proponents fanatics.

But for Zhou, a 35-year-old high-speed trader in Beijing, bitcoin is also too good to resist. His computers trade it 24 hours a day, seven days a week. Using lightning quick orders, they profit from tiny price discrepancies on the myriad venues where it changes hands.

“It’s the golden age to be in the bitcoin market, because it’s imperfect,” said Zhou, a former IBM technology consultant whose firm, Fintech Blockchain Group, runs a bitcoin hedge fund and venture capital fund.

Forget libertarians, speculative individual investors and Chinese savers trying to spirit money overseas. The reality is that professionals armed with cutting-edge technology now drive as much as 80 per cent of bitcoin trading, mimicking strategies honed by some of the biggest players on Wall Street. To them, bitcoin is just the latest asset class ripe for conquering with machines.

The cryptocurrency’s market structure ticks all the right boxes: arbitrage opportunities across multiple exchanges, zero transaction costs on Chinese venues that host most of the world’s turnover, round-the-clock trading, and co-location services allowing participants to place their servers right next to those of the exchange. With volumes tracked by Bitcoinity.org surging to a record this month, there’s been no shortage of chances for high-speed traders to turn a profit.

Exactly how much they’re making is hard to pin down, because the vast majority aren’t required to disclose performance figures (Zhou declined to comment on his). Chinese banks were banned from trading bitcoin in 2013, while capital controls mean foreign firms have a small presence on China’s exchanges.

One of the few traders willing to talk about their returns is Chen Zhenguo, who founded China’s largest platform for facilitating automated bitcoin strategies. Chen says he’s generated annualized gains of 50 per cent for his own account, though he declined a Bloomberg News request to provide transaction details verifying his claims, saying they’re private.

“Bitcoin has a natural advantage when it comes to automated trading,” said Chen, 30, whose Beijing-based BotVS allows clients to run live trials of their bitcoin algorithms on 23 exchanges.

There’s been no shortage of chances for high-speed traders to turn a profit. Like all markets, the one for bitcoin comes with risks. At least two exchanges, Bitfinex and Mt. Gox, have suffered cyber attacks that saddled traders with losses since 2011. The cryptocurrency’s extreme price swings — average daily moves over the past year were three times bigger than those in the S&P 500 Index – have deterred some high-speed firms, while the increasing dominance of sophisticated traders begs the question of how long the juiciest arbitrage opportunities will last.

There’s also growing concern over a regulatory crackdown in China, where authorities are wary of any investment vehicle that might help citizens move wealth overseas. The nation’s central bank conducted on-site inspections at some of the biggest bitcoin exchanges this month, looking for evidence of violations including market manipulation and money laundering. Similar scrutiny of stock-index futures in 2015 led to trading restrictions that cut volumes by 99 per cent.

There is growing concern over a regulatory crackdown in China. Still, policy makers could decide the bitcoin market is too small to warrant intervention. Its current market value is about $US13.5 billion, versus $US6.5 trillion for Chinese equities. The cryptocurrency gained 0.1 per cent to $US833.92 at 9:45 a.m. Hong Kong time.

Rather than moving money out of the country, most automated traders in China are focused on cross-exchange arbitrage, said Arthur Hayes, a former market maker at Citigroup Inc. who now runs a bitcoin derivatives venue in Hong Kong. They can transact multiple times per second, reacting to price changes caused by individual investors and other speculators who often use technical patterns to guide their buying and selling decisions, Hayes said.

OkCoin, one of China’s three biggest bitcoin exchanges, estimates 60 per cent of its transactions are executed by automated traders, while Huobi and BTC China put the figure at around 80 per cent.

China is home to about 10 significant bitcoin venues, with a majority of trades executed on the top three, according to Neil Woodfine, the chief operating officer of Remitsy, a cross-border payment system. Instead of charging transaction costs, exchanges in China make money by levying a fee when clients withdraw bitcoin from their accounts; they also offer services including co-location and margin trading.

Fintech Blockchain’s Zhou, who sees more long-term potential in the distributed ledger technology underpinning bitcoin than the cryptocurrency itself, says he can’t predict what the market will look like in a few years because it’s still young and subject to Chinese regulatory risk. For now, though, he plans to keep trading.

“If the market is here and I can see a chance to make money, I will,” Zhou said.

“If the market is gone, I’ll just walk away.”

How To Trade Bitcoin Using a Tax Free Offshore Company

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

To summarise how it would work (assuming you intend to trade your own money or borrowed money) is:

·         You set up a zero tax International Business Company

·         The IBC opens an account with the Cryptocurrency Exchange/s

·         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 tax resident though you should also be able to claim a sizeable amount of allowable deductions eg for home office, car, equipment, insurances, travel, stationary etc etc to reduce the amount of your “taxable” income at home)

·         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.

For many people the opportunity to live and work in a foreign country is one of life’s most memorable experiences.

It can also present you with a solid gold tax planning opportunity. Here’s how/why…

Chances are if you go to work in a foreign country for a couple of years you are going to have to sign a contract of employment.

What you do is (before you sign the contract of employment) you form a nil tax Offshore Company (eg an International Business Company ie IBC).

The IBC signs the contract.

You open up a bank account for the Company in a country that does not tax banking receipts or interest earned in/on bank deposits.

(what would otherwise be) Your wages are paid into this Offshore account and receipted free from tax.

The IBC in turn engages you as a subcontractor to provide the services it has contracted with your employer to provide.

The IBC makes regular payments to you for the work you do. These payments are what you use to fund your local living costs. Accordingly this money will be paid into a bank account in the country where you are living. Depending on where you are living at the time probably this income will be reportable/taxable in the country where you are living.

The advantages to doing this are as follows:

1. You should be able to minimise the amount of tax that you would otherwise have to pay in the country where you are living
2. You can bank (and potentially invest) your savings (ie whatever you earn in excess of your local living costs) free from tax
3. You should be able to avoid or greatly minimise the amount of tax that you might otherwise have to pay to the tax authorities of your home country (ie your country of origin)
4. When you return to live in your country of origin you will have money overseas that you can invest on the quiet, without your home tax authorities knowing about it (ie you may never end up paying tax on that income).

Re 3 it should be noted (if you’re not getting paid into an IBC account whilst working overseas) if (a) you haven’t departed your home country permanently – ie if your home tax authorities regard you still as “tax resident” in that country – (ie liable to declare incomes in and pay tax there) and (b) you are living in a country which does not have a Double Taxation Avoidance Treaty (“DTAT”) with your home country you could potentially be liable to pay tax in both countries. (Or if your country of origin does have a DTAT with the country where you are working, but that country’s tax rates are lower than your country of origin, you may be called upon to pay to your country of origin the difference between what you paid in tax where you are working and what you would have had to pay at home).

(Note – if you wanted to be really clever what you could do is you could characterize your IBC as a Recruitment Agency or Labor Hire Company. Check this link fmi: https://offshoreincorporate.com/common-offshore-corporate-strategies/#9).

Local laws can have an impact. Hence it would be wise to seek local legal and financial advice before committing to incorporate an IBC for such purposes.

We are often asked What is the process for the hiring of a Lawyer by a (tax free) Offshore Company?

For the purposes of this article we will assume that your Company structure includes a Nominee Director.

Say your tax free Offshore Company (IBC) is doing business in the UK and needs to hire a UK Lawyer to read over a contract.

The first thing you would need to do here is explain  to the Company Administrator/s why your Offshore Company needs a UK/Onshore Lawyer.

Then the process would be:

1. The Company Director will ask you (say you’re based in the UK) to go shop for a UK Lawyer.
2. You would provide a report to the Director of which Lawyers or Law Firms you’ve interviewed. Your report would include a recommendation (and you would need to explain why you recommend that particular Lawyer or law firm).
3. A board meeting would be called to discuss and approve by resolution the appointment/engagement of the said Lawyer or Law Firm.
4. A minute would be drawn and signed by the Director formally noting the motion so passed.
5. Any service agreement between the Lawyer and the Company ideally should be signed Offshore by the Company (Nominee) Director.

 I’m often asked “What are the steps in setting up an Offshore Company?”

I can’t speak for other firms but when you incorporate a Company with OCI here are the steps in the process:

(a)    To set up a Company we need, via email, a signed order form + CDD docs (ie proof of your ID and residential address) per the requirements. First up you should advise us of your preferred company name/names. We will check and advise (for free) whether your preferred Company etc name is available.

(b)    Once you’ve indicated you wish to incorporate with OCI we will email you an order form (+ a guide which explains how to complete the order form) + the CDD requirements. We will also email you a banking questionnaire to complete. The answers you provide therein will give us a snapshot of you, your business and your banking requirements such as should enable us to recommend a/the bank (or banks) most likely to meet your needs.

(c)    You should complete a draft of the order form and email it to us for checking + you should email us the banking questionnaire duly completed. (At the same time you should be organizing certified copies of your CDD Docs ie your passport and a document proving your residential address)

(d)    We will review the draft order form. We will email you advising you how to complete the order form or (if there are questions in the order form that you can’t answer) we will advise of available conference times and then explain to you in a phone/video conference how to complete the order form/s

(e)    Once we’ve received the completed banking questionnaire we will email you detailed info regarding the banks which we feel are most likely to meet your needs.

(f)     You should then email us the final signed order form + your CDD docs. Once that’s received we will check all is in order and (assuming all is in order) we will email you an invoice which can be paid by bank/wire transfer, card, paypal account or Bitcoin

(g)    Once we have confirmation of payment we will prepare the incorporation request and we will email you a bank account instruction sheet

(h)    Once we have confirmation of incorporation (which for an IBC should be within 1 to 5 days max of us lodging the incorp request) we will email you the details including Company number and date of incorporation.

(i)      Once the company is incorporated we will prepare the Incorp pack docs (they should be ready for delivery within 2 to 3 days of incorporation) and arrange for Notarised/Apostilled copies of the Corporate docs to be obtained as/if required by your preferred bank. We will email you copies of all the Corporate docs. (And we will courier you the original Corporate docs as/if requested).

(j)      We will then (assuming you’ve emailed us the completed bank account instructions sheet) finalise and email the bank account application forms to you/the Director/ the account signatory for signing

(k)    Once signed we will check and submit the corporate account application to the bank. At the same time we will supply the bank with copies of the Corporate documents (depending on the bank you may also need to courier the bank the original signed Corporate Account Application + your proof of ID/Residency docs)

(l)      We will then follow up the bank (liaising with you to answer any questions they may have along the way) until the account is opened

What constitutes Hong Kong sourced profits?

The Hong Kong Inland Revenue Ordinance provides that tax will be payable in Hong Kong only on profits arising in or derived from carrying on a trade, business or profession in Hong Kong. Profits tax is not applicable to profits whose source is outside of Hong Kong. This rule of thumb does not distinguish between residents and non-residents. You might be resident in (or a Company Incorporated in) Hong Kong but if your profits are derived elsewhere (ie from OUTSIDE of HK), you will not be liable to pay any tax in HK on those profits.

General guiding principles in determining source of profits

The question of what constitutes source of profits is contentious and uncertain. Whether profits arise in or are derived from within Hong Kong depends on the nature of the profits and the transactions that give rise to such profits. In other words, the question of source of profits is a matter of fact and no universal rule applies to every scenario. However, the HK Inland Revenue Department has provided certain guiding principles based on various court rulings. The guiding principles in determining the source of profits include:

• Identifying the operations that produced the profits in question and determining where those operations took place. In determining whether profits from a business are liable for profits tax in HK, the place where the profits originate must be established. In other words, it is important to determine from where the particular activity that generated the profits was conducted. If the operations that produced the profits were carried ou in Hong Kong, the profits will be subject to tax in Hong Kong.
• Taking into consideration the place where only those business activities that directly produce gross profits take place. For example, general administration activities do not qualify as profit generating activities.
• Considering the place where the day-to-day investment/business decisions take place. The place where to day-to-day investment decisions are taken does not generally determine the source of profits.
• Taking into account the principal place of business. If an entity’s principal place of business is located in Hong Kong and there is no business presence overseas, profits earned by that entity are likely to be considered as Hong Kong sourced.

Guiding principles in determining source of specific types of profits

In addition to the broad guiding principles in determining the source of profits, the HK Inland Revenue Department has laid down certain guidelines for determining the source of specific types of profits such as trading profits, manufacturing profits, and commissions.

Guiding principles in determining source of trading profits

An important factor that helps determine the source of profits that arise from trading in goods and commodities, is the place where the contracts for purchase and sale are effected. Note that the term ‘effected’ does not exclusively refer to the legal execution of a contract but is wider in scope and covers the negotiation, conclusion and execution of the contract terms.

In determining the source of trading profits, a wider approach needs to be adopted. The ‘totality of facts’ must be taken into account before determining the source of profits. In other words, all relevant facts have to be considered. It is not simply a question of determining the place of purchase and sale of goods. Factors such as how the goods were procured and stored, how the sales were effected, how the goods were shipped, how the payment was made etc., play an important role in determining the locality of profits. The determining factor is the cause and effect of such activities on profits. Facts that are not directly related to trading activities such as renting office space, recruiting staff, etc., are considered irrelevant in determining the locality of profits.

The Inland Revenue Department has summarized various circumstances under which trading profits are subject to tax:

• If the contract of purchase and contract of sale is effected in Hong Kong, the profits are subject to tax in Hong Kong.
• If the contract of purchase and contract of sale is effected outside Hong Kong, the profits are non-taxable in Hong Kong.
• If either the contract of purchase or contract of sale is effected in Hong Kong, the initial presumption is that the profits are subject to Hong Kong tax. However, the totality of facts will have to be taken into account in order to determine the source of profits.
• If a sale is made to a Hong Kong customer/client, the sales contract is usually considered as being effected in Hong Kong.
• If the commodities or goods are purchased by a Hong Kong business from a Hong Kong supplier or manufacturer, the purchase contract is usually considered as being effected in Hong Kong.
• If the effecting of purchase and sales contracts requires no travel outside Hong Kong, but is carried out in Hong Kong via telephone, fax or Internet, the contracts will be considered as having been effected in Hong Kong.

Note that in order to prove that a contract is effected outside Hong Kong, a company must submit to the Inland Revenue Department, travel details, accommodation details and traveling expenses of its employees, in respect of each transaction occurred. If fully accredited overseas agents effect contracts, a company must provide agency agreements or other documentary evidence to prove that the agents are fully accredited.

Guiding principles in determining source of manufacturing profits

The place of manufacture of goods is the key factor in determining the source of profits for a manufacturing business. Profits that arise from the sale of goods that are manufactured in Hong Kong are subject to tax in Hong Kong. The place where the manufactured goods are sold is irrelevant.

If the process of manufacture has taken place partly in Hong Kong and partly overseas, then the profits will be apportioned on an equal basis. The portion of profits that relate to the manufacture of goods outside Hong Kong will not be regarded as being sourced in Hong Kong and thus will not be taxable in Hong Kong.

Guiding principles in determining source of sales and purchase commissions

If a business earns commissions by securing buyers for products or by securing suppliers of products required by customers, the source of commission income is the place where the activities of the commission agent are performed (regardless of whether the commission agent is based in Hong Kong). If the activities that generate commission income are performed in Hong Kong, the income is sourced in Hong Kong. Factors such as the place where the principals are located, how they are identified by the commission agent and the place where incidental activities are performed before or after earning the commission are of no consequence in determining the source of commission income.

Guiding principles in determining source of other profits

The Inland Revenue Department has listed certain tests that determine the source of certain types of profits:

• Rental income: Rental income derived from leasing property is taxable in Hong Kong only if the property is located in Hong Kong.
• Profits from the sale of property: Profits that arise from the sale of property are subject to tax in Hong Kong only if the property is located in Hong Kong.
• Profits from the purchase and sale of listed shares: Gains derived from purchasing or selling listed shares are liable to tax in Hong Kong, provided the stock exchange where the shares are bought or sold is located in Hong Kong.
• Profits accruing to a business (other than a financial institution) from the sale of securities issued outside Hong Kong and not listed on an exchange: Such gains are taxable in Hong Kong only if the contract of purchase or sale is effected in Hong Kong.
• Service fees: Service fees are subject to Hong Kong tax if the services are provided in Hong Kong.
• Interest accruing to a business (other than a financial institution): Interest income is taxable in Hong Kong only if the loan transaction takes place in Hong Kong.
• Royalties on intellectual property received from Hong Kong by a non-resident: Royalty income is taxable in Hong Kong only if the intellectual property is used in Hong Kong.

Conclusion

As discussed, there is no universal rule to determine the locality of source of income. According to the HK Inland Revenue Department, the broad guiding principle is that one needs to examine what the taxpayer has done to earn the profit in question. As there is no universal legal test that can determine the source of profits, each case needs to be considered based on its circumstances.

The Companies Act 2014 (the “Act”) came into effect in Ireland on 1 June 2015 and has introduced significant reforms to Company Law in Ireland.

Under the Act, an existing private company limited by shares (EPC) has to decide, within a transition period of 18 months from 1 June 2015 (ending on 30 November 2016), whether to opt into the new regime for private companies limited by shares (LTD) or to opt out by 31 August 2016 by becoming a designated activity company (DAC).Alternatively the EPC may become some other type of company that the Act permits.

A DAC is a new type of private company and is the company type under the Act that most closely resembles the existing private company limited by shares.

This limited company type is applicable to those companies who wish to outline and define a specific type of business in their Constitution, rather than have unlimited powers as per the LTD company type. Consequently, the doctrine of ‘Ultra Vires’ still applies. DAC ‘s retain Memorandum & Articles of Association as part of an overall Constitution document.

It is important to note that Part 16 of the Companies Act 2014 governs Designated Activity Companies, however most of parts 1 to 15 of the Act also apply with certain provisions disapplied, modified or supplemented by part 16.

The principal points applicable to this company type making it different from the LTD company are as follows:

Key Features:

• The DAC is a private limited company
• The constitution of a DAC comprises of two separate documents namely a memorandum of association and articles of association (ie it retains a constitution document that contains a Memorandum & Articles of Association)
• The memorandum of association must set out the objects of the DAC and that the DAC has the capacity to do any act or thing stated in the objects
• The name of a DAC must end in “Designated Activity Company” (ie to replace what would currently be “Limited” at the end of the company name) or the Irish language equivalent but it may apply for an exemption
• The DAC must have a minimum of two directors and a person may not be a director of more than 25 companies
• The DAC can have from 1 to 149 members
• The Act allows for the DAC to have debentures admitted to trading and all private companies that were previously permitted to list debentures can continue to do so by converting to a DAC
• A DAC can be Limited Liability with a Share Capital or a Company Limited by Guarantee
• A DAC with one member has the right to dispense with an AGM but if the DAC has two or more members it does not have that right (ie unlike the New Limited Company Type, it cannot dispense with the requirement to hold an AGM unless it only has one shareholder/member)
• The law relating to DACs applies to all existing private companies limited by shares until they re-register as another company type or up to the end of the transition
•  A DAC can file and obtain audit exemption and dormant company audit exemption
• Must have an Authorised Share Capital

The companies that will likely avail of the DAC format of company are:

• Companies Incorporated to complete a specific or sole purpose that for legal reasons wish to have the company powers restricted (e.g. a Joint Venture)
• Existing Limited Companies that fall under regulation to trade in specified markets (e.g Financial Regulation) & Companies that have published an offering document and list securities
• Companies that wish to be Limited by Guarantee whilst having a share capital
• Certain Trustee companies and Special Purpose Vehicle (SPV) Companies
• Companies with shareholders that have a strong preference to be incorporated as a DAC