1.         INTRODUCTION

 

This Article relates to Seychelles limited partnerships (limited partnerships) registered under the Seychelles Limited Partnership Act 2003 as amended (the Act). This Article is not exhaustive, is intended as a general summary and is given only in respect of the position as at the date hereof (see footer). We do not provide legal or tax advice. We recommend that clients seek independent expert legal and tax advice prior to forming a limited partnership.

 

2.         HIGHLIGHTS

 

• Limited partnerships are required to have one or more general partners and one or more limited partners.

 

• A limited partnership is not an entity with separate legal personality and cannot own property in its own right. The Act provides that the property of a limited partnership shall be held by its general partner, or where there is more than one general partner, by the general partners jointly, as an asset of the limited partnership in accordance with the terms of its partnership agreement.

 

• The general partner is responsible for the administering and managing of a limited partnership. For example, the general partner is responsible for the signing of letters, contracts, deeds and other documents on behalf of the limited partnership. General partners are liable for any debts and obligations of a limited partnership if the liabilities exceed the assets of the limited partnership.

 

• At least one general partner of a limited partnership is required to be a Seychelles international business company incorporated under the International Business Companies Act 2016 or a company incorporated under the Companies Act 1972 and issued with a special licence under the Companies (Special Licences) Act 2003).

 

• Limited partners are not liable for limited partnership debts except in certain very limited cases.

 

• A general partner may also take an interest as a limited partner.

 

• A limited partnership is not permitted to carry on business in Seychelles except to the extent necessary for the carrying on of the limited partnership’s business outside of Seychelles.

 

• A limited partnership is not liable for Seychelles tax on its foreign sourced income. A limited partnership is exempt from Seychelles stamp duty in respect of: (i) a transfer of partnership assets; (ii) transactions in respect of partnership contributions, debt obligations and other securities of a limited partnership; and (iii) all other transactions relating to the business of n limited partnership.

 

3.         FORMATION AND REGISTRATION REQUIREMENTS

 

3.1       A limited partnership is formed by one or more general partners and one or more limited partners entering into a partnership agreement (which sets out the terms of the limited partnership and the partners’ respective rights and obligations, etc). To bring the partnership within the ambit of the Act, a limited partnership must be registered with the Registrar, which is achieved by the designated general partner filing a statement pursuant to section 9(1) of the Act (Statement of Particulars) setting out:

 

• the name of the limited partnership;
• the address of its registered office in Seychelles;
• the general nature of the business of the limited partnership;
• the full name and address of each general partner;
• a declaration that the limited partnership will not carry on business in Seychelles except so far as may be necessary for carrying on of the business of that limited partnership outside of Seychelles; and
• the name and address of the registered agent of the limited partnership.

 

3.2       The Registrar will issue a Certificate of Registration upon registration of the section 9(1) Statement of Particulars and on payment of the applicable registration fee (section 9(2) of the Act). The limited partnership’s partnership agreement is not required to be filed with the Registrar.

 

Name of limited partnerships

 

3.3       A limited partnership is required to have a name which shall include the words “Limited Partnership”, “L.P.” or “LP” and may include the name of any general partner or limited partner or any derivation thereof (section 6(1) of the Act).

 

Business restriction

 

3.4       Certain activities are regulated in Seychelles and a limited partnership may be required to obtain a licence from the proper authority if it wishes to carry on such activities (e.g. mutual fund business is regulated by the Seychelles Financial Services Authority (FSA) and an limited partnership wishing to operate as a mutual fund will need to apply for the requisite licence under Seychelles mutual fund legislation).

 

Tax exemptions

 

3.5       A limited partnership is not liable for Seychelles tax on its foreign sourced income. A limited partnership is exempt from Seychelles stamp duty in respect of: (i) a transfer of partnership assets; (ii) transactions in respect of partnership contributions, debt obligations and other securities of a limited partnership; and (iii) all other transactions relating to the business of a limited partnership (section 18 of the Act).

 

4.         GENERAL PARTNERS

 

4.1       Any one or more partners of an limited partnership may be resident, domiciled, established, incorporated or registered pursuant to Seychelles laws or of any other country, provided that at least one general partner of a limited partnership is required to be a Seychelles international business company incorporated under the International Business Companies Act 2016 or a company incorporated under the Companies Act 1972 and issued with a special licence under the Companies (Special Licences) Act 2003 (section 4(7) of the Act).

 

4.2       One or more general partners shall be responsible for the administering and managing the limited partnership and its business. The general partner is responsible for the signing any letters, contracts, deeds instruments and documents as general partner on behalf of the limited partnership (section 7(1) of the Act). Each general partner must at all time act in good faith in the interest of the limited partnership (section 4(3) of the Act).

 

4.3       Any property of the limited partnership which is transferred to a general partner or held on behalf of any one or more general partners shall be held by the general partner, and if more than one then by the general partners jointly as an asset of the limited partnership in accordance with the terms of the partnership agreement (section 7(2) of the Act).

 

4.4       Any debt or other obligations incurred by a general partner in the conduct of the limited partnership’s business shall be a debt or obligation of the limited partnership (section 7(3) of the Act). The general partner(s) shall, in the event that the assets of the limited partnership are inadequate, be liable for all the debts and obligations of the limited partnership (section 4(2) of the Act).

 

5.         LIMITED PARTNERS

 

5.1       A limited partner shall not take part in the conduct of a limited partnership’s business (section 7(1) of the Act). Subject to the terms of a limited partnership’s partnership agreement, a limited partner of a limited partnership may be a person resident in or outside Seychelles.

 

5.2       The limited partners shall not be liable to any debts and obligations of a limited partnership, except that if a limited partner takes part in the conduct of a limited partnership’s business in its dealings with persons who are not partners of the limited partnership, that limited partner shall be liable in the event of insolvency of the limited partnership for all debts and obligations of the limited partnership incurred during the period in which he or she so participated in the conduct of the limited partnership’s business, provided that he or she shall be rendered liable pursuant to the foregoing provision only to a person who transacts business with the limited partnership during such period with actual knowledge of such participation and reasonable belief that such limited partner was a general partner (section 7(4) of the Act).

 

5.3       Pursuant to section 7(5) of the Act, any of the following activities done by a limited partner do not constitute taking part in the conduct of a limited partnership’s business within the meaning of section 7 of the Act:

 

(a)        being a contractor for or an agent or employee of the limited partnership or a general partner, or by being an officer, director or shareholder of a corporate general partner;

 

(b)        consulting with and advising a general partner with respect to the limited partnership’s business;

 

(c)        investigating, reviewing, approving or being advised as to the accounts or business affairs of the limited partnership or exercising any right conferred under the Act;

 

(d)        acting as a surety or guarantor for the limited partnership, either generally or in respect of specific obligations of the limited partnership;

 

(e)        approving or disapproving an amendment to the partnership agreement; or

 

(f)         voting as a limited partner on any matter.

 

6.         SEYCHELLES REGISTERED AGENT AND REGISTERED OFFICE

 

6.1       A limited partnership must have a registered office situated in Seychelles for the service of process and to           which all notices and communications may be addressed, which shall be the same address as the principal place of business in Seychelles of its registered agent (section 6(2) and (3) of the Act).

 

6.2       As from 6 February 2022, a limited partnership shall at all times have a registered agent in Seychelles, which shall be a person    licensed to provide international corporate services under the International Corporate Service Providers Act (section 6A(1) and (2) of the Act). The registered agent has a non-fiduciary role and acts as a limited partnership’s point of contact in Seychelles. Filings to be made by a limited partnership with the Registrar must be submitted through its registered agent.

 

7.         CHANGE OF REGISTERED PARTICULARS

 

Notice to Registrar of change of Particulars (other than notice of person ceasing to be a general           partner)

 

7.1       If during the continuance of a limited partnership any change occurs in any particular contained in the             Statement of Particulars filed with the Registry pursuant to section 9(1) of the Act (i.e. a change in respect   of the name or address of each general partner or the registered agent, the general nature of the limited      partnership’s business or the registered office address), the general partner shall file a statement         specifying the nature of any change with the Registrar within 60 days of the change (section 10(1) of the             Act).

 

Notice to Registrar involving person ceasing to be a general partner

 

7.2       A statement of change signed in accordance with section 10(1) of the Act in respect of any arrangement       or transaction consequent upon which any person will cease to be a general partner in any limited   partnership shall, within 15 days of such arrangement or transaction, be filed with the Registrar and until   such statement is so filed, the arrangement or transaction shall, for the purposes of the Act and the   partnership agreement, be of no effect (section 10(2) of the Act).

 

8.         KEEPING OF PARTNERSHIP REGISTER required by the Limited Partnership Act

 

8.1       The designated general partner shall maintain or cause to be maintained at the registered office of the   limited partnership a register of partnership interests (the Partnership Register) containing the name       and address of each partner, the amount and date of contribution or contributions made by each partner    and the amount and date of any payment representing a return of any part of contribution of any partner         (section 11(1) of the Act). The Partnership Register should be kept in such form as the partnership’s             general partner thinks fit, including in electronic or other data storage form as the general partner thinks fit            (i.e. a PDF or Word copy is sufficient), but the general partner must be able to produce legible evidence            of its contents.

 

8.2       The Partnership Register must be updated within twenty-one business days of any change in the    particulars therein. The Partnership Register shall be made available for inspection and copying without   charge during business hours at the request of a partner and a certified copy of the Partnership Register         or any part thereof duly certified by the designated general partner shall be issued by a partner at his      request (section 11(2) of the Act).

 

9.         REGISTER OF BENEFICIAL OWNERS required by the Beneficial Ownership Act

 

9.1       In addition to the Partnership Registers required to be kept by the Act (see preceding paragraph), the Beneficial Ownership Act 2020 (the BO Act) and the Beneficial Ownership Regulations 2020 (the BO Regulations) require that the general partner of a limited partnership keep a Register of Beneficial Owners (see paragraph 9.2 below). For BO Act and anti-money laundering (AML) law purposes, pursuant to regulation 3 of the BO Regulations, the beneficial owner in relation to a limited partnership means an individual who:

 

(a)        ultimately owns or controls, whether directly or indirectly, ten percent or more of the partnership          ownership interests or voting rights of the partnership;

 

(b)        holds the right, whether directly or indirectly, to appoint or remove the majority of the general    partners of the partnership;

 

(c)        ultimately owns or controls, whether directly or indirectly, absolute decision or veto rights in the            conduct or management of the partnership; or

 

(d)        is entitled to the assets of the partnership in the event of the dissolution of the partnership.

 

9.2       A general partner of a limited partnership is required to keep at the principal place of business in Seychelles of its Seychelles general partner, a Register of Beneficial Owners (see section 5(1) of the BO Act and regulation 12(1) and the First Schedule of the BO Regulations), containing the following information:

 

(a)        the name, residential address, service address, date of birth and nationality of each beneficial owner of the partnership;

 

(b)        the nature and details of each beneficial owner’s interest in the partnership;

 

(c)        the date on which a person became a beneficial owner of the partnership;

 

(d)        the date on which a person ceased to be a beneficial owner of the partnership; and

 

(e)        where a nominee holds any interest in or control of the partnership on behalf of the beneficial                                     owner:

 

(i)         the name, residential address, service address, date of birth and nationality of each                                             nominee holding the interest on behalf of the beneficial owner and the particulars and                                     details of the interest held by the nominee; and

 

(ii)        the identity of the nominator (who nominates the nominee to hold interests on his, her or its                                   behalf), and where the nominator is a legal person, the identity of the individual who                                                 ultimately owns or controls the nominator (providing their name, residential address,                                                service address, date of birth and nationality)

 

9.3       The Register of Beneficial Owners may be maintained in magnetic, electronic or other data storage form (section 7 of the BO Act) but the general partner of the limited partnership must be able to produce legible evidence of its contents. Every general partner of the limited partnership shall maintain accurate and up to date information required under section 5(1) of the BO Act in the limited partnership’s Register of Beneficial Owners.

 

9.4       The registerable particulars of a limited partnership’s Register of Beneficial Owners must be submitted to the Seychelles Financial Intelligence Unit (FIU) which submitted information is not publicly accessible (see sections 5(6) and 13(4) of the BO Act). The filing of the registrable particulars with the FIU is required to be done by a limited partnership’s general partner in Seychelles.

 

9.5       A limited partnership’s Register of Beneficial Owners kept at its resident general partner’s office in Seychelles is not open to public inspection. The persons entitled to inspect a limited partnership’s Register of Beneficial Owners are a partner of the limited partnership and a person whose name is entered in the limited partnership’s Register of Beneficial Owners as a beneficial owner, limited to inspection of the person’s name in the Register (section 11(1)(d) and (e) of the BO Act).

 

10.       OBLIGATIONS RELATING TO BENEFICIAL OWNERSHIP

 

Declaration by person on becoming beneficial owner

 

10.1      Every person on becoming a beneficial owner of a limited partnership shall within 14 days from the date of becoming a beneficial owner, submit to the general partner of the limited partnership a Declaration of Beneficial Ownership containing the registrable particulars relating to the person (section 10(1) of the BO Act and regulation 14 and Second Schedule of the BO Regulations). “Registrable particulars” means the particulars to be registered under the BO Act in relation to a limited partnership including the particulars required by section 5 of the BO Act to be kept in a limited partnership’s Register of Beneficial Owners.

 

Notice of relevant change by beneficial owner

 

10.2      A relevant change in relation to a person occurs if: (i) the person ceases to be a beneficial owner in        relation to the limited partnership; or (ii) any other change occurs as a result of change in the registrable           particulars of the beneficial owner (section 10(8) of the BO Act).

 

10.3      If a relevant change occurs in relation to a beneficial owner of a limited partnership, the beneficial owner      shall within 14 days of such change give written notice to the general partner of the limited partnership            providing the following details for changes to be made to the limited partnership’s Register of Beneficial             Owners: (i) the relevant change; (ii) the date on which it occurred; and (iii) any information needed to update the Register of Beneficial Owners (section 10(3) of the BO Act).

 

11        KEEPING OF ACCOUNTING RECORDS

 

11.1      Each general partner of a limited partnership is required to keep or cause to be kept proper accounting records that: (i) are sufficient to show and explain the limited partnership’s transactions; (ii) enable the financial position of the limited partnership to be determined with reasonable accuracy at any time; and (iii) allow for financial statements of the limited partnership to be prepared (section 11A(a) of the Act). For the purposes of the Act, accounting records of a limited partnership mean documents relating to assets and liabilities of the limited partnership including receipts and expenditure, sales and purchases and other transactions (e.g., including bank statements, receipts, title documents, agreements and vouchers): section 2 of the Act.

 

11.2      Pursuant to section 11A(3) of the Act, as from 6 February 2022, a limited partnership shall:

 

(a)        prepare an annual financial summary to be kept at its registered office in Seychelles within 6        months from the end of the limited partnership’s financial year; and

 

(b)        where its accounting records are kept outside Seychelles, lodge, not less than on a bi-annual                             basis, the accounting records at the limited partnership’s registered office in Seychelles,                         provided that any accounting records. The FSA’s applicable Guidance Circular indicates that the                                  following shall apply:

 

• limited partnership accounting records relating to transactions or operations in the first half (January to June) of a calendar year must be kept in Seychelles by July of that year;

 

• limited partnership accounting records relating to transactions or operations in the second half (July to December) of a calendar year must be kept in Seychelles by January of the following year; and

 

• In respect of existing accounting records (i.e. accounting records relating to the years prior to year 2022) and accounting records relating to year 2022 for limited partnerships on the Register, accounting records relating to transactions or operations in the past 7 years to 31December, 2021 must be kept in Seychelles by 6 February 2022.

 

11.3      It shall be sufficient compliance with section 11A(3) of the Act (see paragraph 11.2 above) if a copy of the   accounting records and financial summary is kept in electronic form at the limited partnership’s registered         office in Seychelles (section 11A(4) of the Act). Where a limited partnership registered under the Act before       20 December 2021 keeps its accounting records outside Seychelles, it shall lodge its accounting records          relating to transactions over the past 7 years at the limited partnership’s registered office in Seychelles by 6          February 2022 (section 8 of the International Business Companies Act and Other Related Laws    (Amendment) Act 2021).

 

11.4      The financial year of a limited partnership shall be the calendar year, unless it is changed by the general partner and notified to the limited partnership’s registered agent within 14 days (section 11A(3A) of the Act).

 

11.5      While the accounting records are required to be kept at the registered office in Seychelles, they are not            required to be filed with the Registrar (except on legal request) and are not open to public inspection.

 

11.6      Where a limited partnership: (a) keeps a copy of its accounting records at its registered office; or (b)      keeps its original accounting records in Seychelles at a place other than at its registered office, the limited       partnership shall inform its registered agent in writing of the physical address of the place where the original accounting records are kept (section 11A(4A) of the Act).

 

11.7      Where there is a change in the place at which its original accounting records are kept, a limited partnership      shall, within 14 days of the change, notify in writing its registered agent of the physical address of the place        at which its original accounting records are kept (section 11A(4B) of the Act).

 

11.8      A general partner shall retain all accounting records for seven years, from the date of completion of the           transactions to which they relate (section 11A(5) of the Act).

 

12.       DISTRIBUTIONS

 

No distributions and no return of capital contributions to a limited partner may be made unless at the time of and immediately following such payment the limited partnership is solvent (section 14(1) of the Act). In the event that the limited partnership goes into insolvency within 6 months of any return of contribution to a limited partner, such return will be repayable by the limited partner with interest to the extent that such contribution or part thereof is necessary to discharge a debt or obligation of the LP that incurred during the period the contribution represented an asset of the limited partnership (section 14(1) of the Act).

 

13.       TRANSFER OR MORTGAGE OF PARTNERSHIP INTERESTS & REGISTER OF MORTGAGES OF            LIMITED PARTNERSHIP INTERESTS

 

13.1      Subject to the provisions of the limited partnership’s partnership agreement, a limited partner may assign either absolutely or by way of mortgage the whole or any part of his or her partnership interest and an assignee shall, to the extent of such assignment, become a limited partner, provided that such assignee shall not assume any liability of the assignor from him or her taking part in the conduct of business of the limited partnership which is prohibited the Act or for the return of contributions to the assignor following an insolvency of the limited partnership and provided further that, notwithstanding any term of the partnership agreement or any other agreement to the contrary, no such assignment shall relieve the assignor of any liability arising pursuant thereto (section 7(9)(a) of the Act).

 

13.2      If any limited partner has mortgaged any of his or her partnership interests, the limited partnership’s general partner has a duty to maintain or cause to be maintained a Register of Mortgages of such mortgaged interests. The register of mortgages of partnership interests shall be maintained at the registered office and shall record the identity of the mortgagor and mortgagee, the date of creation of the mortgage, the partnership interest or part thereof subject to mortgage and the date of receipt of notice of the mortgage (section 7(9)(b) of the Act). The register of mortgages of partnership interests shall be open to inspection by any person during all usual business hours (section 7(10) of the Act).

 

14.       LIMITED PARTNER’S RIGHT TO INFORMATION

 

Subject to any term of the partnership agreement to the contrary, each limited partner may demand and shall receive from the general partner true and full information regarding the state of the business and financial condition of the Limited Partnership (section 12 of the Act).

 

15.       RETURN OF CONTRIBUTIONS

 

15.1.     A limited partner shall not, on the dissolution of the limited partnership or otherwise, receive out of the          capital of the limited partnership a payment representing a return of any part of his contribution to the            partnership unless at the time of such payment the limited partnership is solvent (section 14(1) of the Act).    In section 14 of the Act, the word “receive” shall include the release of any obligation forming part of the     capital contribution and, in this context, liabilities to make repayments pursuant to section 14(2) of the Act             shall be read as including a reference to the due performance of such obligation (section 14(3) of the Act).

 

15.2      For a period of six months from the date of receipt by a limited partner of any payment representing a   return of contribution or part thereof received by such limited partner in circumstances where the           requirements of section 14(1) of the Act have not been met such payment shall, in the event of the   insolvency of the limited partnership within that period, be repayable by such limited partner with interest at        the legal rate to the extent that such contribution or part thereof is necessary to discharge a debt or    obligation of the limited            partnership incurred during the period that the contribution represented an asset of             the limited partnership (section 14(2) of the Act).

 

16.       DISSOLUTION & DE-REGISTRATION

 

16.1      A limited partnership shall not be dissolved by an act of the partners until a notice of dissolution signed by a general partner has been filed with the Registrar (section 15(1) of the Act). Notwithstanding the foregoing and any provision of the partnership agreement to the contrary, the death, insanity, retirement, bankruptcy, commencement of liquidation proceedings, resignation, insolvency or dissolution of the sole or last remaining general partner shall cause the dissolution of a limited partnership which shall then be wound up in accordance with the partnership agreement or, if any, applicable court order. Notwithstanding the foregoing, if within 30 days from the date of any of the aforementioned occurrences, one or more new general partners are appointed, the business of the limited partnership shall not be dissolved and wound up (section 15(3) of the Act).

 

16.2      Subject to the terms of a limited partnership’s partnership agreement, a general partner may at any time deregister a limited partnership by filing a written notice with the Registrar (section 16A of the Act).

 

17.       COMPLIANCE INSPECTIONS

 

Subject to section 25 of the Act, the Registrar may for the sole purpose of monitoring and assessing compliance with this Act, after giving reasonable notice to the general partner during business hours: (i) access the registered office of the limited partnership; (ii) inspect the documents required to be kept under this Act; (iii) during or after a compliance inspection request for explanation from the general partners of the limited partnership (section 24(1) of the Act). For the purposes of section 24(1) of the Act, where a document is not in the English or French language, the Registrar may request a translation of the records in the English or French language from the general partner of the limited partnership or from the registered agent (section 24(1A) of the Act).

 

18.       PRESERVATION OF RECORDS BY REGISTERED AGENT

 

A registered agent shall, in respect of each limited partnership (including a deregistered limited       partnership) to which it was or is acting as registered agent, preserve for at least 7 years: (i) the register         of mortgages and the register of limited partnership interests, from the date of deregistration of the limited     partnership; and (ii) the accounting records of the limited partnership in the possession of the registered        agent, from the date of completion of the transaction or operation to which they each relate (section 26(1)             of the Act). Where a registered agent ceases to hold a licence to provide international corporate services         under the International Corporate Service Providers Act, that person shall hand over all the records    specified under section 26(1) of the Act to the Registrar or any other person approved by the Registrar.       All records to be handed over under section 26(2) shall be preferably in digital form or in such form as            agreed upon between the Registrar and the registered agent (section 26(3) of the Act).

 

Summary & Conclusion

As a starting point when setting up a Seychelles LP, you’ll need to nominate one or more General partners and a Limited Partner/s.

 

In case you’re unsure as regards who is to fulfil what role you might like to note:

 

• An LP is not a Legal entity and cannot hold property in its own right.  The property of the LP is held by the General Partner/s
• The General Partner/s is/are responsible for the administration and management of the LP including signing agreements and resolutions on behalf of the LP
• The General Partner/s is/are liable for the debts of the LP if the debts of the LP exceed assets owned by the LP
• Limited Partners are generally speaking (subject to certain exceptions) not liable for the debts of the LP
• A General Partner may also take an interest as a Limited Partner
• At least one General Partner must be a Seychelles entity (we supply a Corporate Nominee as part of the package)
• As part of the registration process an LP must file a “Statement of Particulars” which must include the name/s of the General Partner/s and a summary of the LP”s proposed business activities

 

Price and Inclusions

 

OCI can assist you to set up a Seychelles LP. Included in the all-inclusive set up price of $1,500 for a Seychelles Limited Partnership are the following components:

• Services:
• Unlimited name availability inquiries
• Advice from an experienced International Corporate Lawyer on how to structure your Limited Partnership
• Preparation (overseen by a Lawyer) of application to register the Limited Partnership
• Preparation (overseen by a Lawyer) of the Limited Partnership agreement
• Preparation (overseen by a Lawyer) of the Statement of Particulars
• Attending to filing the Limited Partnership registration request with the registry
• Attending to payment of government filing fees
• One year’s Registered Agent’s service in the country of registration
• One year’s Registered Office service in the country of registration
• Provision of Seychelles resident General Partner (corporate or individual)
• Mailing address in the country of registration
• Delivery of registration pack by international courier (ie DHL/Fedex/TNT etc)
• Unlimited free legal consultations for 12 months

Documents included in your Registration pack:

•  
• Certificate of Registration
• Minutes of first meeting
• Statement of particulars
• Resolution to open a bank account for the Partnership
• Resolution to appoint a lawyer for the Partnership
• Resolution to appoint an accountant for the Partnership
• Notarised & Apostilled set of Registration/Partnership formation documents

Price (all inclusive): $US1,500

Annual fees from 2^nd year onwards are as follows:

• Registered Office Annual Fee: $600
• General Partner, resident of Seychelles (individual or corporate): $300

TOTAL 2^nd and subsequent years: $900

 

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

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.com

 

DISCLAIMER: Information current at 2.7.22. OCI is a Company/Trust/LLC/LP/Foundation Formation Agency. We are not tax advisers or legal advisers. You are advised to seek local legal/tax/financial advice in regards to your local reporting/tax requirements before committing to set up or use an Offshore Company or other entity.

 

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

 

Advantages and Uses

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

 

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

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

 

Multipurpose Use

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

 

Protection from Creditors

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

 

Cook Islands Foundations – Management

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

 

Foundation Supervisor or Enforcer

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

 

Privacy

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

 

Cook Islands Foundations -Investment Opportunities

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

 

Tax Exemption

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

 

Application of Foreign Law to a Cook Islands Foundation

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

 

Cook Islands Foundation – Wealth Preservation Advantages

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

 

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

 

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

 

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

 

Punitive damages cannot be recovered from a CIF.

 

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

 

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

 

Background

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

 

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

 

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

 

Registration and Rules

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

 

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

 

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

 

Asset protection provisions

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

 

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

 

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

 

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

 

Migration, Dissolution and Termination

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

 

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

 

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

 

Cost:

Set up $4,500

From 2^nd year $2,900

 

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

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.com

 

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

 

 

 

 

GENERAL INFORMATION

 

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

 

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

 

DEFINITION OF A TRUST

 

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

 

TYPES OF TRUST

 

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

 

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

 

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

 

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

 

COMMON USES

 

• Administration of assets

• Private investments

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

 

BENEFITS AND ADVANTAGES

 

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

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

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

 

TAXATION

 

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

 

REVOCABLE OR IRREVOCABLE TRUST

 

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

 

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

 

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

 

ACCOUNTING RECORDS

 

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

 

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

 

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

 

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

 

Cost would be as follows:

 

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

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

 

-           Annual trustee fee                                                          $3,300

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

 

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

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.com

 

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

 

 

 

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

 

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

 

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

 

TARGETTED ACTIVITIES

 

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

 

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

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

 

FILING/REPORTING

 

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

 

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

 

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

 

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

 

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

 

FINANCIAL PERIOD

 

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

 

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

 

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

 

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

 

ASSESSMENT REQUIREMENTS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

PURE EQUITY HOLDING BUSINESS – CATEGORY B

 

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

 

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

 

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

 

OUTSOURCING

 

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

 

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

 

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

 

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

 

SUPPORT SERVICES

 

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

 

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

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.com

 

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

 

*Information current as at March 3, 2022

 

 

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

 

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

 

TARGETTED ACTIVITIES

 

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

 

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

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

 

FILING/REPORTING

 

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

 

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

 

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

 

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

 

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

 

FINANCIAL PERIOD

 

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

 

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

 

There are also provisions available for changing the standard financial periods

mentioned above, please inquire if necessary.

 

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

 

ASSESSMENT REQUIREMENTS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

PURE EQUITY HOLDING BUSINESS – CATEGORY B

 

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

 

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

 

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

 

OUTSOURCING

 

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

 

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

 

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

 

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

 

SUPPORT SERVICES

 

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

 

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

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.com

 

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

*Last amended March 3, 2022

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.com

 

DISCLAIMER: OCI is a Company/Trust/LLC/LP/Foundation Formation Agency. We are not tax advisers or legal advisers. You are advised to seek local legal/tax/financial advice in regards to your local legal and reporting/tax requirements before committing to set up or use an Offshore Company (or other entity) for the above described, or any other, purpose/s.

 

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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

 

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

 

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

 

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

 

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

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.com

 

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

 

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

 

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

 

Uses of Foundations

 

Common uses for Private Foundations include:

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

 

Bahamas Foundations Legislation Summary

 

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

 

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Bahamas Foundation Registration

 

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

 

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

 

Required Documentation for a Foundation

 

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

• Name of the Foundation

• Date of Charter and Articles (if any)

• Summary of the Foundation’s purposes

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

• Name and address of the Secretary

• Name and address of the Foundation Council

• Address of Registered Office

• Value of initial assets, and

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

 

3. A statutory declaration certifying to the Registrar that:

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

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

 

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

 

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

 

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

 

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

From 2nd year $1,800

 

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

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.com

 

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

 

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

 

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

 

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

 

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

 

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

 

Applicable Tax Rates:

 

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

 

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

 

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

 

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

 

Key Features Include:

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

 

Other features Include:

 

– Bearer shares are not permitted.

– Registered shares can be held in nominee form.

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

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

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

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

– Corporate domicile can be changed to another jurisdiction.

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

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

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

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

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

– Company names can be reserved by telephone or fax.

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

 

Benefits of Incorporating in the Bahamas:

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

 

Set up etc Costs

 

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

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

 

Total: $2550

 

OCI Bahamas IBC Services

 

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

 

Services:

 

• Advice from an experienced International Corporate Lawyer on how to structure your company
• Preparation (overseen by a lawyer) of application to incorporate the company
• Preparation (overseen by a lawyer) of the company’s memorandum of association
• Preparation (overseen by a lawyer) of the company’s articles of association
• Attending to filing incorporation request with the company registry
• Attending to payment of government filing fees
• One year’s Registered Agent service in the country of incorporation
• One year’s Registered Office service in the country of incorporation
• Mailing address in the country of incorporation
• Delivery of Incorp pack by international courier (ie DHL/Fedex/TNT etc)
• Unlimited free legal consultations for 12 months

 

Documents included in your Incorp pack:

 

• Certificate of incorporation
• 2 sealed/stamped copies of the company’s Memorandum of Association
• 2 sealed/stamped copies of the company’s Articles of Association
• Resolution appointing first director/s
• Resolution appointing first shareholder/s
• Up to 5 share certificates
• Resolution to open a bank account
• Resolution to rent an office
• Resolution/s to engage a Phone, Internet & Website service provider
• Resolution to hire a staff member/s
• Resolution to appoint a company lawyer
• Resolution to appoint a company accountant
• Resolution appointing you as the company’s authorised representative in commercial negotiations
• Resolution issuing a Power of Attorney in your favour
• Agreement authorising you to represent the company in commercial negotiations
• Power of attorney authorising you to sign documents on behalf of the company
• Register of directors
• Register of shareholders
• Expression of wishes (ie an “Offshore” Will)
• Lawyer authored User Guide (“How to Use Your Offshore Company”)

 

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

 

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

 

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

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.com

 

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

 

 

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

 

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

 

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

 

Tax rates:

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

 

BELIZE COMPLIANCE CHANGES – YOUR QUESTIONS ANSWERED

 

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

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

 

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

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

 

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

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

 

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

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

 

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

 

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

No restriction.

 

The Belize LLC – Under the Microscope

 

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

 

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

 

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

 

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

 

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

 

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

 

Key Benefits include:

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

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

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

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

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

 

Other features of the Belize LLC Law include:

 

1. A Belize LLC:

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

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

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

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

 

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

 

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

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.com

 

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

*Information current as at 3 March 2022