Category Archives: Company- Management

Are you a video game creator?

 

Would you prefer to incorporate your business in a low regulation and/or tax friendly environment?

 

If so, you might want to think about incorporating your business “Offshore”.

 

Video games are, at core, Intellectual Property (“IP”) ie a creation of the mind. IP also includes things like inventions, literary and artistic works, designs and symbols, software code, names and images used in business.

 

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

 

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

 

Practicalities

 

So how does it work from a practical perspective?

 

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

 

The first step is to transfer ownership of the software/artworks underpinning your video game (ie your IP rights) to the Offshore Company/Entity.

 

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

 

Timing is of critical importance – It is clearly preferable to acquire the IP (for example, a patent) at the earliest possible time (e.g. at the patent pending stage) before the IP becomes highly valuable. That way the capital payment for the acquisition of the IP (e.g. patent) can be set at a lower amount i.e. before its true worth has been determined in/by the market. (These capital payments may even be deferred and or staggered by way of an instalment contract such as would enable the IP Company to use subsequent royalty payments to fund the cost of the IP).
If a deal is struck for the Offshore IP Company to buy the IP before the IP gives rise to a product or service which is offered/advertised in the market the IP might even be transferred for nominal consideration enabling the IP inventor/creator to transfer patent, copyright or trademarks in favour of the low/nil tax company before the IP suffers significant appreciation in value.

 

Businesses Who Pay Royalties or License Fees for the use of IP

 

Once it has acquired the Property the Offshore IP Company can then issue (IP) sub-licenses or exploitation rights to appropriate third party structures.
For example, a majority of software companies license their users through companies which are established in an offshore jurisdiction, or through a firm, which is not established in a classical offshore jurisdiction, but is owned or controlled by such a firm.

Typical examples of businesses that might pay license fees to a nil/low tax Offshore Company include:
- Software companies
- Companies doing business in information technologies
- License and copyrights to books, articles, music, films, etc.
- Users of Franchise operating systems

- Trademark product (e.g. Clothes/Consumer Goods/Accessories etc. Brand) manufacturers and or retailers

 

In some circumstances the royalties may be subject to withholding tax at source, however, the interposing of a second company in another jurisdiction may reduce the rate of tax withheld at source (a carefully selected jurisdiction can withhold taxes on royalty payments with the commercial application of double tax treaties).

 

Structuring Options

 

Another option, whilst you are still in the process of creating a new piece of intellectual property, is to involve or engage an offshore (nil tax) company as a foreign partner or financial sponsor. Participation in development at this early stage would entitle it to register as the owner or co-owner of the property.

 

If you involve an offshore company later, you have to sell or assign the title to the property to the offshore company, and these kind of transactions requires at the least that a fair market price deal be apparent as if no associated parties were involved (+ the transfer may involve the incurring of some CGT on the part of the inventor/creator of the IP).

 

Benefits of an Offshore IP Company
There are numerous benefits that an IP holding company can deliver including:

• By placing your IP in one entity you are able to streamline the internal processes for inter-group licensing
• Cross-jurisdictional tax issues become simpler as you will be regularly licensing IP between the same jurisdictions
• You can justify staffing that entity with people who have the skills to manage the same so protecting valuable assets of the company further, simplifying the licensing process
• Assets can be valued due to the income stream that accrues for the benefit of the IP holding company
• The value of the shares in the entity can be included into the accounts which will benefit the shareholders of the holding company
• You can split your income streams in two enabling you to sell one chunk of your business first up (i.e. the operational business) whilst retaining the other (i.e. IP) arm of the business which would entitle you to receive passive income
• If your business or trading company ever gets sued and the IP is owned by a 2^nd (e.g. Offshore) Company the most precious asset of your business can/will not be lost.
• You get to retain ownership of your IP in a highly private environment where no one knows what you own or how much the IP is worth. (There have been many documented cases of inventors and artists who rise suddenly to fame only to lose their fortune just as quickly via a law suit filed by a disgruntled gold digging ex-lover or confidante… The chances of that happening if your IP is owned by a privacy haven company are GREATLY reduced)
• You can significantly if not dramatically reduce the tax that your operating/trading company would otherwise have to pay

 

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 Cayman Islands, consisting of Grand Cayman, Cayman Brac and Little Cayman, are located in the western Caribbean, about 150 miles south of Cuba, 460 miles south of Miami, Florida, and 167 miles northwest of Jamaica. The capital of the Cayman Islands is George Town which is situated on the western shore of Grand Cayman. Geographically, the Cayman Islands are part of the Cayman Ridge, which extends westward from Cuba.

 

The legal system of the Cayman Islands is based upon English Law and is a combination of common law and statute. The Cayman Islands is a British overseas territory, with its judiciary appointed by the territorial government. The Privy Council in London, United Kingdom is the ultimate appellate court.

 

The Cayman Islands Companies Law governs the operations of the Cayman Islands Exempted Company.

 

Key features of the Cayman Islands Exempted Company:

• An exempted company may not conduct business within the Cayman Islands
• A tax exemption certificate is available for application with an initial period of 20 years or 30 years
• Simple corporate structure – minimum requirement of one shareholder and one director
• Information on shareholders is not available for public inspection
• Registers of Directors and Officers are required to be filed with the Companies Registry, however they are not available for public inspection
• No minimum share capital is required, and it can be expressed in any currency
• Shares can be issued with or without a nominal or par value
• Chinese company names can be registered with the Registrar
• No requirements for audited accounts or holding of annual general meetings

 

Benefits of the Caymans Exempt Company include:

A Cayman Islands Exempted Company offers the following benefits:

• 100% Foreign Owners: Foreigners can own all the shares.
• Limited Liability: Only the unpaid amount for all the shares is a shareholder’s liability.
• Privacy: The names of the shareholders and directors are not available to the public. Bearer shares are permitted.
• No Taxation: The Cayman Islands do not levy any type of taxes on the company and shareholders. However, United States residents must declare all global income to the IRS just like residents of other countries taxing global income.
• One Shareholder/Director: Only one shareholder and one director is required who can be the same person.
• No Required Meetings: There are no requirements to hold shareholders or directors meetings.
• No Audits: There are no required accounting standards and no required audits.
• English: English is the official language.

 

Cayman Islands Exempted Company Name
As long as the proposed company name is not similar to any other legal entity’s name in the islands, exempted companies may choose a name in any language. They can even have a dual name in English and in another language without having to provide a translation.

 

Proposed names can be reserved for a limited time with the Registrar for a small fee.

 

Exempted companies are not required to use “Limited” or “Ltd” although they are limited liability companies.

 

Certain words may not be used with a company name as they are restricted including “bank”, “chartered”, and “royal”.

 

Types of Exempted Companies
The Companies Act provides for variations of exempted companies with different features:

 

Exempted Company – This type of company cannot engage in business inside the Cayman Islands with citizens or residents. However, they can contract with service providers to obtain internet, water, electricity, and other necessary services to run a business. To become registered, an applicant must file a declaration that no business will be conducted inside the islands.

 

Segregated Portfolio Company (SPC) – An exempted company is the only type which can apply to become a segregated portfolio company. The SPC can separate its assets and liabilities into portfolios independent of each other and the general assets of the company.

 

Exempted Limited Duration Company – This type of company limits its lifespan to a maximum of 30 years when it automatically dissolves.

 

Memorandum of Association
The constitution of a Cayman company are the Memorandum of Association and the Articles of Association. The Memorandum must contain this information:

 

• Company name;

• Initial subscribers’ names along with how many shares each one has subscribed (minimum of one share per subscriber);

• Purpose for the company;

• Registered office address;

• Declaration confirming the limited liability for its shareholders; and

• Authorized share capital in any currency.

 

Articles of Association
The Articles of Association describe the internal rules and regulations including:

 

• Shares issuance, types, how they are transferred, repurchased, or redeemed;

• Shareholders’ meetings;

• Shareholders’ voting rights;

• Appointment of officers and directors along with their powers, meetings, compensation, and indemnification;

• Dividends payments; and

• Winding-up towards dissolution.

 

A copy of the Articles of Association and the Memorandum of Association must be made available to all shareholders upon request.

 

Limited Liability
A shareholder’s liability is limited to his or her unpaid amount for all shares.

 

Registration
Two signed copies of the Articles of Association and the Memorandum of Association are filed with the Registrar of Companies who issues a Certificate of Incorporation. These documents will not be made available for public inspection.

 

Registered Office
Every company must have a local registered office whose location is filed with the Registrar and published by public notice. If the directors change its location it must be done by a formal resolution. A certified copy of the change of location resolution must be filed with the Registrar within 30 days of the resolution being passed.

 

Shareholders
A minimum of one shareholder is required who can be the sole director of the company.

 

A Registry of Members (shareholders) is required, but does not have to be kept at the registered office. Nor does the Registry of Members have to be available for inspection by the government or the public. The only exception is when an order for production is issued under the Tax Information Authority Law.

 

Shares may be issued:

• With or without nominal or par value;

• Negotiable or non-negotiable;

• Premium over par value:

• Issued in fractions of shares (with corresponding fractions of rights and liabilities);

• Issued with deferred, preferred, or other special rights; and

• Bearer shares (except when the company owns Cayman real property).

 

Share certificates are proof of ownership, but shares can be issued without certificates. Registered shares are also allowed.

 

Shares may be transferred if the Articles of Association provide for them or may restrict transfers.

 

Dividends may be paid out if the Articles of Association so provide.

 

Directors and Officers
A minimum of one director is required. Directors may be residents of and residing in any country. Since the Memorandum of Association lists the initial director(s), any removal and addition of directors must be in accordance with the Articles of Association.

 

Liabilities of the directors may be limited or unlimited according to the Articles of Association.

 

The Board of Directors is responsible for the management of the company and its officers. The Articles of Association should provide all the powers, duties, and responsibilities for the directors and officers.

 

The company has the option to appoint officers to manage the daily affairs like a President, Treasurer and/or a Secretary.

 

The names and addresses of the officers and directors must be maintained in a Register of Directors & Officers stored at the registered office. Within 60 days of the first appointment, a copy of the Register must be filed with the Registrar of Companies. The same requirements apply for any changes of directors or officers.

 

Accounting
The government does not require specific standards for accounting and bookkeeping. However, every company must maintain adequate accounting records showing income, expenses, assets, and liabilities. While the records do not have to be kept in the Cayman Islands, they must be available if the government and its tax authorities were to give notice or an order to inspect them.

 

There is no requirement for any audits or the appointment of auditors.

 

Minimum Authorized Capital
While not required, most exempted companies choose an authorized capital of $50,000 because this is the maximum capital a company can have to qualify for the lowest government registration fee.

 

Annual Filing
Every January each company must file a return with the Registrar declaring whether any changes to the Memorandum of Association have been made, and that all business was conducted outside of the islands and that no trade was conducted inside the islands.

 

An annual renewal fee must be paid by December 31 for the next year. The fee is a sliding scale based upon the authorized share capital amount.

 

Taxes
There are no taxes. No income tax, no corporate tax, no capital gains taxes, no gift taxes, no inheritance taxes, no wealth tax, or any other tax for a company exclusively conducting business outside of the islands.

 

Annual General Meeting
There is no requirement to hold an annual general meetings for the directors or the members (shareholders).

 

Public Records
The only document filed with the Registrar is the Memorandum & Articles of Association which is not accessible to the general public.

 

Registration Time
(Once you’ve passed Compliance checks) a Caymans Exempt Company can be registered in as little as 3 to 4 business days.

 

Shelf Companies
Shelf companies are not available for purchase in the Cayman Islands.

 

Summary

A Cayman Islands Exempted Company offers the following benefits:

• 100% foreign ownership
• no taxes
• privacy
• limited liability
• one shareholder/director for greater control
• no audits
• no required meetings
• English is their official language AND
• The Cayman Islands is a highly respected name/jurisdiction in International Business and Investment markets making it attractive to investors, banks suppliers and clients

 

 

OCI FEES FOR CAYMANS EXEMPT COMPANIES

 

INCORPORATION

Incorporation – Exempt Company $US 3,271.50

(Government Filing, Beneficial Ownership Filings, Economic Substance

Notification and Filing, Annual Return Filing, and Professional Fee)

 

ANNUAL MAINTENANCE

Annual Registered Office / Registered Agent $2,721.50

(Fee includes Annual Compliance Review – Regulatory

and Beneficial Ownership, Economic Substance

Annual Notification & Return Filing),

Government Annual Fee (Standard Share Capital))

 

DISBURSEMENTS

Notary Fee 35

Online Filing Fee 25

Incoming wire transfer (bank fee) 15

 

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.

 

 

 

 

 

Many jurisdictions around the world now require newly formed Companies to file a “register of beneficial owners”.

 

In most jurisdictions this document is filed confidentially with the Government’s Company registry and is not publicly accessible information.

 

If you’re looking to incorporate an “Offshore” Company and  don’t want to risk your name being listed with the government of that jurisdiction as the “Beneficial Owner” of the Company there are 2 stand out jurisdictions worth considering ie Singapore (“SG”) and Hong Kong (“HK”).

 

Both these jurisdictions work like a tax haven jurisdiction ie they don’t tax income that is earned outside the country of incorporation (unless you incorporate in SG and bring the money INTO Singapore).

 

Neither jurisdiction has “registers of Beneficial owners” but rather they have a register of controllers.

 

Singapore’s Register of Registrable Controllers

 

Singapore doesn’t require its Companies to create/hold a register of beneficial owners per se but (like Hong Kong) Singapore Companies are required to keep a register of registrable controllers, and to make the information contained therein available to public agencies upon request.

 

A Controller is defined as an individual or a legal entity that has a “significant interest” in or “significant control” over the company.

 

 

Under Singapore (“SG ) law a controller who has significant interest in a company may include any of the following:

In the case of Companies with Share capital:

• an individual who has interest in more than 25% of the shares; or
• an individual with more than 25% of total voting power in the Company

 

In the case of Companies without Share capital (eg Companies Limited by Guarantee):

• An individual who has the right to share in more than 25% of the capital or profits of the Company

 

Under SG law a controller who has significant control over a company is defined as a person who:

• holds the right to appoint or remove directors who hold a majority of the voting rights at directors’ meetings;
• holds more than 25% of the rights to vote on matters that are to be decided upon by a vote of the members of the company; or
• exercises or has the right to exercise significant influence or control over the company.

 

Key points about the Register of Registrable Controllers:

• The register of registrable controllers must be maintained at a prescribed place, e.g. the company’s registered office or the registered office of the registered filing agent.
• The register can be maintained in paper or electronic format.
• The register of registrable controllers is stored privately by the Company and is not accessible to the general public.
• Companies must give the Registrar and ACRA (The Accounting & Corporate Regulatory Authority) officers, as well as public agencies administering or enforcing any written law (eg the SG Commercial Affairs Department, Corrupt Practices Investigation Bureau and the Inland Revenue Authority of Singapore) access to their registers of registrable controllers upon request.
• The information therein can only be used by public agencies for the purpose of administering or enforcing the laws under their purview (e.g. investigation of money laundering offences).
• Companies will have to declare with ACRA the location of the company’s register of registrable controllers when filing the company’s annual returns or annual declaration .
• Companies can discharge their duties by sending notices to the relevant parties and recording their particulars, as well as sending further notices to any other parties that have been revealed as potential controllers. Notices can be sent and replies may be received, in electronic or hard copy format. The Company is not liable should recipients of these notices fail to respond or provide inaccurate responses.
• A controller is required to provide and update information to the Company.

 

Hong Kong’s Significant Controllers Register

 

Hong Kong (“HK”) doesn’t require its Companies to create/hold a register of beneficial owners per se but (like Singapore) HK Companies are required to keep a Significant Controller Register “SCR”), and to make the information contained therein available to public agencies upon request.

 

Under HK law a person is deemed to have significant control over a company if one or more of the following 5 conditions are met:

 

• The person holds, directly or indirectly, more than 25% of the issued shares in the company or, if the company does not have a share capital, the person holds, directly or indirectly, a right to share in more than 25% of the capital or profits of the company
• The person holds, directly or indirectly, more than 25% of the voting rights of the company
• The person holds, directly or indirectly, the right to appoint or remove a majority of the board of directors of the company
• The person has the right to exercise, or actually exercises, significant influence or control over the company
• The person has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or a firm that is not a legal person, but whose trustees or members satisfy any of the first four conditions (in their capacity as such) in relation to the company

 

The SCR is NOT filed with the HK Government and need only be kept at the company’s registered office address in Hong Kong or any other Hong Kong address with prior notification filed to Companies Registry.

 

When requested by a law enforcement officer – for the purpose of performance of functions relating to the prevention, detection or investigation of money laundering or terrorist financing – a HK Company must at any reasonable time make its SCR available for inspection by the officer at the place at which the SCR is kept and the Company must permit the officer to make copies.

 

Privacy Solution – Set up a Seychelles Foundation to act as shareholder of the Company

 

Recently the following question was put to our senior legal adviser in HK…

 

“In the above scenario, and in particular given that a Seychelles Foundation is deemed via statute to be both the legal owner AND THE BENEFICIAL OWNER of any asset it holds/owns, if a Seychelles Foundation is set up to act as shareholder of a HK Company which party’s name (or which parties names) are inserted into the SCR???

 

The answer we received was as follows:

 

“Assuming a Seychelles Foundation is the sole shareholder of the HK the Foundation is the beneficiary itself until it decides to distribute benefits. Therefore, you would only need to record the name of the Foundation as the Significant Controller in the SCR.”

 

You might also like refer to the SCR guidelines page 25-33 in particular 10.4 to 10.6 to determine whether there might be any other entities / individuals that actually exercise a significant control over the company (even though they don’t hold shares or directorships / indirectly).

 

(The HK Govt “Guideline on the Keeping of Significant Controllers Registers by Companies”

is accessible via this Link: Guideline on the Keeping of Significant Controllers Registers by Companies )

 

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Are you looking to set up an Offshore Trust?

 

Have you looked into or considered the Private Foundation option?

 

If your reason for wanting to set up an Offshore Trust is to try and avoid tax at home on the earnings of the Trust and/or if you want to be able to exercise ultimate control over the assets handed/transferred to your Offshore Trust you might want to consider setting up a Foundation instead.

 

The main disadvantage of a Trust is most Offshore Trusts are caught by Transferor Trust Rules (which tax the movement of assets into an Offshore trust) and/or are caught by local Controlled Foreign Trust laws. Put simply if you have the means to remote control an Offshore Trust or are a presently entitled beneficiary of an Offshore Trust in many jurisdictions you would be required to declare locally and pay tax on the Trust’s earnings (or on the share thereof that you would/should be entitled to as a Trust beneficiary).

 

A Foundation is very similar to a Trust in that it’s set up by a Founder (like a Settlor in the case of a Trust) and managed day to day by a Councillor (like a Trustee in the case of a Trust) who manages the Foundation property for the benefit of the beneficiaries of the Foundation.

 

Moreover, a Foundation may get you around the tax issues as it’s a separate legal entity in its own right (ie the Foundation actually owns the assets held by the Foundation – unlike a Trustee who holds property for someone else ie the beneficiaries) and by law the beneficiaries are not entitled to the income or capital of the Foundation until the Foundation actually resolves to pay a distribution. What this means is you should be able to defer paying tax at home on any income/gains derived from investments held/made by the Foundation enabling you to reinvest 100% of that income not just the after-tax component.

 

This should also enable you to access the power of compounding  on those investment earnings meaning your net worth will grow MUCH faster than what it would were you to pay tax each year on your investment income.

 

Control

 

Often I am asked by a client “I want to set up a Trust to protect my assets and for the benefit of my children… How can I control what the Trust invests in and who is to benefit and when?”

 

In short if you want to have maximum control (of what would otherwise be your Trust Estate) without effecting the legal integrity of the entity/structure the preferred form of entity again would probably be a Private Foundation.

 

Why?

 

Because if/where a Trust is used any time you want the Trust to do something (eg buy/sell an asset, add/remove a beneficiary, etc) you need to work through the Trustee and the Trustee has to be agreeable… (and many Trustees are extremely conservative/risk averse and/or poor/slow communicators/administrators). In short the process of getting the Trustee’s approval can be slow, painful and expensive!

 

Trusts and Foundations are very similar creatures:

 

• A Trust is set up by/at the request of a person called a Settlor, is managed day to by a Trustee and (typically) has beneficiaries ie persons who are designed ultimately to benefit financially from the set-up of the Trust.

 

• A Foundation is set up by/at the request of a person called a Founder, is managed day to by a Councillor and (typically) has beneficiaries ie persons who are designed ultimately to benefit financially from the set-up of the Foundation

 

Unlike a Foundation a Trust (which is in essence an arrangement between the Settlor and the trustee, almost like a contract) is NOT a separate legal entity. If a Trust owns an asset (eg a piece of real estate) the legal/registered owner of the asset is the Trustee but the beneficial owners of the asset are the beneficiaries of the Trust. Moreover, in certain circumstances, the beneficiaries of a Trust are entitled to, and thus can compel the Trustee to pay the beneficiaries, a distribution. This can potentially leave Trust property at the mercy of any of the beneficiary’s Judgment creditors AND it leaves a door open for a local taxman to sneak through and try and tax the beneficiary’s share of the Trust’s earnings (ie the Trust and or any Company it might own would probably be caught by CFT/CFC rules)

 

A Foundaton on the other hand is a separate legal entity. It can sue and be sued in its own right. If a Foundaton owns an asset the Foundation itself is presumed at law to be both the legal owner AND THE BENEFICIAL OWNER of any asset the Foundaton holds. AND the beneficiaries of a Foundation have no interest in Foundation property/no entitlement to a distribution unless or until such time as the Foundation Council resolves to pay them a distribution. Only then should a beneficiary (potentially) be liable to declare/pay tax ie on the distribution then paid to him or her by the Foundation.

 

Why?

 

Because CFT rules and CFC rules are based on the presumption of beneficial ownership. If you aren’t/can’t be classified at law as the beneficial owner of the income producing asset – and/or if you’re not entitled to receive a distribution from the asset owner – it stands to reason that the entity that owns the asset shouldn’t be classified as a CFT/CFC.

 

Moreover with a Foundation, (and this will be of particular interest for persons who want to maintain maximum control over their Offshore Trust/Foundation) the Foundation Councillors rights/powers can be reserved at settlement to the Foundation Founder; + where a “Nominee” Founder is deployed (eg so that the actual Founders name doesn’t appear on the public record/publicly accessible record as Founder) the rights reserved to the Nominee Founder can be assigned to you (ie the person who authorized the set up of the Foundation) or any 3^rd party of your choosing (for more details, check this link: https://www.dropbox.com/scl/fi/vg8bze1p0nlf9uotinxtl/What-Powers-Can-Be-Reserved-to-a-Founder-Assigned.docx?rlkey=obxkgxlgt1q4m4npcg18ttolq&st=z5ctn3cy&dl=0 ).

 

In short, with each passing year, we are seeing more and more clients choosing to set up Private Foundations rather than Offshore Trusts. Hopefully having read the above verbage you can see why!

 

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.

 

 

In a bid to capture its fair share of Blockchain related business Seychelles recently enacted a new law providing for the registration and regulation of Virtual Asset Service Provider Enterprises.

 

While licensees under the VASP Act are subject to robust regulatory requirements (similar to those applicable to securities dealers) the good news is that such enterprises have been gifted an attractive low tax rate of 1.5% of assessable income (i.e. Seychelles sourced income).

 

The other key advantage of registering such a business in Seychelles is the geographical location and time zone, convenient for businesses whose target markets are Asia, Africa, Middle East, or Europe.

 

The new law fairly places Seychelles in the market as an attractive VASP License Jurisdiction alongside the major players including the Cayman Islands the BVI, Mauritius and etc.

 

 

CONTENTS
Paragraph	Description
1.	Preliminary
2.	Seychelles VASP Highlights
3.	Seychelles VASP Licensing
4.	VASP operating requirements
5.	VASP Accounting Requirements
6.	Annual Licence Fees & Submissions to the Authority
7.	Taxation
8.	Initial Coin Offerings and Non-fungible Tokens
9.	Restrictions on certain words
10.	Anti-Money Laundering Obligations
11.	Financial Consumer Protection Act

 

1.         PRELIMINARY

 

1.1       This guide summarises the Seychelles regulatory framework for businesses providing virtual asset services. This guide is not exhaustive, is intended as a general summary and only relates to the position as at the date hereof. We do not provide legal advice and we do not accept any responsibility for any errors or omissions. We recommend that clients or other readers of this guide obtain independent legal advice.

 

1.2       The last ten years have seen meteoric growth globally in virtual asset business, including in the use of high-profile virtual currencies such as Bitcoin, which allow online payments to be sent directly from one party to another without going through a bank or other financial institution. Virtual currency is a type of digital money, which is issued and usually controlled by its developers and used and accepted among the members of a specific virtual community. Investment in cryptocurrencies is enabled by cryptocurrency wallets and exchanges. These platforms, analogous to dealers in virtual currency, are the entities through which many investors hold and trade cryptocurrency.

 

1.3       Note: Whereas this guide refers to some amounts in Seychelles Rupees (SCR), as at the date of this guide (see footer), USD1 = 14.87 SCR (mid-range exchange rate per Central Bank of Seychelles website: www.cbs.sc).

 

Seychelles

 

1.4       The Virtual Asset Service Providers Act 2024 (the Act) provides a comprehensive regulatory framework with respect to the provision of virtual asset services in or from Seychelles. The regulatory requirements are supplemented by the following Regulations made under the Act:

 

• Virtual Asset Service Providers (Licensing and Ongoing Requirements) Regulations, 2024 (the Licensing and Ongoing Requirements Regulations);

 

• Virtual Asset Service Providers (Capital and other Financial Requirements) Regulations, 2024 (the Capital and other Financial Requirements) Regulations);

 

• Virtual Asset Service Providers (Cyber Security Requirements) Regulations, 2024 (the Cyber Security Requirements Regulations);

 

• Virtual Asset Service Providers (Advertisements) Regulations, 2024 (the Advertisements Regulations);

 

• Virtual Asset Service Providers (Registration of Initial Coin Offering and Non-Fungible Tokens) Regulations, 2024 (the Registration of Initial Coin Offering and Non-Fungible Tokens Regulations); and

 

• Virtual Asset Service Provider (Safekeeping and Management of Client’s Assets) Regulations, 2024 (the Safekeeping and Management of Client’s Assets Regulations).

 

1.7       The Seychelles Financial Services (FSA or Authority) is the regulatory and licensing authority for virtual asset service providers and for registration of initial coin offerings and non-fungible tokens under the Act (s 3 Act).

 

2.         SEYCHELLES VASP HIGHLIGHTS

 

            Seychelles VASP licensing – key features

 

• A virtual asset means a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes and does not include digital representation of fiat currencies, securities and other financial assets.

 

• Virtual asset service provider or VASP means a person that conducts one or more of the virtual asset service activities listed under the First Schedule of the Act (virtual asset services), including virtual asset wallet providers, virtual asset exchanges, virtual asset broking and virtual asset investment providers.

 

• LICENSING – Carrying on the business of virtual asset services in or from Seychelles is prohibited unless the person is licensed to do so by the FSA under the Act.

 

• A licensee under the Act must be a Seychelles company, either a company incorporated under the International Business Companies Act 2016 or the Companies Act 1972.

 

• Value for money – Competitive licence application and annual fees payable to the Authority (see paragraph 7 below).

 

• A licensee enjoys a low business rax rate of 1.5% of assessable (gross) income, confined to Seychelles-sourced income, subject to the licensee satisfying the Seychelles economic substance requirements.

 

• An IBC VASP licensee is exempt from Seychelles stamp duty on transaction instruments (including transfers of company shares or assets, security agreements and other transactions), except no stamp duty exemption applies for dealings in Seychelles land.

 

• A licensee must have at least two individual directors, at least one of whom is resident in Seychelles; and each director must be fit and proper per the requirements of the Authority.

 

• A licensee must operate a staffed office in Seychelles.

 

• Minimum paid up capital requirements, which differs for different virtual asset services.

 

• A licensee shall have professional indemnity insurance.

 

• Annual audited accounts are required.

 

• The licensee’s Auditor must be a Seychelles-licensed accountant or an accountant approved by the Authority who has qualified as an accountant by examination of specified overseas accountancy bodies, including in the UK, USA, Canada, Australia, Singapore, etc.

 

• Being a reporting entity under the AML legislation, a licensee is required to (without limitation) appoint a resident compliance officer and obtain due diligence on its clients.

 

• REGISTRATION – Any person wishing to issue an initial coin offering or non-fungible tokens in or from the Seychelles is required to register the offering or tokens with the FSA; and no person may promote an initial coin offering or non-fungible tokens unless it is a company licensed under the Act to provide virtual asset services or licensed to provide services under the Securities Act 2007 as amended.

 

3.         SEYCHELLES VASP LICENSING

 

3.1       No person shall carry on, or purport to carry on, the business of virtual asset services, or hold themself out as carrying on that business, in or from Seychelles, unless that person is licensed to do so by the Authority under the Act (s 5(1) of the Act).

 

3.2       No person shall, in or from the Seychelles, be permitted to operate: (i) a mining facility; (ii) or a mixer or tumblr service (s 5(2) Act). A natural person (individual) shall not carry on, or purport to carry on, in or from within Seychelles, the business of virtual asset services (s 5(3) Act). A person who contravenes s 5(1), (2) or (3) of the Act commits an offence and is liable on conviction to a fine or imprisonment, or both, as specified under section 33, namely in the case of an individual, to a fine not exceeding SCR2,250,000 or to imprisonment not exceeding 15 years or both; and in the case of a company, to a fine not exceeding SCR5,250,000 (s 5(4) Act read with s 33).

 

VASP licensing application

 

3.3       An application for a licence to carry on the business of virtual asset services shall be made to the Authority in compliance with such requirements as may be prescribed and accompanied by the applicable application fee, namely, SCR75,000  (s 7(1) Act read with the Second Schedule of the Act).

 

3.4       Under the Schedule of the Licensing and Ongoing Requirements Regulations, an application for a licence shall contain the following information and supporting records which evidence:

 

(a)              the applicant’s status and good standing as an eligible person under section 6(3) of the Act, namely, either:

 

(i)         a company incorporated or registered under the Companies Act 1972, excluding an overseas company; or

 

(ii)        an international business company (IBC) incorporated, continued or converted under the International Business Companies Act, 2016 as amended (IBC Act);

 

(b)              the members of the applicant’s board of directors satisfy:

 

(i)         the requirements of section 12(4) of the Act, that directors appointed by the licensee be “fit and proper” persons  (see paragraphs 3.11 – 3.12 below);

 

(ii)        section 13(1) of the Act, namely, that every licensee is required to comply with the substance requirements prescribed in the Third Schedule, including every licensee shall have at least one Seychelles-resident director and shall operate a fully staffed office in Seychelles;

 

(iii)       section 14 of the Act, namely, the business and affairs of a licensee shall be managed by a board of directors consisting of at least 2 directors (s 14(1) Act); and the board of directors of a licensee shall comprise of natural persons only, i.e. individuals (s 14(2) Act);

 

(iii)       the requirements of the Code for fit and Proper for Virtual Asset Service Providers;

 

(c)              the applicant’s principal officers meet the criteria under section 12 of the Act, that directors appointed by the licensee be “fit and proper” persons (see paragraphs 3.11 – 3.12 below);

 

(d)              the applicant’s compliance officer meets the criteria under the AML/CFT Regulations and Code for Compliance Officers;

 

(e)              the applicant’s board of directors can appropriately and effectively fulfil their governance role;

 

(f)               there is or will be adequate oversight by the applicant’s senior management over its business, with clearly defined roles, responsibilities and accountability for staff implementing, managing, and overseeing the effectiveness of its business strategy and operations;

 

(g)              all the applicant’s significant owners can be identified and their identity verified;

 

(h)              the applicant has or will have in place systems and controls required under the Financial Consumer Protection Act, 2022, including the formation of a Complaints Handling Unit;

 

(i)               the applicant has identified and applies appropriate and effective measures to mitigate interoperability risks when dealing with software and systems provided by third parties and placing reliance on compliance and operational software and systems used by the licensee;

 

(j)               the applicant is sufficiently financially resourced and can comply with the minimum capital requirements, as prescribed in the Capital and other Financial Requirements) Regulations (see paragraph 4.9 below);

 

(k)              the applicant has sufficient financial resources;

 

(l)               the application has sufficient underwritten insurance commensurate to the level of operational risk, including fraud;

 

(m)            the applicant has or will have in place appropriate and effective AML/CFT controls in compliance with the AML/CFT Act and the AML/CFT Regulations;

 

(n)              the applicant has or will have sufficient resources to have in place measures to comply with the Cyber Security Requirements Regulations;

 

(o)              has specified premises or data solutions that the Authority has deemed suitable for accessing and retaining records and other documents;

 

(p)              has appropriate and effective controls to comply with the requirements of the Advertisements Regulations;

 

(q)              has appropriate and effective controls to comply with the requirements of the Safekeeping and Management of Client’s Assets Regulations;

 

(r)               satisfies the Authority that an approval is in the public interest having regards to the size, scope and complexity of the applicant;

 

(s)              the non-refundable application fee as prescribed in the Second Schedule to the Act; and

 

(t)               risk assessment of the applicant’s business operation.

 

3.5       Without limiting the generality of the licensing application requirements referred to in paragraph 3.4 above, the FSA’s VASP licence application form checklist states that (without limitation) the following documents are required when lodging a licence application:

 

(a)        Certified true copies of the applicant’s constitutional documents (i.e. as applicable, Certificate of Incorporation, Memorandum and Articles of Association, Particulars of Directors and Secretaries, Notice of situation of registered office or any change of it);

 

(b)        Personal Questionnaire Form (FSA format) completed by each Director, Compliance Officer and any other key individuals of application;

 

(c)        Questionnaire Forms (FSA format) for Shareholders and Beneficial Owners completed by each individual shareholder and beneficial owner who do not hold a managerial position in the company;

 

(d)        The last audited financial statements of the controlling owners of the applicant (if the controlling owner of the applicant is a non‐individual);

 

(e)        Audited financial statements of the applicant for the last 2 years except in the case of an applicant who was incorporated within the last 12 months, if applicable;

(f)         Proof of source of funds or wealth;

 

(g)        Proof of Physical Place of Office in Seychelles (Title Deed of Premises or Lease Agreement for premises or Sub-Leasing Agreement and consent letter from owner of the premises stipulating that the lessee can sub-lease);

 

(h)        A detailed Business Plan or an updated business plan if the company is already licensed by the FSA;

 

(i)         A copy of the insurance quotation (appropriate to the proposed nature and size of the business) of the applicant has been attached and/ or the required approval as to such exemption having been granted allowing for the insurance policy to be sourced from a foreign jurisdiction;

 

(j)         Certified true copies of the Auditor’s certificate of membership, qualifications and licence;

 

(k)        If a Financial Institution, the authorisation letter duly issued by the Central Bank of Seychelles for the entity to undertake any of the permissible activities under the Virtual Asset Services Provider Act, 2024;

 

(l)         Certified current valid licence or other authorisation to conduct such business under the laws of a recognized jurisdiction if the applicant is operating outside Seychelles;

 

(m)       The applicant’s Manuals including:

 

• Internal Procedures Manual;
• Client Service Agreement;
• Conflict of Interest Policy;
• Compliance Manual/Anti-Money Laundering Manual/ Customer Due Diligence Procedures;
• Complaints Handling Manual;
• Business Continuity Plan;
• Institutional Risk Assessment;
• Transaction Monitoring Procedures (may be contained in Compliance Manual/Anti-Money Laundering Manual);
• Sanction Screening Procedures (may be contained in Compliance Manual/Anti-Money Laundering Manual);
• Segregation of asset policy;
• Record keeping policy; and
• Cyber Security Policy.

 

3.6       The Authority may:

 

(a)        grant a licence with or without such restrictions as issued in writing to the applicant;

 

(b)        refuse an application where an applicant fails to provide required information; or

 

(c)        reject an application and in writing, inform the applicant of its decision and reasons for the decision (s 7(2) of the Act).

 

3.7       Section 7(4) of the Act prohibits the Authority from granting a VASP licence under the Act unless the applicant:

 

(a)              is a permissible applicant as prescribed under section 6 of the Act, namely, a company incorporated under the IBC Act or the Companies Act 1972;

 

(b)              complies with the requirements of the Act in relation to the appointment of directors on its board of directors, including the board of directors of a licensee consisting of at least 2 directors, who are individuals and one of whom is resident in Seychelles (s 14(1) and (2) Act);

 

(c)              satisfies the Authority that it meets the substance requirements set out in the Third Schedule of the Act (see paragraph 4.1 below);

 

(d)              will be able, if licensed, to comply with any financial obligations, including insurance, capital and solvency requirements under section 16 of the Act (see paragraphs 4.6 – 4.13 below);

 

(e)              satisfies the Authority that its directors, principal officers and any other person required to be fit and proper meet the criteria under section 12 of the Act (see paragraphs 3.11 – 3.12 below);

 

(f)               meets the cyber security measures as prescribed in section 22 of the Act (see paragraphs 4.19 – 4.22 below);

 

(g)              has specified premises or data solutions that the Authority has deemed suitable for accessing and retaining records and other documents; and

 

(h)              satisfies the Authority that an approval is in the public interest having regards to the size, scope and complexity of the applicant.

 

3.8       A VASP licence is valid from the date of issue until such time that it is revoked, suspended or surrendered (s 7(6) Act).

 

3.9       The Authority may impose such conditions on a licence as it deems fit with respect to the scope of the virtual asset services or the operations of the licensee, including but not limited to: (i) limiting the number of clients to whom the licensee may provide services; (ii) limiting the licensee to providing services only to the clients named in the licence or a schedule to the licence; or (iii) setting the minimum value of an individual client’s investment (s 8(1) Act).

 

3.10      A licensee shall keep its licence on display at its principal place of business in Seychelles and, include its licensing information inclusive of but not limited to, the date upon which the licence was issued, the licence number, any other business or tradename by which the licensee is known, the conditions attached to the licence, the activities for which the licence has been issued, the activities which are unlicensed by the Authority and the address of the principal place of business in Seychelles (s 8(2) Act). The aforementioned information must be displayed on its website in a prominent manner (s 8(3) Act).

 

3.11      No licensee shall appoint a director, principal officer or such persons as may be specified in the Code issued by the Authority under section 12(1) of the Act or allow them to continue to act in such capacity without the prior approval of the Authority (s 12(2) of the Act). A licensee shall take all reasonable steps to ensure that a person to whom the fit and proper criteria apply is and remains fit and proper to fulfil the relevant role (s 12(3) Act).

 

3.12      Section 12(4) of the Act provides that in determining whether a person is fit and proper, regard shall be had to:

 

(a)              the person’s probity, competence, experience and soundness of judgment for fulfilling the responsibilities of the relevant position;

 

(b)              the diligence with which the person is fulfilling or is likely to fulfil those responsibilities;

 

(c)              the person’s educational and professional qualifications and membership of professional or other relevant bodies as applicable or such other equivalent as may be relevant;

 

(d)              the person’s knowledge and understanding of the legal and professional obligations to be assumed or undertaken;

 

(e)              any evidence that the person has committed any offence involving dishonesty or fraud or has contravened any law designed to protect members of the public arising from dishonesty, incompetence, malpractice, misconduct or conduct of discharged or undischarged bankrupts or otherwise insolvent persons; and

 

(f)               the person’s financial standing and integrity.

 

4.         VASP OPERATING REQUIREMENTS

 

Substance requirements

 

4.1       Every licensee is required to comply with the requirements relating to substance (the Substance Requirements) as prescribed in the Third Schedule (s 13(1) Act), namely, every licensee shall:

 

(a)              have at least one resident person as director on its board of directors;

 

(b)              operate a fully staffed office in Seychelles;

 

(c)              employ qualified or experienced staff to manage the office specified under paragraph (b);

 

(d)              ensure that all records and documentation required to be kept by the licensee under the Act and regulations are available and accessible from the office specified under paragraph (b);

 

(e)              undertake complaint handling in Seychelles;

 

(f)               annually, hold at least 2 meetings of its board of directors in Seychelles; and

 

(g)              annually, hold at least 4 management meetings in Seychelles.

 

Business to be conducted in a prudent manner

 

4.2       A licensee shall conduct its business in a prudent manner (s 14(3) Act).

 

4.3       Section 14(5) of the Act states that licensee shall not be regarded as conducting its business in a prudent manner unless it:

 

(a)              maintains the minimum net assets in such other amount as the Authority may direct in writing, taking into consideration the nature, size and complexity of the licensee’s business;

 

(b)              maintains the adequate accounting and other records of its business and adequate systems of control and records, and has developed policies and procedures pertaining to its obligations under the Act or any other law; and

 

(c)              has an insurance policy to cover risks inherent in the operation of its business of an amount commensurate with the nature and scale of its virtual asset service.

 

Business to be conducted with integrity

 

4.4       Under section 15(1) of the Act, a licensee shall:

 

(a)              at all times conduct its business with integrity, acting with due care, skill and diligence, having regard to the nature and scale of its business activities; and

 

(b)              deal fairly with all clients and seek to ensure that its clients are not misled as to the service being provided and the duties and obligations of the licensee.

 

Standard of conduct

 

4.5       Under regulation 9 of the Licensing and Ongoing Requirements Regulations, a licensee shall:

 

(a)        observe a high standard of integrity and fair dealing;

 

(b)        act with due skill, care and diligence;

 

(c)        observe high standards of market conduct;

 

(d)        seek from client information about their circumstances and investment objectives which might reasonably be expected to be relevant in enabling the licensee to fulfil the licensee’s responsibilities to the client;

 

(e)        take reasonable steps to give every client the licensee advises, in a comprehensible way, any information needed to enable the client to make a balanced and informed investment decision;

 

(f)         avoid any conflict of interest with clients and, where such a conflict arises which cannot be avoided, ensure fair treatment to the client by the complete disclosure or by declining to act;

 

(g)        ensure that the interests of the licensee are not unfairly placed above those of the client;

 

(h)        protect by way of segregation and identification, of client assets for which the licensee is responsible;

 

(i)         maintain adequate financial resources to meet the virtual asset service’s business commitments and withstand the risks to which the business is subject to;

 

(j)         organise and control internal affairs in a responsible manner;

 

(k)        keep and maintain proper up to date records;

 

(l)         have adequate arrangements to ensure that all staff employed are suitable, adequately trained and properly supervised and establish and maintain well defined compliance policies; and

 

(m)       deal with the Authority in an open and cooperative manner.

 

Capital, solvency and insurance requirements

 

4.6       A licensee shall maintain its business in a financially sound condition by complying with such capital, solvency and insurance requirements as may be prescribed (s 16(1) of the Act).

 

4.7       A licensee shall have capital and other financial requirements of such nature and amount that commensurate to the scale, risk and complexity of the licensee based on its authorised activities so as to be financially sound (r 4(1) of the Capital and other Financial Requirements Regulations).

 

4.8       Under regulation 4(2) of the Capital and other Financial Requirements Regulations, the matters which are relevant in determining whether a licensee has adequate capital and other financial requirements include (without limitation), a licensee’s ability to at all times:

 

• have and maintain the prescribed paid-up capital requirements;
• have a proper accounting record framework established, documented and maintained;
• have adequate financial reporting mechanism; and
• have and maintain the required insurance policies.

 

Paid up capital

 

4.9       A licensee is required to  at all times, hold and maintain a minimum paid-up capital as specified in the Schedule of the Capital and other Financial Requirements Regulations (see below table), which shall be in the form of cash, bond or other security approved by the Authority (rr 5(1) and 5(2) Capital and other Financial Requirements Regulations):

 

Virtual Asset Service Providers (Capital and other Financial Requirements) Regulations, 2024) Part 1 of the Schedule Entities not operating as a virtual asset service provider on the date of commencement of the Act
	Initial paid-up capital	As at beginning of 3rd year of operation
Virtual Asset Wallet Providers	$75,000	2.5% of annual turnover
Virtual Asset Exchange	$100,000
Virtual Asset Broking	$50,000
Virtual Asset Investment Providers	$25,000
	To show proof at licence application	To show proof at payment of 3rd annual licence fee
Part 2 of the Schedule Entities operating as a virtual asset service provider as of the date of commencement of the Act
	Initial paid-up capital
Virtual Asset Wallet Providers	2.5% of annual turnover
Virtual Asset Exchange
Virtual Asset Broking
Virtual Asset Investment Providers
	To show proof at licence application

 

4.10      Under regulation 5(3) of the Capital and other Financial Requirements Regulations, the paid-up capital required to be maintained by regulations 5(1) and 5(2), shall be maintained in a bank licensed under the Financial Institutions Act or a financial institution, excluding alternative money solutions, licensed in a country which complies with, at a minimum, the Basel II Requirement as approved by the Authority.

 

4.11      Where a licensee intends or has been authorised to carry more than one virtual asset service, the licensee shall hold the amount of paid-up capital specified in the Schedule for each activity authorised for (r 5(4) Capital and other Financial Requirements Regulations).

 

Reserve assets or monies

 

4.12      A licensee shall maintain reserve assets or monies equivalent to one hundred percent of the liabilities owed to clients with respect to client assets being held by the licensee (r 6(1) of the Capital and other Financial Requirements Regulations) and the reserve assets shall be maintained by the licensee itself in separate accounts under its management (r 6(2) Capital and other Financial Requirements Regulations). The monies shall be maintained by the licensee in a bank licensed under the Financial Institutions Act or a financial institution, excluding alternative financial services, licensed in a country which complies with, at a minimum, the Basel II Requirement as approved by the Authority (r 6(1) of the Capital and other Financial Requirements Regulations).

 

Insurance

 

4.13      A licensee shall hold and maintain professional indemnity insurance; and such other insurance policy allowing for the necessary protection and coverage of client’s assets, commensurate with the level of risks and scale of the proposed business (r 8(1) Capital and other Financial Requirements Regulations).

 

Conflict of interests

 

4.14      A licensee shall ensure that it has in place policies and procedures, satisfactory to the Authority, as applicable to avoid, mitigate and deal with conflicts of interests between: (i) the licensee and its clients; (ii) the licensee and its service providers or other third parties; (iii) the licensee’s clients (s 17(1) Act).

 

Ongoing notifications

 

4.15      Under section 18(1) of the Act, the directors appointed by the licensee shall be responsible for ensuring that the Authority is notified within 12 hours in writing where a director becomes aware or has reason to believe:

 

(a)              the licensee has become insolvent or there is a likelihood of it becoming insolvent;

 

(b)              the licensee has failed to comply substantially with a provision of the Act or such other relevant and applicable laws or a condition imposed upon it by the Authority;

 

(c)              the licensee has failed to comply with a modified provision, or with a condition, being a provision or condition specified in a direction given to it by the Authority;

 

(d)              the licensee has become involved in any criminal proceedings whether in Seychelles or outside Seychelles;

 

(e)              where the licensee is an international business company, that the registered agent of the licensee has notified the licensee of its intention to resign as registered agent;

 

(f)               that the licensee is being sued civilly for virtual assets, initial coin offerings and non-fungible token recovery;

 

(g)              the licensee has ceased to carry on business for which it was licensed and authorised;

 

(h)              the directors or principal officers have resigned or ceased to be fit and proper; or

 

(i)               a cyber-security event has occurred.

 

4.16      Within 5 days of providing notification under section 18(1) of the Act (see preceding paragraph), the licensee shall furnish the Authority with a written report setting out the particulars of the situation and indicate such mitigating measures as will be undertaken by the licensee (s 18(2) Act).

 

Material changes to business

 

4.17      No licensee shall effect or permit a material change within the meaning of section 19(2) of the Act unless: (i) it has served on the Authority a notice in writing stating that the licensee intends to effect such a material change; and (ii) the Authority, has notified the licensee in writing that it has no objection to the licensee effecting the material change (s 19(1) of the Act). Under section 19(2) of the Act, for the purposes of section 19(1), the following are material changes:

 

(a)              a change to the business activity for which the licensee was first issued;

 

(b)              a change to the most recent business plan submitted to the Authority;

 

(c)              an amalgamation with or acquisition of another legal person;

 

(d)              the sale of a subsidiary;

 

(e)              acquisition of a controlling interest in another company or other entity;

 

(f)               the outsourcing of the functions of the virtual asset services;

 

(g)              where the licensee is an international business company, a change of registered agent of the licensee;

 

(h)              a change of principal place of business;

 

(i)               a change of business or trade name or such other marks used by the licensee;

 

(j)               a change of domain name; or

 

(k)              a change in target market.

 

Ownership changes

 

4.18      No shares in a licensee shall be issued and no issued shares shall be voluntarily transferred or disposed of, without the approval of the Authority (s 20(1) Act). The Authority may (on application) exempt from the provisions of this section a licensee whose shares or interests are publicly traded on a Seychelles securities exchange or a recognized overseas exchange (s 20(2) Act).

 

Cyber security

 

4.19      A licensee shall have appropriate and effective cyber security measures, as may be prescribed (s 22(1) Act). A licensee shall submit a cyber security report, as may be prescribed (s 22(2) Act).

 

4.20      A licensee shall have in place a cyber security strategy for the establishment and maintenance of appropriate systems and controls for managing cyber security and operational risks that can arise from inadequacies or failures in its processes and systems and the licensee shall also include appropriate systems and processes with or from third-party suppliers, agents and intermediaries (rr 4(1) and 4(2) Cyber Security Requirements Regulations.

 

4.21      In maintaining appropriate systems and controls under regulations 4(1) and 4(2), a licensee shall have regards to (r 5(1) Cyber Security Requirements Regulations):

 

(a)        confidentiality, including the safe storage of information and transmission of data in accordance with clear protocols, which may require firewalls within a system, as well as entry restrictions and compliance with relevant data protection laws;

 

(b)        accessibility of the system to authorised persons, employees of the licensee and to authorised employees of the Authority;

 

(c)        integrity, including safeguarding the accuracy and completeness of information and data through its system and control;

 

(d)        maintenance of systems and infrastructure, including proper code version control, implementation of updates and resolution; and

 

(e)        procedures to address updates to technological infrastructure, including forks.

 

4.22      Under regulation 8(1) of the Cyber Security Requirements Regulations, for the purpose of section 22(2) of the Act, a cyber security report shall be duly prepared by the fit and proper person responsible for information security, containing:

 

(a)        the availability, functionality and integrity of the licensee’s electronic systems;

 

(b)        any identified cyber risk arising from any virtual asset service carried on or to be carried on, by the licensee; and

 

(c)        the cybersecurity program implemented and proposals for steps for the redress of any inadequacies identified.

 

Advertisements

 

4.23      No person shall carry on, or purport to carry on, the advertisement of virtual asset services or the issue or the promotion of virtual assets, including initial coin offerings and non-fungible tokens, in or from Seychelles, unless that person complies with the requirements of the Advertisements Regulations (r 3(1) Advertisements Regulations).

 

4.24      Under regulation 5 of the Advertisements Regulations, the general requirements in respect of advertisements are:

 

(a)        Advertisements shall be fair, clear, complete, concise, unambiguous and unbiased, and shall not be false, misleading nor deceptive.

 

(b)        Advertisements shall contain information that is timely and consistent with any relevant virtual assets, including initial coin offerings and non-fungible tokens, or virtual assets services.

 

(c)        Advertisements shall convey an equitable message in respect of the returns, benefits and risks associated with the relevant virtual asset, including initial coin offerings and non-fungible tokens, or virtual assets services.

 

(d)        Advertisements shall be clearly identifiable and the media chosen for an advertisement shall be suitable for that advertisement with due consideration as to the target market and or class of consumers.

 

(e)        Advertisements shall not lure or induce clients into malicious virtual asset services and offerings.

 

(f)         Advertisements shall not facilitate illicit actors or high-risk virtual asset service providers in the offering of virtual assets, including initial coin offerings and non-fungible tokens, or virtual asset services.

 

(g)        Before selling any relevant virtual asset, including initial coin offerings and non-fungible tokens, or virtual assets services because of an advertisement, any licensee or promoter shall ensure that consumers have received sufficient information, regarding such products or services, inclusive of the benefit and potential failings, so as to allow a consumer to make an informed decision.

 

(h)        Advertisements shall be in plain language as to be capable of being clearly understood by prospective clients or consumers that might reasonably be expected to see it.

 

(i)         Advertisements should not purport to advertise illicit or fake virtual asset services or projects.

 

(j)         Advertisements should not contain colorful mages in appearance that would induce a minor in partaking in virtual asset services.

 

(k)        Advertisement shall not state or imply that relevant virtual assets, including initial coin offerings and non-fungible tokens, or virtual asset services are suitable for a particular class of clients or consumers unless designated as being a product advertisable to a particular class of individuals and or persons.

 

(l)         Advertisements relating to the virtual asset services rendered by a licensee, shall include such relevant information as to the type of service offered, inclusive of terms and timeframes for client deposits and withdrawals, associated fees payable and such other relevant terms under which the service is provided to clients.

 

Content of advertisements

 

4.25      A licensee or promoter shall avoid extensive use of technical, legal terminology or complex language in an advertisement which may not convey a clear message to the consumers or may be such as to cause confusion if the likely audience is unfamiliar with the concepts (r 6(1) Advertisements Regulations).

 

4.26      Under regulation 6(2) of the Advertisements Regulations, all advertisements shall:

 

(a)        include details of the licensee or promoter, including its full name and tradename (if applicable), licence number and registered office;

 

(b)        include, if a known third party is issuing or cause the advertisement to be issued on behalf of the licensee or promoter of the virtual asset, the relevant details of the third party;

 

(c)        be accurate and up to date;

 

(d)        not omit any material relevant facts, and do not make definitive statements that cannot be sustained;

 

(e)        use a design and presentation that shall be easily and clearly understood;

 

(f)         include, if relevant, any approved trademark, tradename, slogan or associated marker to the licensee or promoter;

 

(g)        not be given undue prominence of benefits compared to risks, and always give a fair, balanced and clear indication of any relevant risks when referencing potential benefits;

 

(h)        include the contact details where consumers can make enquiries;  and

 

(i)         ensure that changes to original information about the virtual asset or virtual asset service are promptly notified and described, with the advertisement indicating the date the information contained therein was updated.

 

Record Keeping

 

4.27      A licensee or promoter shall maintain adequate records of its advertisement, including details of who signed off each advertisement and when it was signed off, for at least 7 years after the advertisement ceases to be available to consumers, or such other period which the Authority may request (r 15 Advertisements Regulations).

 

            Client Asset Management

 

4.28      Under regulation 4(1) of the Safekeeping and Management of Client’s Assets Regulations, a licensee shall:

 

(a)        establish policies, systems and controls for the safekeeping and management of client assets;

 

(b)        make adequate arrangements to safeguard clients’ ownership rights, mitigate the risk of loss or diminution on the value of the clients’ assets; and

 

(c)        establish and maintain adequate organisational arrangements for transfer of client assets.

 

4.29      A licensee shall, as part of its policies, procedures and controls for the safekeeping and management of client assets, including the reconciliation of client assets, specify how client assets are segregated so that they are not subject to the claims of the licensee’s creditors (r 4(2) Safekeeping and Management of Client’s Assets Regulations).

 

4.30      Under regulation 5(1) and 5(2) of the Safekeeping and Management of Client’s Assets Regulations, a licensee shall ensure that each client for whom they provide custodial services is made aware of and agrees to the terms upon which the services will be provided, before providing any custodial services, including making its clients aware of the following information:

 

(a)        the licensee’s custody policy;

 

(b)        identity of the legal entity that will be safekeeping and managing the client’s assets, including, if applicable, any authorized sub-custodian;

 

(c)        nature of the custodial services to be provided;

 

(d)        extent to which client assets are aggregated or pooled;

 

(e)        the client’s rights with respect to aggregated or pooled assets, and risks of loss arising from any pooling or aggregating activities;

 

(f)         how client assets are protected against loss or misuse;

 

(g)        fees, costs and charged applied for the custodial services; and

 

(h)        information on the obligations and responsibilities of the licensee with respect to the use of client assets, as well as private keys, including the terms for their restitution, recovery and on the risks involve.

 

4.31      Under regulation 6 of the Safekeeping and Management of Client’s Assets Regulations, as part of the management and safekeeping of client assets:

 

(a)        A licensee shall ensure that the total amount and type of client assets held for clients matches the amounts it has agreed to hold.

 

(b)        Any transfer undertaken of client assets shall be authorised or expressly permitted by the client.

 

(c)        A licensee shall, following the day on which clients’ funds, other than client assets, are received, place those funds by the end of the business day, with a bank or financial institution specified in regulation 6(3) of the Capital and other Financial Requirements Regulations.

 

(d)        A licensee shall take all necessary measures to ensure that clients’ funds, other than client assets, are held in accordance with subparagraph (c) above, are held in an account separate to that is used to hold funds belonging to the licensee.

 

(e)        A licensee shall:

 

(i)         On a segregated basis, in which case the licensee needs to clearly identify and segregate virtual assets belonging to different clients;

 

(ii)        On an omnibus basis, in which case the licensee needs to ensure that at all times the total amount and type of virtual assets held for client’s matches the amounts it has agreed to hold, and that the licensee shall be able to, at all times know the amount and type of virtual assets being held for each client.

 

(f)         A licensee shall have adequate arrangements in place to safeguard the ownership rights of clients over their client assets and prevent the use of those assets for their own account.

 

(g)        A licensee shall not use client assets for its own account or the account of any other person or client of the licensee, unless: (i) the client has given explicit prior consent to the use of the client assets on specified terms; and (ii)    the use of that client’s assets is restricted to the specified terms to which the client consents.

 

(h)        For the purposes of the preceding subparagraph, the consent provided by the client shall be recorded and retained, showing the date and time at which the consent was given.

 

(i)         A licensee shall take appropriate measures to prevent the unauthorized use of client assets for its own account or the account of any other person.

 

(j)         A licensee shall maintain records where it uses client assets for its own account, recording in real time: (i)          details of the client from whom the assets have been obtained, including the wallet address and the transaction hashes; and (ii) the amount and value of client assets obtained as at the time the assets were used by the licensee.

 

(k)        A licensee shall have procedures in place to ensure that clients have a means by which to access their client assets.

 

5.         VASP ACCOUNTING REQUIREMENTS

 

Duty to prepare annual audited financial statements

 

5.1       Every licensee shall cause to be prepared annual audited financial statements in respect of all transactions and balances relating to its business (s 23(1) Act).

 

5.2       A licensee’s financial statements shall be audited by an approved auditor in accordance with the provisions of sections 142 to 144 and the Sixth Schedule of the Companies Act 1972, or generally accepted auditing standards of the International Financial Reporting Standards or such other standards as the Authority may recognize, and the approved auditor shall be required to provide an auditor’s report in respect of the audit (s 23(2) Act).

 

5.3       An “approved auditor” means an accountant licensed by the Seychelles Licensing Authority or an accountant licensed outside of Seychelles who has been approved in writing by the Authority (s 2 Act).

 

5.4       An “accountant” means a person who has qualified as an accountant by examination of any one of the following bodies: (i) Institute of Chartered Accountants in England and Wales; (ii) Association of Chartered Certified Accountants (United Kingdom); (iii) Institute of Chartered Accountants in Ireland; (iv) Institute of Certified Public Accountants in Ireland; (v) Institute of Chartered Accountants in Scotland; (vi) Institute of Chartered Accountants in Australia; (vii) Institute of Certified Public Accountants in Singapore; (viii) Hong Kong Institute of Certified Public Accountants; (ix) South African Institute of Chartered Public Accountants; (x) American Institute of Certified Public Accountants; (xi) Canadian Institute of Chartered Accountants; or a member of any other accountancy body recognized by the Authority as such for the purposes of the Act, and who is a current member in good standing of one of those bodies (s 2 Act).

 

5.5       Every licensee shall submit a copy of its audited financial statements with the Authority within 6 months from its financial year end or within such longer period as may be permitted in writing by the Authority (s 23(3) Act).

 

Appointment of auditors

 

5.6       Within thirty days of becoming licensed under the Act, a licensee shall appoint an approved auditor who is acceptable to the Authority (s 24(1) Act). Every licensee shall annually appoint an approved auditor to audit its financial statements (s 24(2) Act).

 

5.7       Prior to the appointment of an auditor, the licensee shall submit written particulars of such person to the Authority for approval, as may be prescribed (s 24(3) Act). A licensee shall forthwith give written notice to the Authority if it: (i) proposes to remove an auditor before the expiration of his or her term of office; or (ii) proposes to replace an auditor at the expiration of the term of his or her office with a different auditor (s 24(4) Act).

 

5.8       No person having an interest in any licensee otherwise than as a client, and no officer, employee or agent of the licensee shall be eligible for appointment as an approved auditor for that licensee; and any person appointed as such auditor to any licensee who subsequently acquires such interest or becomes an officer, employee or agent of that licensee shall cease to be an approved auditor (s 24(5) Act).

 

6.         ANNUAL LICENCE FEES & SUBMISSIONS TO THE AUTHORITY

 

6.1       Under section 21(1) of the Act, a licensee shall in January of each year:

 

(a)              pay to the Authority the annual licence fees as set out in the Second Schedule of the Act (see below);

 

(b)              lodge with the Authority a compliance form as prescribed by the Authority;

 

(c)              lodge a cyber security report in accordance with section 22 of the Act; and

 

(d)              submit such additional information as may be specified by the Authority.

 

6.2       Under the Second Schedule of the Act, the following annual licence fees apply:

 

(a)              Base fee: SCR75,000 (approx. US$5,400);

 

(b)              Plus Fee for permissible activities:

 

(i)         Virtual Asset Wallet Provider: SCR300,000 (approx. US$ 21,560)

 

(ii)        Virtual Asset Exchange SCR375,000 (approx. US$26,950)

 

(iii)       Virtual Asset Broking: SCR150,000 (approx. US$10,780)

 

(iv)       Virtual Assets Investment Provider: SCR75,000 (approx. US$5,400).

 

6.3       If a licence under the Act is not first granted in the month of January, February or March, the first annual licence fee payable under the Act shall be reduced on a quarterly pro-rata basis, calculated having regard to the quarter in which the licence was first granted (s 21(2) of the Act). Where a person has acted in contravention of section 21(1) (i.e. not paid the annual licence fee when it falls due), the Authority shall take such enforcement action as it deems necessary, in terms of section 32 and may impose an administrative penalty equivalent to 50% of the annual licence fee, for each month or part of each month, not exceeding three months during which section 21(1) is not complied with (s 21(3) read with s 32 Act).

 

7.         TAXATION

 

7.1       Licensed virtual asset service providers are liable to a low business tax rate of 1.5% (one and a half percent) of assessable (gross) income pursuant to the Seventh Schedule of the Business Tax Act 2009 as amended (BTA).

 

7.2       Under the BTA, assessable income is generally confined to Seychelles-sourced income. A licensed VASP, as a Seychelles tax resident, is liable for Seychelles tax on its Seychelles-sourced income but not on its foreign-sourced income, subject to it satisfying the Seychelles economic substance requirements.

 

7.3       A VASP licence applicant typically prefers to form an IBC (international business company under the IBC Act) for its Seychelles operating entity, rather than a company under the Companies Act 1972; as well as the IBC Act providing a modern corporate law framework, an IBC is exempt from Seychelles stamp duty on instruments relating to: (i) the company’s formation; (ii) transfers of assets to or by a company; (iii) transactions in respect of the shares, debt obligations or other securities of the company; (iv) the creation, variation or discharge of a charge or other security interests over any property of the company; and (v) other transactions relating to the business or assets of the company (s 362 IBC Act), except that no stamp duty exemption applies to an instrument directly or indirectly relating to Seychelles immovable property (land).

 

8.         INITIAL COIN OFFERINGS AND NON-FUNGIBLE TOKENS

 

8.1       “Initial coin offering” means a method of raising funds whereby an issuer is issuing virtual assets and is offering them in exchange for funds (s 2 of the Act); and “non-fungible token” means a unique digital identifier that is recorded on a blockchain and is used to certify ownership and authenticity (s 2 Act).

 

8.2       No person shall issue or purport to issue an initial coin offering or a non-fungible token, or hold themselves out as carrying on that activity, in or from the Seychelles, unless registered by the Authority under the Act (s 27(1) Act).

 

8.3       Pursuant to section 27(2) of the Act, no person shall carry on or to purport to promote an initial coin offering or the sale of or investment in the development of non-fungible tokens, or hold themself out as carrying on that activity, in or from the Seychelles, unless that person is either:

 

(a)        licensed under the Act to provide virtual asset services; or

 

(b)        licensed to provide services under the Securities Act 2007 as amended.

 

8.4       A person shall apply for the registration of an initial coin offering or the sale of or investment in the development of non-fungible tokens prior to its issuance or promotion in or from the Seychelles (s 27(4) Act). An application for registration of either the issue or promotion of an initial coin offering or the sale of or investment in the development of non-fungible tokens in or from the Seychelles shall comply with such requirements as may be prescribed and accompanied by the application fee as set out in the Second Schedule, namely, SCR22,500 (c. US$1,515 as at 31.12.2024).

 

8.5       A natural person (individual) is not eligible to promote an initial coin offering or the sale of or investment in the development of non-fungible tokens in or from the Seychelles (s 27(3) Act), i.e. only a Seychelles company may apply for registration.

 

Application for registration

 

8.6       Under regulation 4(1) of the Registration of Initial Coin Offering and Non-Fungible Tokens Regulations, an application under section 27(4) of the Act shall be accompanied by:

 

(a)        a white paper as per requirements in the Schedule;

 

(b)        policies and procedures for the monitoring the cycle of the issuing and offering of an initial coin offering or non-fungible token;

 

(c)        information where proceeds raised will be transferred or deposited;

 

(d)        location where the records as required by regulation 11 will be retained and will be accessible in Seychelles;

 

(e)        the details and confirmation of the promoter; and

 

(f)         the registration application fee

 

Publication of white paper

 

8.7       A registrant may publish its white paper where it has either: (i) received a notice from the Authority that it has no objection to the proposed issuance and promotion; or (ii) the 30 day-working day period specified under subsection 27(6)(b) of the Act has lapsed (r 7(1) Registration of Initial Coin Offering and Non-Fungible Tokens Regulations). A person who fails to comply with regulation 7(1) of the Registration of Initial Coin Offering and Non-Fungible Tokens Regulations, is liable to an administrative penalty of SCR500,000 (r 7(2) Registration of Initial Coin Offering and Non-Fungible Tokens Regulations).

 

Records to be maintained

 

8.8       Under regulation 11(1) of the Registration of Initial Coin Offering and Non-Fungible Tokens Regulations, a registrant shall maintain the following records:

 

(a)        identity of subscribers or investors;

 

(b)        amounts received from or transferred by subscribers or investors;

 

(c)        use of the proceeds received and parties paid from those proceeds; and

 

(d)        location, websites and other channels used for promotion or advertisement purposes.

 

8.9       Records identified in regulation 11(1) of the Registration of Initial Coin Offering and Non-Fungible Tokens Regulations, shall be retained for a period of not less than seven years in Seychelles, by the registrant (r 11(2) of the Registration of Initial Coin Offering and Non-Fungible Tokens Regulations).

 

9.         RESTRICTIONS ON CERTAIN WORDS

 

9.1       For the purposes of sections 5(1) and 27(1) of the Act, a person purports to carry on virtual asset services where the person uses any name which indicates or may reasonably be understood to indicate (whether in English or in any other language) that it is carrying on virtual asset services (s 40(1) Act).

 

9.2       It shall be a contravention of section 5(1) or 27(1) of the Act for a person other than a licensee or registrant to use any name that includes the words “cryptocurrency”, “virtual”, “currency”, “virtual coin”, “ICO”, “NFT”, “Exchange”, “Digital Wallet”, “Block chain”, “hot/cold Wallet”, “DeFI”, Web 3”, or such other combination of the words which could reasonably be used to allude as to the services licensed under the Act (s 40(2) Act).

 

10.       ANTI-MONEY LAUNDERING OBLIGATIONS

 

Seychelles virtual asset service providers are “reporting entities” for the purposes of the Anti-Money Laundering and Countering the Financing of Terrorism Act 2020 as amended (AML Act) and Anti-Money Laundering and Countering the Financing of Terrorism Regulations, and are accordingly subject to various obligations under the AML Laws, including (without limitation):

 

(a)        to apply customer due diligence (CDD) measures in respect of customers, business relationships and transactions, and conduct ongoing monitoring of business relationships (section 35(1) of the AML Act), including verification of customer identity and address and obtaining information on the business activities of the company and source of customer funds (note: a VASP licensee is not permitted to rely on a regulated person (including a foreign regulated person) to apply CDD measures in respect of its customers, unless the licensee and the regulated person are part of the same group: r 3(3A) of the Anti-Money Laundering and Countering the Financing of Terrorism (Reliance on Regulated Persons) Regulations, 2023 as amended);

 

(b)        to maintain records of CDD measures and transactions carried out by the licensee (s 47 AML Act);

 

(c)        to appoint a Seychelles-resident compliance officer, to be responsible (together with the licensee’s directors) for ensuring the compliance with the provisions of the AML Act and whose appointment is subject to FSA’s approval (s 34(1) and (2) of the AML Act);

 

(d)        where it has reasonable grounds to suspect that any service or transaction may be related to the commission of criminal conduct including an offence of money laundering or of terrorist financing activities or to money or property that is or represents the benefit of criminal conduct, the licensee shall submit a suspicious transaction report to the FIU within two business days (s 48 AML Act).

 

11.       FINANCIAL CONSUMER PROTECTION ACT

 

A licensee under the Act is also regarded as a “financial services provider” for the purposes of the Financial Consumer Protection Act 2022 (FCP Act) and is thus subject to the provisions of the FCP Act. Every financial services provider shall provide a bi-annual report to the FSA on the policies adopted with respect to financial consumer protection, including: (i) the measures taken to monitor compliance with policies; (ii) financial education activities; (iii) information on the number, type and conclusion of disputes of the financial consumers handled internally; (iv) the activities of agents or third parties acting on behalf of the financial services provider; and (v) any monitoring activity undertaken over such entities (s 8(1) FCP Act). The report for the first half of the year shall be submitted by 15^th July of each year and that for the second half of the year shall be submitted by 15^th January of the succeeding year (s 8(2) FCP Act).

 

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.

 

 

 

 

 

 

 

Jensen Huang, the chief executive of Nvidia, is the 10th-richest person in the United States, worth $US127 billion ($198.6 billion). In theory, when he dies, his estate should pay 40 per cent of his net worth to the government in taxes.

 

But Huang, 61, is not only an engineering genius and Silicon Valley icon whose company, the world’s second-most valuable, makes the chips that power much artificial intelligence. He is also the beneficiary of a series of tax dodges that will enable him to pass on much of his fortune tax-free, according to securities and tax filings reviewed by The New York Times.

 

His family’s savings are on pace to be roughly $US8 billion ($12.5 billion). This likely ranks among the largest tax dodges in the United States.

 

The types of strategies Huang has deployed to shield his wealth have become ubiquitous among the ultrawealthy. It is just one sign of how the estate tax – imposed on a sliver of the country’s multimillionaires – has been eviscerated.

 

Revenue from the tax has barely changed since 2000, even as the wealth of the richest Americans has roughly quadrupled. If the estate tax had kept pace, it would have raised around $US120 billion ($187 billion) last year. Instead, it brought in about a quarter of that.

 

The story of Huang’s tax avoidance is a case study of how the ultrarich bend the US tax system for their benefit. His strategies were not explicitly authorised by Congress. Instead, they were cooked up by creative lawyers who have exploited a combination of obscure federal regulations, narrow findings by courts, and rulings that the IRS issues in individual cases that then served as models for future tax shelters.

 

‘Don’t expect anyone in Congress to stop this’

“You have an army of well-trained, brilliant people who sit there all day long, charging $US1,000 an hour, thinking up ways to beat this tax,” said Jack Bogdanski, a professor at Lewis & Clark Law School and the author of a widely cited treatise on the estate tax. “Don’t expect anyone in Congress to stop this.”

 

The richest Americans can pass down approximately $US200 billion ($312 billion) each year without paying estate tax on it, thanks to the use of complex trusts and other avoidance strategies, estimated Daniel Hemel, a tax law professor at New York University.

 

Enforcement of the rules governing the estate tax has eased in part because the IRS has been decimated by years of budget cuts. In the early 1990s, the agency audited more than 20 per cent of all estate tax returns. By 2020, the rate had fallen to about 3 per cent.

 

The trend is likely to accelerate with Republicans controlling both the White House and Capitol Hill. They are already slashing funding for law enforcement by the IRS. The incoming Senate majority leader, John Thune, and other congressional Republicans for years have been trying to kill the estate tax, branding it as a penalty on family farms and small businesses.

 

Yet, Huang’s multibillion-dollar manoeuvre – detailed in the fine print of his filings with the Securities and Exchange Commission and his foundation’s disclosures to the IRS – shows the extent to which the estate tax has already been hollowed out.

 

An Nvidia spokesperson, Stephanie Matthew, declined to discuss details of the Huangs’ tax strategies.

 

The United States adopted the modern estate tax in 1916. In recent decades, congressional Republicans have successfully watered it down, cutting the rate and increasing the amount that is exempt from the tax. Today, a married couple can pass on about $US27 million ($42 million) tax-free; anything more than that is generally supposed to be taxed at a 40 pr cent rate.

 

Can you dig it?

In 2012, Huang and his wife, Lori, took one of their first steps to shield their fortune from the estate tax. They set up a financial vehicle known as an irrevocable trust and moved 584,000 Nvidia shares into it, according to a securities disclosure Huang filed.

 

The shares were worth about $US7 million ($11 million) at the time, but they would eventually generate tax savings many times greater.

 

The Huangs were taking advantage of a precedent set nearly two decades earlier, in 1995, when the IRS blessed a transaction that tax professionals affectionately nicknamed “I Dig It.” (The moniker was a play on the name of the type of financial vehicle involved: an intentionally defective grantor trust.)

 

One of the beauties of I Dig It was that it had the potential to largely circumvent not only the estate tax but also the federal gift tax. That tax applies to assets that multimillionaires give to their heirs while they’re alive and essentially serves as a backstop to the estate tax; otherwise, rich people could give away all their money before they die in order to avoid the estate tax.

 

In Huang’s case, the details in securities filings are limited. But multiple experts, said it was almost certainly a classic I Dig It gift, loan and sale transaction.

 

The $US7 million of shares Huang moved into his trust in 2012 are today worth more than $US3 billion ($4.7 billion). If those shares were directly passed on to Huang’s heirs, they would be taxed at 40 per cent – or well over $US1 billion. Instead, the tax bill will probably be no more than a few hundred thousand dollars.

 

The Huangs soon took another big step toward reducing their estate tax bill. In 2016, they set up several vehicles known as “grantor-retained annuity trusts” or GRATs, securities filings show.

 

They put just over 3 million Nvidia shares into their four new GRATs. The shares were worth about $US100 million ($156 million). If their value rose, the increase would be a tax-free windfall for their two adult children, who both work at Nvidia.

 

That is precisely what happened. The shares are now worth more than $US15 billion ($23.4 billion), according to data from securities filings compiled by Equilar, a data firm. That means the Huang family is poised to avoid roughly $US6 billion ($9.4 billion) in estate taxes.

 

If the Huangs’ trusts sell their shares, that will generate a hefty capital gains tax bill – more than $US4 billion ($6.2 billion), based on Nvidia’s current stock price. The Huangs can pay that bill on behalf of the trusts without it counting as a taxable gift to their heirs.

 

Tax strategy

Starting in 2007, Huang deployed another technique that would further reduce his family’s estate taxes. This strategy involved taking advantage of his and his wife’s charitable foundation.

 

Huang has given the Jen Hsun & Lori Huang Foundation shares of Nvidia worth about $US330 million ($516 million) at the time of the donations. Such donations are tax-deductible, meaning they reduced the Huangs’ income tax bills in the years that the gifts took place.

 

Foundations are required to make annual donations to charities equal to at least 5 per cent of their total assets. But the Huangs’ foundation is satisfying that requirement by giving heavily to what is known as a donor-advised fund.

 

Such funds are pools of money that the donor controls. There are limitations on how the money can be spent. Buying cars or vacation homes or the like is off-limits. But a fund could, say, invest money in a business run by the donor’s friend or donate enough money to name a building at a university that the donor’s children hope to attend.

 

There is a gaping loophole in the tax laws: Donor-advised funds are not required to actually give any money to charitable organisations. When the donor dies, control of the fund can pass to his heirs – without incurring any estate taxes.

 

In recent years, 84 per cent of the Huang Foundation’s donations have gone to its donor-advised fund, named GeForce, an apparent nod to the name of an Nvidia video game chip. The Nvidia shares the Huangs have donated are today worth about $US2 billion ($3.1 billion).

 

The fund is not required to disclose how its money is spent, though the foundation has said the assets will be used for charitable purposes. Matthew said those causes included higher education and public health.

 

But there is another benefit. Based on Nvidia’s current stock price, the donations to the fund have reduced Huang’s eventual estate tax bill by about $US800 million ($1.2 billion).

 

This article originally appeared in The New York Times.

 

 

Many “Onshore” jurisdictions have passed laws requiring that local Companies file a register of beneficial owners with the local Corporate registry.

 

For those interested in Corporate Privacy this would be of some concern. There are good reasons as to why one might not want “onshore” authorities to know who is ultimately behind a particular company.

 

If you are the controller of a Company and don’t want your name to be placed on record as BO there is a solution that may work to protect your privacy…

 

The solution here would be to register (as your ultimately holding entity) a Foundation, (ideally)in Seychelles, and have that Foundation set up as a Purpose Foundation.

 

Why Seychelles?

 

Well, a Foundation is presumed at common law to be both the legal owner AND the beneficial owner of any asset it holds. BUT Seychelles, uniquely, has taken this aspect of Common Law and enshrined it in legislation; In section 71 of the Seychelles Foundations Act it clearly provides that the legal owner AND BENEFICIAL OWNER of any asset held by a Seychelles Foundation is the Foundation itself.. (you can access a copy of the Legislation here – refer page 36: https://www.dropbox.com/scl/fi/3mhhpbszei8mahuxpbqfg/Consolidated-Foundations-Act-2009-to-20th-December-2021.pdf?rlkey=29uzvfy7tmimyqxvmg74o59u0&st=wmybuvq3&dl=0 )

 

But there’s more you can do to protect yourself from being considered potentially as the beneficial owner of any Company/Asset owned by the Foundation…

 

You see, a Foundation is a 3 headed creature.

 

Typically a Foundation..

 

• Has a Founder: https://offshoreincorporate.com/faq/what-is-a-founder/
• Has a Councillor (or board of Councillors): https://offshoreincorporate.com/faq/what-is-a-council/
• Has beneficiaries ie persons (who are nominated in the Foundation’s regulations) who are designed to benefit financially from the set up of the Foundation

 

But…

 

A Foundation in Seychelles can be established as either a Foundation with beneficiaries or as a Purpose Foundation.

 

A Purpose Foundation is a particular type of Private Foundation which, unlike a conventional Foundation (ie which has certain person/s or a category of person/s nominated to be beneficiary/s), can be formed to hold assets for a purpose without conferring a benefit on any specific person. An example of such a purpose is to hold shares in a company.

 

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

 

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

 

Generally speaking, there are two types of Foundations ie Foundation with beneficiaries and Foundations which are set up to fulfil a specific purpose. A Foundation set up to fulfil a specific purpose does NOT need to name any person or class of person as a beneficiary. Hence, because there are no beneficiaries attached to the Foundation (a) it’s impossible to argue that any particular person has a legal or beneficial interest in Foundation assets and (b) it’s impossible to argue that any particular person is entitled to receive income from the Foundation.

 

Recently a lawyer friend succeeded in registering a Purpose Foundation in Seychelles where the sole stated purpose of the Foundation was to own 2 Mauritius Companies.

 

The nett result of deploying a Purpose Foundation in such a scenario?

 

• Assets held by the Foundation should be safe from attack by creditor of the Foundation’s creator; and
• If the Foundation is set up in a nil tax jurisdiction, and say it owns a Company incorporated in a nil tax jurisdiction – which Mauritius is – (and provided the Foundation and any Companies it owns are not seen to be controlled from onshore) you may potentially end up with a scenario whereby income streams owned by the Foundation avoid falling into the net of the onshore taxman

 

In the case of a Purpose Foundation the specific Purpose or Purpose for which the Foundation is being formed will appear in the Foundation Charter.

 

In the above case in the Foundation’s Charter it will have stated “The purpose of this Foundation is to hold the shares of 2 Mauritius Companies”.

 

Here ‘s an example of some Charitable purposes taken from a previously formed/registered Seychelles Charitable Purpose Foundation:

 

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

 

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

 

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

 

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

 

Flexibility is everything. No doubt you’ll be pleased to hear that a Purpose Foundation does not have to remain a Purpose Foundation for life; A Purpose Foundation (by amending its Charter) can, later on down the track, morph into a Foundation with beneficiaries!

 

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.

 

 

 

 

 

Are you looking to monetize a GameFi project ie a blockchain-based ecosystem that combines decentralized finance with online gaming?

 

Have you considered setting up “Offshore”?

 

Would you like expert guidance on How (& Where) to set up a Web3 Gaming Business Offshore?

 

Such games are typically play-to-earn ie they use their own cryptocurrencies and NFTs (Non Fungible Tokens) to incentivize potential players – In order to earn crypto tokens and NFTs in-game, participants have to complete various objectives and engage in contests against other participants.

 

Starting up your own GameFi enterprise typically necessitates the issuance of a native cryptocurrency token or an in-game NFT. These would be used as currency for game participants to earn and trade. With the game’s native token, gamers in the ecosystem will be able to acquire land, character skins, costumes, weapons, etc depending on the nature of the game.

 

Game Fi/Defi projects are increasingly capturing the attention of law makers. In the current regulatory environment, to be able to offer your own crypto token or NFT to game participants, you must ensure that you launch in such a way as to keep your enterprise within the relevant regulatory framework. As a starting point you’ll need to ensure that your Token/NFT wouldn’t be classified as a Security which would typically require one to obtain a Securities Dealer’s License or a Financial Services Provider License.

 

You’ll also need to consider the Crypto/VASP (Virtual Asset Service Provider) and Gambling regulations (if any?) of the country where you intend to incorporate. As a rule, a crypto license is needed if a platform offers any kind of crypto-to-fiat or fiat-to-crypto transactions. A Gambling/Gaming license may be required if the result of the proposed game can be determined by some form of randomness or chance.

 

The good news is that OCI specializes in incorporating Blockchain related startups and our in-house Lawyer can help map out a safe path enabling you to glide through the sea of regulation without running aground on an unseen reef! In short, we can supply the expert guidance you’ll need if you’re in learning about How (& Where) to set up a Web3 Gaming Business Offshore!

 

Crypto Token Launches

 

Are you looking to issue a Crypto Token or NFT as part of your game?

 

If so, there are various ways to Legally structure such an enterprise but the most common approach we see is to create a collective of legal entities including:

1. A DAO Foundation +
2. A Developer Company +
3. A Holding Company +
4. A Token Distribution/Issuance Company (Token Co) ie the Exchange intends to sell it owns native Token +
5. A Management Company

 

(Check this Flowchart which maps out the inter-relations between the various players: https://www.dropbox.com/scl/fi/x6beptavr0xbai1q3nxfq/ICO-Legal-Structure-Typical-DIAGRAM.pdf.jpg?rlkey=cmjui85wfw85uq6unkznafyuy&st=11qu31zj&dl=0 )

 

DAO Foundation

 

In terms of roles the DAO Foundation can potentially do several things ie it can/would/could:

• Engage/pay the Developer Co
• Act as an Incubator fund for collecting seed Capital (eg privately introduced/early stage investors and/or DAO members could make donations to the Foundation and in return receive tokens or a SAFT ie a Simple Agreement for Future Tokens)
• Own the Tokens as developed and or it could own/provide working capital to the Exchange Company (ie act as a/the Treasury)
• It could be used to incentivize sweat equity (ie it could be used to gift and/or air drop tokens to high performing team members or to benefactors)

 

The Developer Company

 

The Developer Company would be engaged to do the IT/Tech work and would typically be owned by the Tech Members of/Coders for the Collective. This enables the software developers to be remunerated on a commercial basis for the work they do.

 

Public Facing Token Issuing Company

 

If you plan to develop/sell your own Coin or Token (ie a Token that could be publicly traded) then ideally (eg to minimise liability exposure to the rest of the Group) this function should be carried out by a stand-alone Company. This Company could be owned by the DAO Foundation and or by stage 2 Investors/founders collectively via a Holding Company.

 

Management Company

 

To ensure that the Founders get paid fairly for running the business (ideally before taking on substantial investors) the Founders should form their own Management Company. This Company would be engaged via contract by the Token Issuing Co to manage the day to day affairs of the business.

 

IP Holding Company

 

Sometimes we see the DAO Foundation form an IP Company so that the technology/IP can be sold separately later and/or protected from law suits. Where an IP Company is deployed typically it is owned by the DAO Foundation and it hires/engages the Developer Company.

 

Investors Company

 

Occasionally we see a Holding Company deployed to own the Exchange Co and or the Token Issuing Co. Typically post launch Commercial Investors (eg if/when you need to do a 2nd capital raise to fund expansion) would hold shares in this Company as would the Founders of the Enterprise.

 

There’s no one perfect way to structure a Crypto Token Enterprise. Every business is different. Moreover you don’t necessarily need to kick off with a menage of Companies – some can be “bolted on” later as the business grows. That said I/OCI can provide detailed guidance in this regard ie we can assist you to tailor a Legal structure designed to meet your particular goals/needs having regard to your budget, potential for legal exposure, location, growth aspirations and time frames.

 

Where to Incorporate?

 

The first thing you’ll need to decide is where to incorporate your web 3 EGaming Company Offshore (and then how to structure the entity).

 

If all you are looking to avoid having to go down the Licensing road and if tax minimisation (or ownership privacy) is a key consideration then you might want to think about incorporating your Gaming Company in one of the following jurisdictions as all can deliver a nil tax result and none of the these currently have in place activated VASP regs:

 

• Panama – For detailed information,  click on this link: https://offshoreincorporate.com/panama-offshore-companies/
• St Vincent – For detailed information check this link: https://www.dropbox.com/scl/fi/xd9mtd9x2wi78ye3yrf9k/Saint-Vincent-IBCs-Page.docx?rlkey=uewnymabynyzdjrjyswd6g1u4&st=dg8615n3&dl=0
• Samoa -  For detailed information, check this Link: https://offshoreincorporate.com/samoa-international-business-companies/
• Costa Rica – For detailed information, check this Link: https://www.dropbox.com/scl/fi/kul89uv8pqfgrqg6dk0al/Costa-Rica-Companies-PAGE.docx?rlkey=mhietvgefrzyfls8bbc81lyjx&st=zhe3madz&dl=0

 

Cost there would be:

 

• For a St Vincent Company, including incorporation, registered/agent office service and one year’s basic admin: $1,300. 2nd and subsequent years $990
• For a Panama Company, including incorporation, registered/agent office service and one year’s basic admin: $1,500. 2nd and subsequent years $890
• For a Samoa Company, including incorporation, registered/agent office service and one year’s basic admin:  $1,500. 2nd and subsequent years $990
• For a Costa Rica Company, including incorporation, registered/agent office service and one year’s basic admin:  $2,600. 2nd and subsequent years $1,700

 

All of these countries are low regulation and thus historically have been very popular with Cryptocurrency/Blockchain related businesses.

 

Crypto Business License Options

 

Depending on your business model and particularly if you’re looking to attract a higher level of investor/client and or if you want to have Regulatory certainty moving forward (eg if you are looking to do an ICO or an ITO or launch some form of Exchange) you might think about applying for some form of Crypto License.

 

There are a number of Licenses you could potentially apply for “Offshore” for Crypto/Blockchain related Enterprises including:

 

• A Gibraltar DLT License: https://www.dropbox.com/scl/fi/f5861af4aljarutqgarb6/Gibraltar-DLT-Regs.docx?rlkey=ppr7xmhnum5fmflt9ne30c8m1&st=qofehjp0&dl=0
• An Estonian Cryptocurrency Exchange (and/or Crypto Wallet Provider) License: https://www.dropbox.com/scl/fi/9zrxgs0gkm0f1g7l384hf/Estonian-Crypt-Exch-Wallet-Service-Provider-Licenses.docx?rlkey=8fm4g9lx6iqlxmp4387lyqwun&st=ypbb92qn&dl=0
• A Malta Crypto business license: https://www.dropbox.com/scl/fi/p4zmq69f64ban1f4ayc4o/Launching-an-ICO-in-Malta.docx?rlkey=ri6ou5jtrl19gzud5vmyx4b25&st=fk7xpwy4&dl=0
• A Mauritius VASP License: https://www.dropbox.com/scl/fi/kv967gsuvke1w162msbfp/Mauritius-VASP-License-Info-Brochure.docx?rlkey=cmnnnrqc0szlw16kcpyviyr31&st=lrkkrnww&dl=0
• An Isle of Man ICO License: https://www.dropbox.com/scl/fi/fwxn222m4zih6q0rk12ma/Isle-of-Man-ICO-Setup-Requirements-Overview.pdf?rlkey=8l88cu6qz1lgsccies75pkcls&st=yy51yulo&dl=0
• A Swiss ICO license: https://www.dropbox.com/scl/fi/aohnyks3vsxal237ctm23/Launching-an-ICO-From-Switzerland.docx?rlkey=kean7y748h8vvku97wd9xkjzc&st=aq2lllds&dl=0
• A Lithuanian Cryptocurrency Exchange/Wallet Provider License: https://www.dropbox.com/scl/fi/1h88933b36dsnawb5disx/Lithuania-CRYPTO-XCHnGE-EWALLET-LICENSES-OVERVIEW.docx?rlkey=fccflb3t7mq1x2z7nhq2fc4oa&st=snay4f1l&dl=0
• A Caymans VASP License: https://www.dropbox.com/scl/fi/5joqknc16jb2kil9xacn1/Cayman-Islands-VASP-Regs.docx?rlkey=4dm2ktc14aokl2x05lhu3q3ic&st=e266xoi5&dl=0
• A BVI VASP License: https://www.dropbox.com/scl/fi/mdhrncsukle05qysg29fk/BVI-VASP-Act-Fact-Sheet.docx?rlkey=9kj2p71qcuyzahgpyzny6142n&st=gexzok7l&dl=0
• A UAE Crypto business license: https://www.dropbox.com/scl/fi/ccox77gwheelvfppvmedj/UAE-Options-for-Cryptocurrency-related-Enterprises.docx?rlkey=u2b55l1zdxwg9g8svmvnq1q3r&st=auhlr9p7&dl=0
• A Seychelles VASP License: https://www.dropbox.com/scl/fi/dbz020a0085k198z7z6yp/Seychelles-VASP-Act-Overview.docx?rlkey=72bzfpunil5olkffkxdsuqben&st=gvu3znm7&dl=0

 

The cost to incorporate and apply for a License for businesses of the kind described above typically ranges from $US 18,000 to $50,000 depending largely on which jurisdiction you choose.

 

OCI & Defi

 

For the past 7 years we have specialized almost exclusively in assisting Blockchain/Cryptocurrency/Defi focussed startup, (including one of the world’s biggest Cryptocurrency Exchanges (eg the Bitmex Group) and some of the world’s biggest Defi DAOs including

 

• Mantra DAO Foundation: https://docs.mantradao.com/; &
• Defactor DAO Foundation: https://www.defactor.com/; &
• Kunji Finance DAO Foundation: https://docs.kunji.finance/kunjifinance/governance/kunji-finance-dao; &
• Asgard DAO foundation: https://www.livemint.com/technology/tech-news/asgard-launches-dao-with-metaverse-defi-and-nft-under-one-roof-11645418099019.html;&
• Genomes DAO Foundation: https://genomesdao.medium.com/genomesdao-launches-genome-on-base-77707048fcb6

 

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.

 

 

 

In this article we are going to learn about how to use a Tax free Offshore Company to run a Software As A Service business.

 

Software as a Service (SaaS) is a cloud-based method of delivering software where users subscribe to access applications on the Internet rather than purchasing them outright. Common SaaS examples include email, calendaring, and cloud-based collaborative/office tools (eg Slack, Microsoft Office 365 etc). Such a business model operates similarly to streaming services, offering flexible, subscription-based access from any compatible device. By hosting the software in the cloud, SaaS provides a complete solution that enhances accessibility and convenience, allowing users to connect and use these apps on a pay-as-you-go basis.

 

If you are going to learn how to use a Tax free Offshore Company to run a Software As A Service business here are the key things you need to know…

 

Most SaaS businesses operate on a Subscription base ie you pay a periodic fee (commonly a yearly fee) to gain access to the software.

 

Subscription Based businesses began in the media world many moons ago; Before the Information age people would subscribe to a particular magazine or news service or book club or record club ie the subscriber would pay a regular fee (eg a monthly fee or yearly fee) to regularly receive a particular newspaper or magazine or etc. (Eg when I was a boy my parents subscribed to a record club and received a certain number of new vinyl LP records every month).

 

With the technological revolution and in particular the advent of SaaS (Software as a service) products, a LOT of businesses are shifting away from the traditional cash flow model where revenue is derived from a customer’s one-time purchase to a subscription based revenue model where revenue flows in on a recurring basis. In the SaaS world subscribers pay subscription fees periodically in return for consistent access to, or for the delivery of, a particular service.

 

Examples of latter day subscription based models include:

• Salesforce
• Zoom
• Microsoft
• Adobe
• Accounting program providers (eg MYOB/MS Books, Quickbooks etc)

 

How To structure a SaaS business using a tax free Offshore Company

 

So what are the mechanics in terms of how to use a Tax free Offshore Company to run a Software as a Service business?

 

With such a business, typically, the services are offered Online (ie via a website and/or an active online direct marketing campaign), the subscriber signs up online and the service is delivered online (ie via download or via email) or via post/courier.

 

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

 

Here’s how such a business can/will typically work from an “Offshore” Perspective:

 

• A nil tax offshore company (commonly an International Business Company “IBC”) is incorporated to own/operate the business
• You design/launch a website or Online Product/Sale portal which is owned by the Offshore Company
• The IBC owns all proprietary items (including also the/any Trademarks, Operating software/systems, soft products to be delivered to customers etc)
• Your website/landing page should ideally should be hosted in a nil tax/private Jurisdiction (Iceland is currently the most popular destination for such web hosting, Singapore is also often favoured)
• The clients find you and/or contact you via the web
• The IBC would be seen to be managed and controlled from (and ideally beneficially owned from, see below) Offshore. This is achieved via the appointment of a (nil tax jurisdiction based) “Nominee” director.
• The client applies to become a subscriber Online (eg via your website)
• Your standard sale agreement/website terms and conditions should provide that a contract is not formed until the customer’s offer is accepted by you (ie the Offshore Company)
• Before the client clicks the “subscriber” button he/she clicks on a button acknowledging that he/she has read and agrees to be bound by your terms & conditions
• Acceptance of the buyer’s offer would be provided by the Company (which is seen to be managed from “Offshore” via a nil-tax-jurisdiction resident Nominee Director) sending an email or text to the buyer, after he/she has paid online;

 

In simple terms what that means is that the situs of the Contract ie the place where the contract of sale (ie the agreement between you and the buyer for you to supply goods in consideration of the buyer paying), at law, is formed is the Company Director’s location ie a nil tax environment…

 

Hence the Subscription income flowing from each contract of sale is derived, prima facie, in a zero tax jurisdiction (every time a client buys and you send an email thanking him for payment that concludes a contract of sale at law).

 

Ideally the Company’s Board of directors would meet periodically (eg once a month to ratify (ie belatedly approve) all subscription contracts signed up/entered into in the period/month previous.

 

An Offshore account (which can/would also be set up to receive card payments via a merchant account) is opened in a nil tax banking centre (ie a jurisdiction/country which does not tax monies banked in the jurisdiction nor interest paid by local banks on bank deposits).

 

In terms of money flows how it would work is:

• Customers/clients pay the IBC; All such monies are banked free of tax in the first instance
• Ideally you or your local Company would/could be contracted by the IBC to manage sales/delivery of product/website maintenance/whatever
• (If you need a regular income) You/your local Company would invoice the IBC periodically (eg monthly) for this service which income would be assessable income in your home state – though a smart Tax Accountant should be able to assist you (as a contractor) to claim a series of expenses (ie tax deductions/allowable deductions) against this income (eg home office, equipment, travel, car costs, some meal costs, phone/internet/utilities etc) to significantly reduce the amount of tax that would otherwise be payable on this income (Assessable income less Allowable deductions = Taxable income)
• Ideally once your business starts to grow, and to add substance, you would be wise to set up your MD/Board and or a sales team to take orders and receive income in a low tax onshore environment (eg Hong Kong, Ireland, Singapore, Cyprus etc as per the Amazon/Google model).

 

Management/Ownership Structure

 

As alluded to, in order to minimise the chances of the IBC being taxed onshore, ideally, the IBC should/would be (and be seen to be) managed and controlled from Offshore. How this can be achieved is by including a (nil tax jurisdiction based, arms’ length) “Nominee” Director as part of the Corporate structure. For details of how that can work click on these links:

 

http://offshoreincorporate.com/faq/should-i-engage-nominees-or-should-i-direct-and-hold-the-shares-in-my-offshore-company/

 

http://offshoreincorporate.com/faq/how-can-i-protect-my-underlying-ownership-of-my-offshore-company-where-a-nominee-is-engaged-to-act-as-director-or-shareholder/

 

Ideally – so you can swear on oath in the event of a tax investigation, law suit or regulatory inquiry – I am not the beneficial owner of this Company, (which could get you around what might otherwise be a substantial tax or legal liability eg imprisonment for tax evasion) you will want to set up a Private Foundation to act as the shareholder of your IBC. (This should also assist you to get around CFC rules ie if you live in a country which has such laws).

 

With a bespoke legal/admin structure in place you should only be liable to declare and pay tax on income paid to you by your Offshore Company (and/or on any distributions paid to you by the Foundation); The rest of your Online sales earnings you should be able to bank, and/or invest, tax free Offshore, ie in a nil tax environment.

 

Similarly, if a product that you sell doesn’t perform and a customer tries to sue you the good news is your personal assets should not be at risk as the customer has contracted with a limited liability Company (ie the Company carries the legal risk, not you personally). Moreover, having your business incorporated Offshore in a foreign/strange land is of itself a deterrent. (Have you ever tried to sue/get money out of an “Offshore” Company? It’s the Litigation Lawyer’s equivalent of climbing Mount Everest!)

 

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

 

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

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.com

 

 

 

 

 

A Private Trust Company (“PTC”) is, essentially, a company which possesses Trustee powers and which does not conduct trust business with the general public, its sole purpose being to act as a trustee of a family Trust or a group/series of related Trusts.

 

As long as certain criteria are fulfilled the PTC will not have to obtain a licence to carry out Trust Company business.

 

A PTC can be particularly useful for wealthy families who either do not wish to relinquish control to professional Trustees or where the Trust fund is to be invested in assets, which a professional Trustee may be reluctant to deal with, such as works of art or family businesses.

 

Key features:

• The board of the PTC may consist of family members or trusted advisors. The residence of the PTC’s directors may have an impact on the underlying Trust’s tax status so professional advice is recommended. Generally, a company is classed as being resident for tax purposes in the jurisdiction where mind, management and control are exercised. Care needs to be taken to ensure that the directors of the PTC are not deemed to be resident in a high tax jurisdiction;
• Representatives of the Trust company business are appointed to the board to ensure appropriate governance;
• The PTC may be owned in a variety of ways such as by a Purpose Trust or a Foundation for confidentiality purposes;
• The professional service provider acts as an administrator of the structure and assists the board of the PTC with corporate governance and trustee considerations.

 

Advantages:

 

Control – By retaining the power to appoint the directors of the PTC the Settlor (https://offshoreincorporate.com/faq/what-is-a-settlor/ ), whether or not a director themselves, will experience a high degree of control over how the Trust is run. The Settlor and his/her family have an opportunity to be involved in the management, investment and disposition of the Trust assets.

 

In Depth Knowledge – Allows family members and their advisors to bring their varied knowledge onto the Board. Particularly useful if the underlying assets are complex, high-risk or part of the family business.

 

Succession Planning – By engaging younger family members in the management of family assets, and involving them in the decision-making process, a training programme is instituted preparing the younger generation to effectively and responsibly manage wealth.

 

Diversity of Asset Base – Professional Trustees may be reluctant to hold certain assets therefore a PTC allows greater choice as to what investments may be made with the Trust fund.

 

Continuity – The administrator may change but the PTC will remain as the Trustee providing continuity of asset ownership.

 

Nevis Private Trust Companies

 

A Nevis Private Trust Company is free of regulation in Nevis. This means that a standard Nevis International Business Corporation can be a PTC and the Nevis International Exempt Trust Ordinance (NIETO) states that for a Nevis Trust to qualify as a NIETO Trust the following criteria must be met:

 

There must be at least one Trustee, which can be:

(i) a Corporation incorporated under the Nevis Business Corporation Ordinance, Cap 7.01; or

(ii) a Limited Liability Company formed under the Nevis Limited Liability Company Ordinance, Cap 7.04; or

(iii) a Trust company licensed in Nevis; or

(iv) an Attorney-at-law or firm of Attorneys-at-law duly licensed by the Nevis Island Administration to carry on the business of a registered agent; or

(v) a Multiform Foundation established and registered under the Nevis Multiform Foundations Ordinance, 2004;

 

As regards connection with Nevis:

• The Settlor and Beneficiaries must at all times be non-residents of St. Kitts and Nevis; and
• The Trust property must not include any land situated in St Kitts and Nevis.

 

The assets and income of a Nevis International Exempt Trust are exempt from all exchange controls and all forms of taxation and stamp duty in St. Kitts and Nevis.

 

Key Features of the Nevis model of PTC include:

 

• A Nevis Trust cannot be declared void, voidable or defective by reason of any forced heirship rules of the Settlor’s domicile;
• The rule against perpetuities does not apply. A Nevis Trust may continue for one hundred years from the date of commencement;
• Foreign Judgments against the Trust are not enforceable in Nevis. Any civil action to recover assets from a Nevis Trust must be brought anew in the Courts of the Federation of St. Kitts and Nevis.

• The Proper Law of the Trust is the Law of the jurisdiction expressed by the terms of the Trust; or failing that, with which the Trust at the time it was created had the closer connection; or failing either, then the proper law of the Trust shall be the law of Nevis.

 

Fraudulent Transfers

 

In most onshore jurisdictions if an asset is transferred to a  third party purely to defeat a Creditor’s claim over it, that transfer can often be overturned. This transfer is referred to in the Legal world as a Fraudulent Transfer or a Fraudulent Conveyance or a Fraudulent Disposition.

 

Where an asset has been transferred to a Nevis PTC the sole remedy available to a Creditor is to allege fraudulent transfer or disposition. BUT if the Trust is settled after the expiration of 2 years from the date of the Creditor’s cause of action, it is not deemed fraudulent. In any event, a Creditor seeking to set aside a transfer to a Nevis Trust must prove beyond a reasonable doubt, and with clear and convincing evidence, that the transfer constituted a fraudulent disposition. Moreover, a Creditor must deposit with the Ministry of Finance, a security bond of US$100,000.00 before he/she can bring an action against a Nevis Trust;

 

Protectors

 

The Nevis Law also provides for the appointment of a Protector ( https://offshoreincorporate.com/faq/what-is-a-protector/ ) who is responsible for monitoring the operations of the Trust. This provision allows the Protector to ensure that the purpose of the Trust is fulfilled. One of the outstanding features of the Nevis Law is that the same person can act as Settlor, Beneficiary and Protector. This particular aspect allows the Settlor to maintain control over the Trust assets if desired.

 

Confidentiality

 

The Nevis Law also provides for there to be confidentiality with respect to the Trust. Though a Trust register is maintained, it only records the name of the Trust and the date of settlement and is not a public document available for inspection. The only exception is where a Trustee of a specific Trust gives written authorization allowing the inspection of the entry of that Trust on the register. Additionally, the Law provides that all non-criminal judicial proceedings relating to the Trust shall be heard in private and that no details may be published without leave of the Court.

 

Nevis PTC Costs

 

The cost to set up and maintain a Nevis PTC would be as follows:

 

First Year

Incorporation – US$400

Government registration charges – US$270

Registered office/agent – US$470

Compliance maintenance – US$150

Administration and collections – US$110

 

Annually thereafter

Government registration charges – US$260

Registered office/agent – US$470

Compliance Maintenance – US$150

Administration and collections – US$110

 

Registration

 

If you intend to engross and register A NIETO (Nevis International Exempt Trust Ordinance) Trust it will need to be registered to qualify under the ordinance and must have a registered office in Nevis (which OCI can/will supply). At registration the Registrar of Trusts is informed of:

 

1. The name of the Trust
2. The name of the Trustee
3. The place of the registered office of the Trust; and
4. The date on which it was engrossed

 

The Trust Deed (ie the document which governs the operation of the trust) is not filed and remains a private instrument.

 

The procedure for registering a NIETO Trust is as follows:

 

-        We draft and provide the Trust deed to the Compliance Manager in Nevis for review to ensure that it qualifies as a NIETO Trust;

-        Assuming that the deed qualifies the client then engrosses it and provides us with a signed deed;

-        We register the Trust, obtain the registration certificate and provide it to the client.

 

Note: The Nevis PTC can be the Trustee of NIETO and non-NIETO Trusts without the need for licencing.

 

The costs relating to the establishment of a Nevis NIETO Trust would be as follows:

 

First year

Review of the Trust deed for compliance with NIETO – US$1,000

Provision of registered office – US$470

Due diligence maintenance – US$170

Administration and collections – US$110

(+ Providing a Trustee if required $1,750)

 

Annually thereafter

Provision of registered office – US$470

Due diligence maintenance – US$170

Administration and collections – US$110

(+ Providing a Trustee if required $1,750)

 

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.