Offshore Company Structures for American Forex Traders

 

Are you a US based Forex Trader and looking for better Trading Terms?

 

If so, then you might want to set up a Company Offshore to get you access to a wider range of Brokers abroad, such as are guaranteed to offer you better trading conditions than you could ever hope to get at home.

 

Since the GFC, American Brokers have been limited by regulation in terms of the range of trading terms that they can offer Forex Traders particularly in terms of leverage.

 

Hence more and more American based Forex Traders have begun to look abroad for better terms.

 

The challenge however is that most brokers won’t accept an individual natural person American as a client.

 

The smart Traders are beginning to realise that by setting up a Company Offshore one can get access to Offshore (non-American) Brokers most of whom offer better Trading Terms than their American counterparts

 

The devil, as always however, is in the detail.

 

Howso?

 

In most cases Offshore Brokers won’t accept an Offshore (ie non-American) Company as a client if:

 

  • The director of the Company is an American; or
  • The shareholder of the Company is an American; or
  • If (say where a nominee shareholder is deployed) the beneficial owner of the Company is an American

 

If you want to get access to the widest range of Brokers what you’ll want to do is set up an Offshore Company wherein the Director is not American and the shareholder is not an American and the beneficial owner of the Company is not an American.

 

To achieve that you will need to:

 

  1. Set up an Offshore Company with a Nominee (ie non-American) Director;
  2. Set up a Private Foundation to act as shareholder of the Company.

 

Why will you need a Foundation?

 

The Private Foundation is a creature of European Common Law. It is in essence Europe’s version of a Trust.

 

Like a trust a Foundation is a 3 headed creature:

(a)  It is set up by one person called a Founder (a Trust is set up by a person called a Settlor)

(b)  It is managed day to day by a Councillor (a Trust is managed day to day by a Trustee)

(c)   A Foundation, just like a Trust, has beneficiaries – ie persons who are designed by law to benefit financially from the set-up of the Foundation and any assets it might own.

 

Unlike a Trust (which is more like a contract or an arrangement between the Settlor and Trustee) a Foundation has Corporate/Legal personality, that is, it can sue and be sued AND (here’s the key part) a Foundation is presumed under European Common law to be both the legal owner AND beneficial owner of any asset it holds;- If a Foundation owns, for example, a piece of real estate the legal AND beneficial owner of that real estate is the Foundation itself. (If a Trust owns a piece of real estate the registered owner of that piece of Property is the Trustee but the beneficial owner of that piece of property is the beneficiary/s of the Trust).

 

Whenever we open a Brokerage Account we have to tell the Broker the name of the Beneficial owner of the Company.

 

In most cases if the beneficial owner of the Company applying for a Brokerage Account is an American the Broker will refuse to open the account.

 

But if the beneficial owner of the Company is a Foundation (that is, if the shareholder of the Company is a Private Foundation) the Broker should open the account.

 

One jurisdiction (ie Seychelles) has actually taken this aspect of European common law and codified it ie put it into legislation. In section 71 of the Seychelles Foundations Act, it actually provides that the legal and beneficial owner of any asset of the Foundation is the Foundation itself. Hence most clients in your position usually choose to set up a Seychelles Foundation…

 

Such a Corporate Structure (if set up and administered a certain way) can also enable you to potentially defer paying tax at home on your Trading Profits.

 

Local laws can have a unique impact. Hence it’s always wise to seek local legal/financial advice before committing to set up an Offshore Corporate structure.

 

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

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.com

How To Use a Tax Free Offshore Company To Invest in Real Estate

The advent of the global village has broadened the scope of potential investment activities considerably.

 

These days it’s not uncommon for an investment portfolio to include multiple pieces of international real property (ie Real Estate).

 

Investing in Offshore Real Estate is an activity that lends itself well to an Offshore Corporate Structuring Plan.

 

How it typically works is:

 

(a)  You incorporate a tax-free Offshore Company (“OC”)

 

(b)  You structure the Company in such a way as to ensure that the Company is seen to be managed and controlled from Offshore; This can/will be achieved by via deployment of a tax haven based Nominee Director (which is a service that OCI can/will provide).

 

(c)   You open a bank account for your OC in a country that does not tax interest paid on bank deposits

 

(d)  You advance funds to your OC

 

(e)  The OC then purchases the Property/Real Estate Investment. Any purchase contract is concluded/signed “Offshore” by the Nominee Director

 

(f)    The piece of Property/Real Estate is held by your OC for some time, commonly for the long haul.  Eventually, you may decide to sell the investment having (hopefully) made a substantial capital gain. Sale proceeds in this instance would be paid into your OC’s tax free bank account

 

(g)  Depending on where you buy, Capital Gains Tax (“CGT”) may be payable on any Capital Gain realized upon sale.  (Where CGT applies) CGT may be payable by the/an investor to the taxman of the country wherein the investor is domiciled. If you are smart you will have set up/domiciled your Offshore Company in a jurisdiction that does not levy Capital Gains Tax

 

(h)  Usually however CGT is payable in/to the country in which the real estate is located. Whilst CGT can sometimes be as much as 25% of nett gain a lot of countries (eg the UK) offer CGT concessions to non-locals to foster foreign investment

 

(i)     CGT payable (and tax that might otherwise be payable on property rents) might be substantially lessened (and access to the local property market enhanced) if you were to set up a local Company to own the real estate. In this scenario the Property would be owned by a/the local Company but the local Company would be owned by a nil tax Offshore Company. The Offshore Company would advance funds to the local Company for the purchase and a mortgage over the real estate bought could be afforded to the Offshore Company.

 

(j)    If you were to pay taxes as a local on the nett rental profits, and or on Capital Gain realized, tax could potentially be 30% plus. But where a local Company is owned by an Offshore Company and the nett profits are distributed as dividends or interest payments then WHT ie Withholding Tax (ie instead of Corporate Tax or Personal Income Tax) would be applied.

 

(k)  Whilst WHT is typically around 20-30% this rate can often be lessened to as little as 5-10% by interposing a low tax Holding Company (incorporated in a country which has a favorable DTA ie Double Taxation Avoidance Treaty with the country wherein your real estate is located) between the local Company and the ultimate owner ie your nil tax Offshore Company (“OC”). In this scenario the local Company that owns or owned the Real Estate pays the nett profits (ie after deduction of the say 5-10% WHT) to the Offshore Holding Company.

 

(l)     The Holding Company (which would be set up in a country that does not levy WHT on outgoing dividends) would then pay all of its profits as dividends to its owner ie your nil tax Offshore Company (“OC”). The nett result? The Holding Company pays no tax. And your OC pays no tax. That is you’ve received potentially 90-95% of your rental profits and Capital Gains tax free (ie you should only have paid max 5-10% tax on profits made on your Offshore Real Estate purchase).

 

Provided (i) your OC is seen to be managed and controlled from offshore (which can be achieved via deployment of a nil tax jurisdiction based “Nominee” director) & provided (ii) you are not, at law, the beneficial owner of the Company (which can be achieved by setting up a Private Foundation to own/hold the shares of your OC) returns paid to your OC can be banked and/or reinvested Offshore potentially free from tax (ie without you needing to declare/pay tax on this income at home)

 

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

 

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

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.com

 

How To Use a Tax Free Offshore Company To Invest in Real Estate

 

The advent of the global village has broadened the scope of potential investment activities considerably.

 

These days it’s not uncommon for an investment portfolio to include multiple pieces of international real property (ie Real Estate).

 

Investing in Offshore Real Estate is an activity that lends itself well to an Offshore Corporate Structuring Plan.

 

How it typically works is:

 

(a)  You incorporate a tax-free Offshore Company (“OC”)

 

(b)  You structure the Company in such a way as to ensure that the Company is seen to be managed and controlled from Offshore; This can/will be achieved by via deployment of a tax haven based Nominee Director (which is a service that OCI can/will provide).

 

(c)   You open a bank account in a country that does not tax interest paid on bank deposits

 

(d)  You advance funds to your OC

 

(e)  The OC then purchases the Property/Real Estate Investment. Any purchase contract is concluded/signed “Offshore” by the Nominee director

 

(f)    The piece of Property/Real Estate is held by your OC for some time, commonly for the long haul.  Eventually, you may decide to sell the investment having (hopefully) made a substantial capital gain. Sale proceeds in this instance would be paid into your OC’s tax free bank account

 

(g)  Depending on where you buy, Capital Gains Tax (“CGT”) may be payable on any Capital Gain realized upon sale.  (Where CGT applies) CGT may be payable by the/an investor to the taxman of the country wherein the investor is domiciled. If you are smart you will have set up/domiciled your Offshore Company in a jurisdiction that does not levy Capital Gains Tax

 

(h)  Usually however CGT is payable in/to the country in which the real estate is located. Whilst CGT can sometimes be as much as 25% of nett gain a lot of countries (eg the UK) offer CGT concessions to non-locals to foster foreign investment

 

(i)     CGT payable (and tax that might otherwise be payable on property rents) might be substantially lessened (and access to the market enhanced) if you were to set up a local Company to own the real estate. In this scenario the Property would be owned by a/the local Company but the local Company would be owned by a nil tax Offshore Company. The Offshore Company would advance funds to the local Company for the purchase and a mortgage over the real estate bought could be afforded to the Offshore Company.

 

(j)    If you were to pay taxes as a local on the nett rental profits and or on Capital Gain realized tax could potentially be 30% plus. But where a local Company is owned by an Offshore Company and the nett profits are distributed as dividends or interest payments then WHT ie Withholding Tax (ie instead of Corporate Tax or Personal Income Tax) would be applied.

 

(k)  Whilst WHT is typically around 20-30% this rate can often be lessened to as little as 5-10% by interposing a low tax Holding Company (incorporated in a country which has a favorable DTA ie Double Taxation Avoidance Treaty with the country wherein your real estate is located) between the local Company and the ultimate owner ie your nil tax Offshore Company (“OC”). In this scenario the local Company that owns or owned the Real Estate pays the nett profits (ie after deduction of the say 5-10% WHT) to the Offshore Holding Company.

 

(l)     The Holding Company (which would be set up in a country that does not levy WHT on outgoing dividends) would then pay all of its profits as dividends to its owner ie your nil tax Offshore Company (“OC”). The nett result? The Holding Company pays no tax. And your OC pays no tax. That is you’ve received potentially 90-95% of your rental profits and Capital Gain/s tax free (ie you should only have paid max 5-10% tax on profits made on your Offshore Real Estate purchase).

 

Provided (i) your OC is seen to be managed and controlled from Offshore (which can be achieved via deployment of a nil tax jurisdiction based “Nominee” director) & provided (ii) you are not, at law, the beneficial owner of the Company (which can be achieved by setting up a Private Foundation to own/hold the shares of your OC) returns paid to your OC can be banked and/or reinvested Offshore potentially free from tax (ie without you needing to declare/pay tax on this income at home).

 

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

 

or maximum speed and to minimise the chance of mistake we use tailor made software to produce Incorporation packs:

  1. Company/Trust etc specifications are entered in a central database
  2. All Data entries are crosschecked by a second person to minimise the chance of errors
  3. Corporate documents are produced at the click of a button without the need for manual typing
  4. A Manager quality checks all Corporate documents for accuracy before they are dispatched

 

Why Retain or Keep a Foundation?

Are you wondering whether you really need to keep/retain a Private Interest Foundation (“PIF”) as part of your Corporate structure?

 

In terms of why have/keep your Foundation you may recall a PIF serves two purposes:

 

(a)  It gets you around Controlled Foreign Corporation (“CFC”) laws (most countries have CFC laws)

(b)  In the event of a law suit or tax investigation or regulatory inquiry, if you have a valid Foundation in place to own/hold the shares of your Company, you can swear under oath “I am not the legal owner or beneficial owner of this Company”.

 

Retaining a Foundation to own your Offshore Company will do two things in effect:

 

  1. It should enable you to avoid having to report/pay tax on any income earned by the Foundation and any assets/Companies it owns, (ie assuming you are not the Councillor of the foundation and assuming the Company is seen to be managed and controlled from Offshore)
  2. In the event of a tax evasion investigation it gives you wriggle room. That is, it (ie having a valid PIF in place to hold the shares of/own your Offshore Company) gives you the chance to argue I’m not liable to report any income earned by the Foundation (or any Company it owns). Without a Foundation in place (ie in the event of a tax investigation) if you have an Offshore Company – and you haven’t declared that Company’s income where you live – you will almost certainly be found guilty of tax evasion and sent to jail… (call it a get out of jail free card in the game of life, if you like that’s what a Foundation is or should be, bottom line)

 

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

 

 

Mauritius Tax Free Authorised Companies

 

Mauritius is a group of lush tropical islands in the south western Indian Ocean and is located northeast of Madagascar approximately 1,000 miles southwest of Seychelles. A former French and British colony, Mauritius offers:

 

  • A British system of law and parliament
  • Political/economic stability
  • A well-developed Financial Services Sector; and
  • A well-educated productive bi-lingual French/English speaking workforce

 

Since gaining independence from Britain in 1968 the Mauritian economy has grown steadily from one based in agriculture to a more diversified economy with Tourism, Financial Services and Agriculture (primarily sugar cane) as its 3 economic pillars. This has seen a resulting rise in standard of living from low to middle income delivering levels of economic and political stability which are the envy of the region.

 

Whilst better known as a Banking Centre (Mauritius boasts at least 3 world standard “Offshore” Banks) Mauritius offers two forms of nil tax Offshore Company ie the GBC1 ( a domestic designed to do business or hold shares in companies based in DTA Treaty partner countries) and the AC (Authorised Company).

 

Mauritius ACs ie Authorised Companies – General

 

An Authorised Company is governed by the Companies Act 2001 and The Financial Services Act 2007.

 

Permissible activities for an Authorised Company

 

This flexible business entity can carry out any lawful business activity except the following activities which are set out in the Fourth Schedule to the Financial Services Act 2007:

 

  • Banking
  • Financial services;
  • Carrying out the business of holding or managing or otherwise dealing with a collective investment fund or scheme as a professional functionary;
  • Providing of registered office facilities, nominee services, directorship services, secretarial services or other services for corporations;
  • Providing trusteeship services by way of business; and
  • Any other activities that the FSC may determine as being detrimental to the good repute of Mauritius as a centre for financial services or contrary to public interest.

 

Eligibility criteria to apply for Authorised Company status

 

An applicant for Authorised Company should meet the following conditions:

  • The majority of shares or voting rights or the legal or beneficial interest in the company, are held or controlled, as the case may be, by a person(s) who is/are not a citizen(s) of Mauritius;
  • The activity(ies) of the Company is/are being conducted principally outside Mauritius or with a category of persons as may be specified in FSC Rules; and
  • The company has its place of effective management outside Mauritius.

 

Authorised Company (Non-resident entity – Tax Exempted) – Key Features

 

General

Type of Entity: AC

Governed by: Companies Act 2001, Financial Services Act, 2007

Regulated Body: Registrar of Companies, Financial Services Commission

Type of Law: Hybrid

Shelf Company availability: No

Corporate Income tax: Non Resident for tax purposes

Double Taxation Treaty Access: No

Incorporation Time: One week

 

Share Capital or Equivalent

Standard Currency: USD

Permitted Currencies: Any except Mauritian Rupees

Minimum Paid Up Capital: 1 share

Bearer Shares allowed: No

No par value shares allowed: Yes

 

Directors

Minimum number: 1 (one)

Local required: No

Publicly accessible records: No

Location of meetings: Outside of Mauritius

Corporate directors Allowed: Yes

 

Shareholders

Minimum number: 1 (one)

Local required: No

Publicly accessible records: No

Location of meetings: Outside of Mauritius

Corporate Shares Allowed: Yes

 

Accounts & Taxation

Requirement to prepare & file Financial Summary with FSC: Yes

Audit requirements: No

Requirement to prepare/file Annual Tax Return with the Mauritius Revenue Authority: Yes

Publicly accessible accounts No

 

Other

Re-domiciliation permitted: Yes

Company secretary required: Optional

 

OCI Mauritius AC Company Packages

 

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

 

Services:

 

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

 

Documents included in your Incorp pack:

 

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

 

Price (all inclusive): $US 2,100

 

With tax effective offshore company management (ie including Professional Corporate “Nominee” Director, Shareholder & Company Secretary): $ 2,500

 

From 2nd year $1,990 (+ Nominees as/if needed).

 

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

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.com

 

 

How To Use a Tax Free Offshore Company To Invest in Alternative Investments

The advent of the global village has broadened the scope of potential investment activities considerably.

 

These days it’s not uncommon for an investment portfolio to include exposure to left of field “alternative” investments.

 

Investments that come under this category include long hold capital focused assets such as venture capital, private equity, hedge funds, real estate investment trusts, commodities, precious metals, rare coins, fine wine/whisky, artworks, antique furniture, aged/quality name brand musical instruments (eg guitars, violins etc), vintage cars and etc. (Prime/unique real estate could also form part of such a portfolio)

 

Investing in alternative investments is an activity that lends itself well to an Offshore Corporate Structuring plan.

 

How it works is:

(a)  You incorporate a tax-free Offshore Company (“OC”)

 

(b)  You structure the Company in such a way as to ensure that the Company is seen to be managed and controlled from Offshore; This can/will be achieved by via deployment of a tax haven based Nominee Director (which is a service that OCI can/will provide).

 

(c)   You open a bank account in a country that does not tax interest paid on bank deposits

 

(d)  You advance funds to your OC

 

(e)  The OC then purchases the investment. Any purchase contract is concluded/signed “Offshore” by the Nominee director

 

(f)    The asset is held by your OC for some time, commonly for the long haul.  Eventually one day you may decide to sell the investment having (hopefully) made a substantial capital gain. Sale proceeds are paid into your OC’s tax free bank account

 

(g)  Capital Gains tax is typically paid by the/an investor to the taxman of the country wherein the investor is domiciled. If you are smart you will have set up/domiciled your Offshore Company in a jurisdiction that does not levy Capital Gains Tax

 

(h)  Provided (a) your OC is seen to be managed and controlled from offshore (which can be achieved via deployment of a nil tax jurisdiction based “Nominee” director) & provided (b) you are not, at law, the beneficial owner of the Company (which can be achieved by setting up a Private Foundation to own/hold the shares of your OC) returns paid to your OC can be banked and/or reinvested Offshore potentially free from tax (ie without you needing to declare/pay tax on this income at home)

 

Note if you need to draw on these returns at home there are at least 6 different ways to (discreetly) access money banked abroad by your Offshore Company.

 

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

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.com

 

 

How To Avoid Being Listed as the Beneficial Owner of an Offshore Company

We are often asked Can you set up an Offshore Company for me without my name being listed in any official record as beneficial owner of the Company?

 

The short answer is this is possible. And the solution is somewhat left field. Let us explain…

 

Typically, clients who are privacy focused like to deploy a Nominee Director and Nominee Shareholder. But the downside of that is, even if you have a nominee shareholder in place, you would still be classified at law as the underlying beneficial owner (“UBO”) of the Company. The solution is to set up a Private Foundation to act as the shareholder of your tax free Offshore Company.

 

Why?

 

The Private Foundation is basically Europe’s version of a Trust (Foundations began in Liechtenstein around about the 1600s) save for one big difference (see below). A Trust is more like a contract between 2 parties ie the person who set up the Trust, called the Settlor, and the person set up to manage it, ie the Trustee (The Trustee manages Trust property for the benefit of the Trust’s beneficiaries). A Trust is NOT a separate legal entity. For example if a Trust buys a piece of real estate on the Title Deed the name of the proprietor says XYZ Trustees Ltd as Trustee for the ABC Family Trust. In other words the legal owner of the property is the Trustee. But the beneficial owner/s of the property is/are the beneficiary/s of the Trust.

 

A Foundation is similar to a Trust ie it’s a 3 headed creature – its set up by a person called a Founder (like a Settlor in the case of a Trust), is managed day to by a person called a Councillor (which is more like a Company Director than a Trustee) and, like a Trust, it has beneficiaries ie persons who are ultimately designed to benefit from the existence of the Foundation.

 

BUT, and here’s the key….

 

A Foundation (unlike a trust) is a separate legal entity ie it can sue and be sued. AND, at law, a Foundation is presumed to be both the legal AND beneficial owner of any asset it holds!

 

One jurisdiction has even taken this a step further ie Seychelles which has actually codified this aspect of European Common Law ie written it into legislation – in Section 71 of the Seychelles Foundations Act (refer pages 48 + 49 of the Act which can be downloaded via this link: https://seylii.org/sc/legislation/act/32-2) it actually says that the legal and beneficial owner of any asset held by a Seychelles Foundation IS THE FOUNDATION ITSELF.

 

The end result?

 

If you set up a Seychelles Foundation to own the shares of your Offshore Company or IBC if anyone (eg a bank or revenue authority or regulator) ever asks who is the beneficial owner of this Company, you can legally say it’s the shareholder, because the shareholder is a Seychelles Foundation and Section 71 of the Seychelles Foundations Act which you’ll find enclosed (ie DO email them a copy of the legislation) provides that the legal and beneficial owner of any asset held by a Seychelles Foundation IS THE FOUNDATION ITSELF.

 

If you wanted to be extra careful/private you could utilize the Discretionary nature of a Foundation (ie beneficiaries can be changed at any time) to make the initial beneficiary of the Foundation a tax free International Charity (eg UNICEF, The International red Cross, Oxfam or?) or you could install a (nil tax jurisdiction resident) “nominee” beneficiary to act as the initial beneficiary (which is a service that some Corporate Service Providers, including OCI, can provide).

 

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

 

IBCs – How To Get Around New EU Economic Substance Requirement

Following on from the OECD’s BEPS Action plan, in July 2018 the EU’s Code of Conduct Group (Business Taxation) decided that certain Companies/Legal Entities registered in tax havens would, moving forward, be required to show local substance. In short, the tax havens in question (eg the BVI, Cayman Islands, Bermuda, Guernsey, Jersey, the Isle of Man, Bermuda, Vanuatu etc) were threatened with blacklisting by the EU if they failed to pass laws forcing their International Business Companies etc to show economic substance on the ground in the jurisdiction (eg a local/stand-alone office and local staff).

 

The jurisdictions affected moved promptly to pass laws requiring such Companies to show substance, in particular with respect to the following business types:

 

  • Banking
  • Insurance
  • Shipping
  • Regulated fund management
  • Finance/leasing
  • Distribution and service centre
  • Headquarters
  • Intellectual property
  • Holding company activities

 

The argument for requiring businesses such as banking and insurance etc to have a local presence is hard to counter but of far greater concern is the requirement for Holding Companies to show presence on the ground. Given its passive nature, if a Company is just to set up to hold a parcel of shares for example why would it need to have a stand alone office (or staff for that matter)? It is self evidently an absurd requirement.

 

The good news is that for Holding Companies at least the requirement is easy to get around.

 

How so?

 

Across the board per the model legislation (eg in the BVI) to fit the definition of a Holding Company the Company in question must just hold shares. If it holds any other asset it doesn’t meet the definition of a “Holding” Company.

 

Any other asset could (would) include a bank account.

 

So, if you have a Holding Company in any of the effected jurisdictions – and you want to get around this ridiculous new EU requirement – (if you haven’t done so yet) we’d suggest you take steps NOW to open a bank account for your Company!

 

And if your current Offshore Company Service Provider (“CSP”) doesn’t believe you when you tell him/her that you shouldn’t be required to set up an office or hire staff refer him/her to this article and tell him/her to read the fine print of the legislation! (and or sack your CSP and change to a Provider who actually knows the fine print eg OCI).

 

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

 

 

Where To Incorporate a Crypto Business With No License?

We are often asked, Where can I set up a Crypto business (eg a Crypto currency Exchange) without a license?

 

As at the date of writing (ie 24 November 2019), the following nil tax jurisdictions do not license such activities currently:

 

  • Seychelles
  • Belize
  • Nevis
  • Panama
  • Hong Kong
  • Cayman Islands
  • Dominica
  • Hong Kong

 

To clarify the position last week we wrote to Lawyers we know in 11 different jurisdictions and asked this question: “We have a Japan based client who wants to incorporate a new business namely a Cryptocurrency Exchange business where they buy Cryptocurrencies and sell Cryptocurrency (ie they will exchange one form of Cryptocurrency for another and charge a commission or margin. What special license/s if any will the client need to apply for in your jurisdiction?”

 

Here are the answers we received, verbatim:

 

Estonia

 

“First, regarding your question: we recommend to order a service for preliminary legal analysis for specific cases for full assurance but from the first view I would say that the company would also need a Crypto license.

The crypto licenses for which we can apply are:

  • · providers of a service of exchanging a virtual currency against a fiat currency
  • · providers of a virtual currency wallet service”

 

Hong Kong

 

“Cryptocurrency exchange is not yet officially regulated in Hong Kong but presumably they will need to have their own operating office, staff, compliance officer and follow the Anti-Money Laundering rules as a minimum.  However, they are not likely to open an account in HK for its operation.

 

Alternatively, the client can consider setting up a company in Malaysia Labuan where they can apply for a money operator license that include Crypto currency in the license like fiat currency.”

 

Seychelles

 

“Agreed that it is not a prohibited business and will thus depend on DD issues.”

 

Panama

 

“Presently there are no regulations or licenses in Panama for Crypto business.”

 

UAE

 

“In UAE all financial and non financial licenses are regulated in DFIC , FSA and ADGM authorities.

Currently we are working on details clarification with the authorities and we will revert you ASAP. “

 

Dominica

 

“Cryptocurrency exchange is not regulated by the IBC Act 1996 of Dominica, and as amended thereafter. It remains a grey area, just as in the majority of jurisdictions. Thus we confirm that this type of activity for an IBC is not restricted. Legal opinion can be available upon request.”

 

Nevis

 

“At this time we do not have any cryptocurrency legislation.

 

I suppose the better option is number 1. The entity can be formed and the Articles allows the company to do any legal business. To ensure nil tax in Nevis, it would be better not to operate the business activities in Nevis, in addition to the fact that cryptocurrency activities are not regulated in Nevis (it would be hard to make a claim if monies are lost).”

 

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

 

Cayman Islands Fund Options

During the course of the past 20 to 30 years the Cayman Islands, an independent former British Protectorate in the norther Caribbean Sea, has risen to become one of the World’s Premier Fund set up destinations.

 

Whether you’re looking to set up a Hedge Fund, a non-regulated Closed End Fund or a High End Mutual Fund Caymans provides options.

 

Fund setups are governed in the Caymans Islands by the Caymans Mutual Funds Law

 

The said legislation defines a mutual fund as being any company, trust or partnership either incorporated or established in the Cayman Islands, or if outside the Cayman Islands, managed from inside the Cayman Islands, which issues equity interest redeemable or re-purchaseable at the option of the investor, the purpose of which is the pooling of investors’ funds with the aim of spreading investment risk and enabling investors to receive profits or gains from investments.

 

Regulation of Funds & Fund Administrators

 

The Caymans Mutual Funds law makes the Cayman Islands Monetary Authority (“CIMA”) responsibility for regulating certain categories of funds operating in and from the Cayman Islands (see Categories of Regulated Mutual Funds below) as well as Fund administrators.

 

Interestingly not all mutual funds fall within the Regulatory ambit. Certain categories of mutual fund ie Funds that meet the criteria set out in section 4(4) of the MFL are exempt from Licensing/Regulation. All other mutual funds are regulated and must be licensed.

 

The licensing requirement is coved in section 4 of the act which states as follows:

 

4. (1) Unless a mutual fund is complying with subsection (3) or is exempted under subsection (4), it shall not carry on or attempt to carry on business in or from the Islands unless —

(a) it is the holder of a Mutual Fund Licence, and it has —

     (i) a registered office in the Islands; or

     (ii) if a unit trust, a trust company licensed under the Banks and Trust Companies Law          as its trustee; or

 

(b) a licensed mutual fund administrator is providing its principal office in the Islands, and, unless an exemption from this requirement has been granted by the Authority, there is filed with the Authority, in respect of the mutual fund, a current offering document that complies with subsection (6).”

 

Categories of Regulated Mutual Funds

 

The following categories of funds must apply for a License in the Cayman Islands:

 

A Licensed Mutual Fund 

The MFL (Section 4(1)) specifies that a mutual fund operating in and from the Cayman Islands must have a licence unless: a licensed mutual fund administrator is providing its principal office; it meets the criteria set out in Section 4(3), which allows for funds to be registered, or it is exempt from regulation under Section 4(4).

The provisions relating to licensed mutual funds benefit large, well known and reputable institutions, which do not propose to appoint Cayman Islands service providers.

 

Administered Mutual Fund 

To be approved as an administered mutual fund, the fund must have a CIMA-licensed mutual fund administrator providing its principal office. The regulatory responsibility for the administered fund, which has more than 15 investors and which is not a licensed or registered mutual fund, is placed largely in the hands of a licensed Mutual Fund Administrator.

 

Registered Mutual Fund 

A Registered Fund must have either a minimum aggregate equity interest of CI$80,000 (US$100,000) purchasable by a prospective investor or the equity interests must be listed on a stock exchange approved by CIMA.

 

A Master Fund must have either a minimum aggregate equity interest of CI$80,000 (US$100,000) purchasable by a prospective investor in the master fund or the equity interests of the master fund must be listed on a stock exchange approved by CIMA.

 

Common Fund Vehicles

 

The Cayman Islands has company, trust, partnership and related laws that allow a high degree of flexibility for establishing mutual funds. The four vehicles commonly used for operating mutual funds are the exempted company, the segregated portfolio company, the unit trust and the exempted limited partnership.

 

Exempted Company - The exempted company may redeem or purchase its own shares and may therefore operate as an open-ended corporate fund. Closed-ended corporate funds can also be established using the exempted company and it is a relatively straightforward procedure to convert from one to the other.

 

Segregated Portfolio Company - An exempted company can also be established as a “Segregated Portfolio Company” (“SPC”) with protected cells or portfolios. The SPC makes it possible to provide a means for different groups to protect their assets when carrying on business through a single legal entity.

 

Unit Trust - The unit trust is usually established under a trust deed with the investors’ interest held as trust units.

 

Exempted Limited Partnership - The exempted and limited partnership provides a second unincorporated vehicle and it can be formed as easily as the exempted company or the unit trust.

 

Closed End Fund Exemption

 

Section 4(4) of the Caymans Mutual Funds Law specifically provides that:

“A mutual fund may carry on or attempt to carry on business in or from the Islands without complying with subsection (1) if —

  • (a) the equity interests are held by not more than fifteen investors, a majority of whom are capable of appointing or removing the operator of the fund; or
  • (b) it is a fund, not incorporated or established in the Islands, which makes an invitation to the public in the Islands to subscribe for its equity interests by or through a person who is the holder of a licence under the Securities Investment Business Law (2019 Revision), for a regulated activity specified by the Authority for the purposes of this subsection and —
  •    (i) those interests are listed on a stock exchange (including an over the-counter-market) specified by the Authority by notice in the Gazette; or
  •   (ii) the fund is regulated in a category, and by an overseas regulatory authority, approved by the Authority for the purposes of this subsection.
  • The ongoing supervision of funds and fund administrators falls under the remit of CIMA’s Investments and Securities Division.

 

Closed-End/Exempted Funds

 

A Closed End Fund is an investment fund wherein the investor commits to invest his or her money for a set period of time; The investor cannot redeem his /her shares (ie the investor can’t cash out) until the minimum/fixed investment period has expired.

 

In the case of a Closed End Fund typically a Limited Company is set up (ie a Company Limited by shares); the investor receives shares entitling him/her to take home a percentage of the profits (ie in proportion to the percentage of the company that the investor owns) based on net asset value at the conclusion of the fixed investment period.

 

A closed-ended fund is most appropriate for investments which typically require a longer period to mature, eg private equity, venture capital, real estate or infrastructure investments.

 

Exempted funds are mutual funds that are not required to be regulated by CIMA ie where there are no more than 15 investors, the majority of whom are capable of appointing and removing the directors of the fund. (Provided the fund meets the criteria) Closed-ended funds incorporated in the Cayman Islands are not regulated and are not required to obtain a Fund License in the Cayman Islands.

 

Closed End Fund Companies are often established via a tailored Articles of Association/Constitution which allows the Company to issue 2 different classes of shares ie Class A shares and Class B shares. Class A shares (often called Management Shares) come with both voting rights and the rights to share in profits. Class B shares (often called Equity

Shares or Investor Shares) ony entitle the shareholder to a share in the profits ie they do NOT come with voting rights.

 

This model of Closed End Fund is most commonly Incorporated in Seychelles or Belize or Nevis because such funds, if incorporated in these jurisdictions, do not fall within the regulatory ambit of the local Mutual Funds Law.

 

Why Set Up Your Fund In The Cayman Islands?

 

The Cayman Islands is presently the dominant “Offshore” Fund Jurisdiction. It, reportedly, is home to 75%+ of all new offshore fund formations including nearly half of the World Mutual Funds Industry’s estimated US$1.1 trillion of assets under management.

 

Why do so many funds choose to call Cayman Islands home? Because the Caymans offers:

 

  • Political and economic stability
  • No exchange control restrictions
  • Reputable quality professional service providers
  • A huge amount of expertise in the investment fund space
  • World class banks
  • Flexible, modern, quality legislation
  • Commerciality – Cayman regulators are very approachable, flexible, innovative and efficient
  • Affordability – Cayman’s investment fund fee structure is globally competitive, which benefits the manager and the investor with respect to the launch and ongoing operation/ maintenance of the fund.
  • Reputability – The Caymans is on the OECD “White List” and has signed tax information exchange agreements (TIEA) with 19 countries
  • Tax effective outcomes for both Funds and Fund Managers

 

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