Category Archives: Company- Management

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

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

The Company usually only pays a dividend to your Foundation:

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

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

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

Offshore Company (IBC) Cash Flows

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

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

1. Set yourself up as an arms’ length consultant and have the IBC pay you consulting fees periodically. This means you should only have to pay tax on what the company pays you (and even that tax you should be able to minimise as a lot of what otherwise-might-be personal expenses could be written off as business costs, eg home office, utilities, car, phone, electrical/office equipment, stationery, computers travel etc etc etc).

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

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

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

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

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

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

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

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

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

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

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

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

Practicalities

So how does it work from a practical perspective?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

How To Trade Bitcoin Using a Tax Free Offshore Company

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

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

·         You set up a zero tax International Business Company

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

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

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

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

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

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

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

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

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

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

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

The IBC signs the contract.

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

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

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

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

The advantages to doing this are as follows:

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

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

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

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

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

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

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

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

Then the process would be:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What constitutes Hong Kong sourced profits?

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

General guiding principles in determining source of profits

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

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

Guiding principles in determining source of specific types of profits

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

Guiding principles in determining source of trading profits

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

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

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

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

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

Guiding principles in determining source of manufacturing profits

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

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

Guiding principles in determining source of sales and purchase commissions

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

Guiding principles in determining source of other profits

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

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

Conclusion

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

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

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

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

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

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

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

Key Features:

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

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

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

A new IBC Act has just been passed in Seychelles. It will come into force on signing by the President and publication in the Gazette. The Seychelles government brought forward the enactment of the new legislation because it is currently being assessed by the FATF (Financial Action Task Force) and the assessment will only cover legislation in place as at end July.

New Act commencement will be deferred for some time (we await clarification), to allow a grace period for CSPs to update their IBC standard template memorandum and articles, etc. A final copy of the Act is yet to be released – though we understand minimal changes have been made to the last draft circulated to all CSPs (version 30.6.2016).

Main changes affecting clients under the new Act include:

• A new requirement for an IBC to keep a Register of Beneficial Owners at its registered office in Seychelles (alongside its Register of Directors and Register of Members) – 1 year compliance grace period;
• A new requirement for an IBC to file a copy of its Register of Directors with the Registrar – 1 year compliance grace period;
• Obligatory requirement, if an IBC has created a charge over any of its assets, for the IBC to keep a Register of Charges at its registered office in Seychelles – 1 year compliance grace period;
• While registration of a charge over an IBC’s assets will remain optional, registration under the Act will determine the ranking of creditors having security over the same secured assets; therefore (as in BVI) lenders will typically insist on registration of charges created on or after the Act commencement date.

Retention of key attractive features from the former Act

• Cost-effectiveness – No change to the low ($100) Seychelles government IBC incorporation and annual fees;
• Privacy – no filing with Registrar and no public access to details of shareholders or beneficial owners; and
• Ease of administration – no requirement to prepare or file annual accounts and no requirement to appoint an auditor.

Transitional

• With effect from the Act commencement date every IBC incorporated under the IBC Act 1994 (former Act company) is deemed to be automatically re-registered as a company under the new Act. The Registrar is required to issue a certificate of re-registration to the company if the company, acting through its Registered Agent, makes a written request to the Registrar for the issue of a certificate of re-registration. No fee is payable to the Registrar in relation to a certificate of re-registration.
• It will not be mandatory for a former Act company to amend or replace its memorandum or articles to comply with the new Act but to the extent of any inconsistency between a former Act company’s memorandum or articles and the new Act, the new Act shall prevail.
• While it is not mandatory it is nevertheless desirable to replace the memorandum and articles of a former Act company so that its memorandum and articles is fully up-to-date and compliant and reflects the requirements of the Act. To encourage voluntary replacement of IBC memorandum and articles, FSA have waived memorandum and articles amendment / replacement filing fees for 2 years.

In the UK there are four types of limited companies that you could form . These are:

• A Private Limited Company (limited by shares)
• A Private Limited Company (limited by guarantee)
• A Private Unlimited Company
• A Public Limited Company

The difference in name of each Limited Company suggests their distinct features. Other forms of business set-ups such as the Sole Trader and General Partnership are not called ‘companies’ because they are not legal entities.

A Private Company Limited by Shares:

• Only 1 member (ie shareholder) is needed
• Liability is limited to amount owed on unpaid shares (if any)
• Issues shares
• Is legally distinct/separate from members
• Is managed by a Board of Directors

A Private Company Limited by Guarantee:

• Only 1 member (ie shareholder) is needed for Limited Liability Company Corporation
• Members serve as guarantors and contribute to the Company’s assets in the event of winding up
• Is legally distinct/separate from members
• Does not issue shares

A Private Unlimited Company:

• Liability of members is unlimited

A Public Limited Company:

• Is authorised to sell shares to the general public
• May be listed on a/the stock exchange after limited liability company formation
• Liability is limited to value of unpaid shares of each member
• May or may not have share capital for limited liability company registration

As regards which kind of UK Company you should form that depends largely on your commercial goals. If you’re not 100% sure as regards which kind of UK Company you should form you should seek (ideally UK + local) legal and or financial advice.