Category Archives: Company- Management

With the impending exit of the UK from the EU increasing numbers of clients are looking at the Irish Agency Company/IBC ahead of the UK Agency Company/IBC Model as a means of doing Tax Effective Business in Europe.

What is an Agency Company? 

An Irish company is formed specifically to operate as a nominee or agent for a principal company – in effect the Irish company acts as a fiduciary or agent for the principal company.

How is it used and implemented?

The two companies sign an agreement which specifies the terms of the agreement between them. All business and sales is then conducted in the name of the Irish company, but on behalf of the principal company. The customer enters into a contract with the Irish company, is invoiced by them and pays the invoices into the bank account of the Irish company. Income is then remitted to the principal company by the Irish company after deduction of an agreed commission.

Ownership and Control of the Company

The Irish company is managed and controlled by the principal company and its officers, as is the bank account of the Irish company. It should be noted that the Irish company cannot trade within Ireland or with any Irish businesses.

The Irish company will pay tax on the profits which it makes on the fees retained in accordance with the agency or nominee agreement.

Why is it Used?

1. This structure is ideal for use as a European Trading structure where the receipts of invoices from a Non EU company would not be acceptable.

2. This limits the difficulties normally experienced while directly dealing with Non EU companies.

Apart from the practicality point of view as stated above there are also tax advantages

• Low tax vehicle – Tax is only payable on 5-10% of turnover of the parent company.
• Ideal where receipt from Non EU company would not be acceptable.
• Excellent for situations where an onshore profile is required.
• Can be used effectively in EU VAT triangulation situations.

Corporate Structure

The Irish Agency Company is a popular trading vehicle with minimum exposing to Irish tax. An lrish Agency Company is only a subject to lrish taxation on the agency fee that it receives, for example 5% on the gross profit, minus administrative costs of the Irish company. Nevertheless high taxation rate 25%, an lrish company in an Agency structure is a tax efficient and cost effective method for structuring the provision of services, commissions and general trading.

Key Advantages

•    Irish company can conduct Agency Contract with Offshore principal.
•    All business is conducted in the name of the Irish company. Ready-made Irish Ltd. with VAT available.
•    Corporate tax applies only on the agency commission that Irish company receives.
•    Financial statements will only disclose the agency fee as turnover. While turnover of the offshore principal is not exposed in the statutory accounts.

Typical Structure

An lrish company in an agency structure can be used for the supply of services, commissions and the purchase and sale of goods. The lrish company will enter an agency agreement with an offshore principal. The lrish company will undertake as agent to enter into contracts, commission agreements, etc. on account of and on behalf of the offshore principal:

•    Contracts for the purchase of products or services are concluded by the offshore principal directly or through the lrish company on the instruction of the offshore principal.
•    Contracts for the sale of products or the provision of services are concluded by the offshore principal directly (but formalized by the lrish company on the instruction of the offshore principal).
•    The lrish company to be instructed by the offshore principal for all action required to be taken.
•    lrish company will issue invoices with its VAT number. The lrish company will also sign documents and handle funds.
•    The lrish company cannot deal with lrish suppliers/service providers or lrish customers.

Taxation

An lrish company in an agency structure will only be subject to lrish taxation on the agency fee that it receives.  The agency fee will generally be equivalent to 5% of the gross profit on transactions undertaken on behalf of the offshore principal. An lrish company in an Agency structure cannot rely on any of the lrish double tax treaties.

OCI Irish Company Package Inclusions

The incorporation fee as quoted below includes the following documents:

• ·       Original Certificate of Incorporation
• ·        2 bound copies of the Memorandum and Articles of Association
• ·       PDF copies of the above documents
• ·       Share Certificate/s
• ·       Minutes of Directors First Meeting
• ·       Luxury Company Seal

The fee also includes us supplying Irish Registered agent and office service for the 1st year + mail forwarding and full Company Secretarial Service. 

The registered office/registered agent/annual company secretarial service includes specifically the following:

• ·       Electronic Filing of the Companies Registration Office (CRO) Annual Return using our Company Secretarial Software.
• ·       Sending updated information and documents on time to the CRO and other relevant bodies
• ·       Looking after all Company Secretarial matters e.g. miscellaneous changes in directors, registered office, shareholders, increase in share capital
• ·       Holding, updating and maintaining the company’s registers including the register of members, registers of directors and company secretaries and their interests in shares and contracts in the company
• ·       Preparation of Annual General Meeting (AGM) Proxy Forms, notices and minutes
• ·       Keeping of AGM, EGM and Directors minutes with register (if required)
• ·       Keeping custody of the Company Seal (if required)
• ·       2.5 hours of company secretary time included
• ·       Monitoring of company on CORE system (protects against fraud)
• ·       Provision of Corporate Company Secretary

Price all inclusive $US1,650

Plus (if required):

·       For a non-Irish resident Nominee Director: $US1,000 (or)

·       For an Irish resident Nominee Director: Price on application

Every now and then it’s good to revisit and re-evaluate the benefits of Incorporating Offshore.

Whilst more thought is now required when planning an Offshore Corporate Structure than what was required say ten years ago, those with years of experience in the Offshore Company Formations Industry will tell you that that solid demand will continue for Offshore Company Formations.

Why?

Because:

(i) Businesses and individuals are increasingly residing, owning assets and carrying on business in multiple countries (i.e. love it or hate it, globalisation is irreversible)

(ii) Continued scope for legitimate tax planning and reduction

(iii) Cost-effectiveness of offshore companies compared to onshore companies

(iv) Less red tape and admin in respect of offshore companies than onshore companies, despite increased compliance paperwork for offshore companies

(v) Asset protection & estate planning,

(vi) Despite some dilution in privacy, offshore companies continue to offer significantly more privacy than onshore companies.

An Offshore Corporate Structure (capable of facilitating your privacy, investment, tax planning, succession planning and/or asset protection objectives as/if applicable) can certainly be tailored to your specific needs.

The key is to ensure you consult with an Experienced Professional Offshore Formation Specialist prior to committing to incorporate Offshore.

Shortcuts can be costly…

Cyprus has revamped its Tax Laws to facilitate a new category of tax payer ie a “non-domiciled” resident individual.

The move mirrors the UK law of yesteryear whereby expat businessmen were lured to live in London “as non- domiciled” leaving them non liable for tax in the UK on non-UK earnings.

The introduction of non-domicile status  by the Cypriot Law makers presents an opportunity for high-income earners to relocate to Cyprus and achieve thereby genuine “substance” in the eyes of the law.  This should facilitate substantial reductions in personal (and by relation Business/Corporate) tax bills.

The ability to show “substance” in international structures and tax planning is becoming more vital. Certain tax authorities and courts around the world are attacking structures which lack ‘substance’. Simply put its all well and good to claim that you or your Company are based Offshore (ie in a nil or low tax environment) eg via deployment of an Offshore Registered Office and or Incorporation. But authorities are increasingly wanting to see actual business activity happening (eg key persons/decision makers being based) on the ground in the nil/low tax country (ie “substance”).

Historical Position

Hitherto Cyprus tax resident natural persons have been subject to a special form of taxation (ie in addition to normal income tax) on certain types of income (known as the “Special Contribution for Defence” or “SDC”), at the following rates:

•            30% on passive interest income

•            17% on dividend income

•            3% on 75% of rental income

The SDC law also included provisions for the deemed distribution of profits of Cyprus tax resident corporations where the owners of such companies are Cyprus tax resident individuals.

An individual is considered a Cyprus tax resident if they are physically present in Cyprus for 183 days or more during a calendar year. This general rule only applies to an individual if he or she is both a resident for tax purposes in Cyprus and is also domiciled in Cyprus. (Domicile = the place you call home). Consequently non-domiciled Cyprus resident individuals (eg non Cypriots living in Cyprus) can benefit from this new status. 

When domiciled in Cyprus:

An individual can be considered as domiciled in Cyprus either (i) by domicile of origin; or (ii) by domicile of choice. In order to understand the concept of ‘domiciled in Cyprus’, one must look to the Wills and Succession Law Cap. 195 which provides:

•            A person at any time can have either the domicile which he/she acquired at birth (domicile or origin) or the domicile which he/she acquired or maintained as a result of actions taken by him/her (domicile of choice)

•            For a legitimate child, who was born when the father was alive, the domicile of origin of the child is the domicile of origin of the father, at the time the child was born

•            A person may acquire a domicile of choice with his establishment in any country outside Cyprus with the intention of permanent or indefinite residence in such a country.

For the purposes of the SDC Law only, an individual who has a domicile of origin in Cyprus as described above may still be considered not to be domiciled in Cyprus if:

•            He/she had the domicile of origin in Cyprus on the basis of the Wills and Succession Law but has obtained a domicile of choice in another country, provided he was not a tax resident of Cyprus for at least 20 years before the tax year in which he became a tax resident of Cyprus

•            He/she has not been a tax resident of Cyprus for a period of 20 years prior to the introduction of the amendment to the SDC Law (July 17, 2015)

Notwithstanding the above, an individual who has been a tax resident of Cyprus for at least 17 years out of the last 20 years prior to the tax year will be considered to be “domiciled in Cyprus” and as such will be subject to special contribution for defence from the 18th year.

The advantages of being a Non-domiciled Tax Resident

Non-domiciled individuals who become tax residents in Cyprus will not pay any taxes (subject to the double tax treaty in place with the country from which the dividends are paid out of) on:

•            Any dividends received from anywhere in the world: no taxes apply on dividends received even if the profits being distributed are out of accumulated profits from previous years; exemption becomes available immediately after declaring your Cyprus tax residency and non-domicile status.

•            Any interest income from anywhere in the world: all interest income from bank accounts in Cyprus and abroad is not taxable in Cyprus and may potentially be non-taxable in the country where the bank account is located.

•            Any rental income from Cyprus or abroad: rental income from property situated in Cyprus will be exempt from defence tax but is still taxable under income tax for individuals (certain deductions available); rental income from property situated outside Cyprus is tax free in Cyprus.

Exemption to the Personal Income tax

In addition to the advantages of being a Cyprus non-domiciled tax resident the Cyprus personal income tax regulation provides additional exemptions which provide further benefits:  For example remuneration from any employment exercised in Cyprus by an individual who was not a resident of Cyprus before the commencement of the employment, is exempt from personal tax for a period of 10 years for employment commencing as of 1 January 2012 provided that the annual remuneration exceeds €100,000 (note also the exemption concerns 50% of the remuneration).

For employment commencing as of 1 January 2015, the exemption does not apply if the said individual was a Cyprus tax resident for 3 (or more) tax years out of the 5 tax years immediately prior to the tax year of commencement of the employment nor in the preceding tax year.

In certain cases it is possible to claim the exemption where income falls below €100.000 per annum.

Capital invariably flights to where Capital gets the best deal. These changes to Cyprus’s tax laws invariably will attract wealthy foreigners and deal makers alike.

The nett result can only be an increase in business activity (and all that flows from that) within the geographical confines of Cyprus.  

The Isle of Man is an extremely stable self-governing British dependent territory, located in the Irish Sea at the geographical centre of the British Isles with a legal system based on English common law.

It is not and has never been part of the United Kingdom but is technically a Crown Dependency and is independent in all matters except foreign affairs and defence, both of which are the responsibility of the United Kingdom Government and for which the Isle of Man pays an annual contribution. 
 
The Isle of Man is politically and legislatively independent of Great Britain; It boasts its own Westminster style of Parliament (known as the Tynwald) which is the oldest legislature in the world in continuous existence. 

The Isle of Man (“IOM”) Company law historically is based on English Company Law but, so as to better compete in an expanding global marketplace, the IOM Government introduced new corporate legislation in 2006 with the introduction of “2006 Act Companies“, to complement the existing company legislation. The new Company Law is more geared towards flexibility and simplicity.

Companies incorporated in the Isle of Man must comply with the Companies Acts and regulations in force which guarantees that high standards of Corporate Governance for all IOM Companies (including the filing of an annual return ie annual accounts must be provided to  the IOM Government’s Income Tax Division).  

Isle of Man registered companies are the conventional form of business entity for the purposes of conducting local and international business from the Island and enjoy numerous benefits including:

• ·       Separate legal personality
• ·       Can be incorporated either as a Private Limited Company or as an LLC
• ·       Provided the Company is not being set up (a) to provide banking services or (b) to own/operate a local retail business or (c) to do local real estate business a 0% corporate tax applies in IOM. (If structured correctly an IOM Company can enable you to bank worldwide profits without having to pay Corporation tax)
• ·       No capital gains tax, inheritance tax or stamp duties
• ·       No Exchange Controls
• ·       Bank Accounts can be opened for IOM Companies in the IOM with reputable international banks
• ·       There are no authorised or issued share capital requirements + shares may be issued
• ·       Ease of incorporating an Isle of Man company (usually within 3 working days subject to satisfactory due diligence)
• ·       The Isle of Man is part of the EU’s Customs Union making it ideal for businesses looking to do business in Europe (a UK VAT number can be obtained)
• ·       Provided there are no local shareholders there is no tax levied in IOM on retained profits
• ·       No requirement to specify a company’s objects in the Memorandum of Association so a company is not restricted in its business activities
• ·       Third parties take comfort from the similarities to English company law
• ·       Only 1 Director is required
• ·       A Non IOM resident can be appointed as Company Director
• ·       Only one shareholder is required
• ·       Corporate Directors are permissible
• ·       Nominee shareholders can be used to protect the identity of the owners
• ·       The Isle of Man is a well-regulated highly regarded jurisdiction giving IOM Companies and air of respectability in the International Market Place.

Common Uses for IOM Companies

Most common use of the Isle of Man offshore companies:

• Holding investments, e.g. portfolios, UK commercial property and other companies shares – these activities are not taxed in IOM;
• Simplified trading within the EU due to the zero rate of tax on trading income and the ability to quote an EU accepted VAT number;
• Holding intellectual property (As the Isle of Man is a signatory to the Paris Convention on Patents and Trademarks).

Doing Business in Europe?

The Isle of Man is part of the UK for VAT purposes only. The consequence of this is that it is possible to very quickly (and relatively cheaply) obtain a UK VAT number using an Isle of Man company (in a matter of weeks rather than months).

Moreover if VAT registration is desired the Isle of Man is the only country which provides a 0% tax environment in which it can be achieved.

VAT registration is of course also possible in all EU countries and some tax saving can still be achieved through the use of, low tax EU countries, such as Malta (where the effective tax rate can be as low as 5%) or the UK (where tax transparent structures can achieve an effective rate of 0% however much greater delays should be anticipated with UK registration as opposed to Isle of Man registration).

OCI Isle of Man Company Formation Services

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 IOM 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
• ·       Company Secretary
• ·       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 (Speak to our In House Lawyer at any time for advice on how to manage/administer your Company etc)

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): GBP 2,440

(With tax effective offshore company management ie including Professional “Nominee” Director, Shareholder & Company Secretary: GBP 1,000)

From year 2 (including government fees, provision of IOM registered office/agent service, maintenance of statutory records, compliance, filing of Annual Return and any tax/license declaration): GBP 990

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

Hong Kong has signed agreements with six jurisdictions to automatically exchange financial account information in tax matters.

The agreements expand Hong Kong’s Automatic Exchange Of Information (AEOI) network to include Belgium, Canada, Guernsey, Italy, Mexico, and the Netherlands. These countries join Japan, Korea, and the UK as “reportable jurisdictions” for AEOI purposes in Hong Kong.

Before these agreements can take effect however HK will have to pass local legislation compelling its Banks to share the relevant information. Given how much Hong Kong’s Banking Sector contributes to the local economy (and the amount of power the Banks can bring to bear as a lobby group) it remains to be seen whether the relevant legislation will ever be passed.

If you live in any of the affected countries (ie Belgium, Canada, Guernsey, Italy, Mexico, the Netherlands, Japan, Korea, or the UK) and are concerned about maintaining financial privacy, and you have currently a personal account in Hong Kong (or a Company bank account where you are the beneficial owner of the Company) you have in effect 2 choices:

1.       Close your account and move it to a bank in a country which has not (i) signed an EOI Treaty with your home country or (ii) signed on to the OECD’s Multi Competency Authority Agreement aka the MCAA (ie the vehicle which gives rise to Automatic Exchange of Financial Information – you can check the list of countries which have signed by clicking on this link: https://www.oecd.org/tax/automatic-exchange/international-framework-for-the-crs/MCAA-Signatories.pdf )

2.      (If you are the beneficial owner of a Company which banks in Hong Kong) Set up a Seychelles Foundation to hold the shares of your Company.

Why Register a Seychelles Foundation?

If you are a resident or citizen of a country which has the ability to track Offshore Bank account beneficiary details and you would like to keep private details of your Offshore earnings (or if you plan to set up a very sensitive business eg one that might illegal if owned/operated from where you live) again a Seychelles Foundation can help:

How so?

It all comes down to the legal structure/operation of the Seychelles Private Interest Foundation.

Bottom line is notwithstanding that individuals (or a class of beneficiary) may be named as beneficiaries in the Regulations:

1. The beneficiaries have no legal or beneficial interest in property owned by the Foundation (unless or until such time as that property is transferred to them – see section 71 of the Seychelles Foundations Act).
2. The Foundation is a legal entity in its own right not a mere Trustee (See section 23 of the Seychelles Foundations Act)
3. The Councillor of the Foundation owes no Fiduciary duty to the beneficiaries (see section 63 of the Seychelles Foundations Act. Note you can download a copy of the Seychelles Foundations Act by clicking on the relevant button in this linked page: http://www.seylii.org/sc/legislation/act/2009/32 )

 What does all this mean?

If a Seychelles Foundation owns a Company and the Company owns property or money in the bank as a matter of law the Legal AND Beneficial owner of the Company (and any funds it has at bank) is the Foundation.

Re opening a Paypal account for your Offshore Company or IBC, here’s how that usually works (Note the below scenario assumes that you have chosen a Nominee Director as part of your Company package):

1.       The client/company owner (“you”) is usually appointed (via Consultancy Agreement) as an Authorised Representative of the Company. 

2.       The Consultancy agreement gives you the authority (amongst other things) (a) to negotiate purchase and supply contracts on behalf of the Company and (b) to approach a bank or merchant account or payment provider seeking an account on behalf of the Company (In essence the Consultancy Agreement gives you the power to do anything except sign a legal contract on behalf of the Company).  

3.       Presumably you will want/need to approach Paypal asking for (a) a merchant account facility (ie where clients can pay your Company via card) and/or (b) a Paypal payment facility ie whereby you can pay others via Paypal or receive payment from others via Paypal.

4.       Paypal will probably ask you to provide “Due Diligence” or “KYC” as regards the Company. Usually you will have to provide them with (a) proof that the Company is currently registered and “in good standing” (ie still alive at law) and (b) proof of who the Director/s Shareholder/s and beneficial owners of the Company are.

5.       Paypal’s DD/KYC requirements can vary from country to country. Once you know what they require as regards your Company (if you don’t have that info/documentation yourself) email your International Corporate Service Provider (eg OCI) who can/will arrange for the requisite KYC/DD Docs to be supplied to you for passing on to Paypal.

6.       Paypal will probably also need the Company to sign a service agreement. That you will need to get the Director to sign. 

If time is of the essence what can also happen is you could be provided with a Limited/Specific Power of Attorney which will enable you to temporarily stand in the shoes of the Director and do, on behalf of the Company, anything and everything required to open a Paypal Account on behalf of the Company. 

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

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

Purpose Trusts

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

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

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

Charitable Purpose Foundations

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

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

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

Management

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

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

Purpose Foundations/Trusts – Legal Basis

A Purpose Foundation (like its forerunner the Purpose Trust) is one set up, not to benefit specific natural persons or corporate entities, but rather to raise funds for and/or to carry out some form of specific (usually Philanthropic or Charitable) Purpose.

Historically any Purpose Trust or Foundation set up to achieve a Purpose other than a Charitable Purpose has been held by the Common Law Courts to be unenforceable.

However of late some jurisdictions have passed laws specifically allowing for the establishment of a Foundation which is established to carry on a specific Purpose, Charitable or otherwise.

An example of a non-charitable purpose Foundation would include a Foundation which is established to maintain the Founder’s collection of antique automobiles, or perhaps one for the purpose of constructing a home for the maintenance and care of his/her cats and dogs and all their offspring.

In the Common Law world a Trust (ie the forerunner and close cousin of the Foundation) must have beneficiaries whose identity can be established with certainty. If the identity, or method of determination, of the ultimate beneficiaries of a Trust is so vague that neither the Trustee nor a Court could readily determine whether any given individual at any time was or was not a beneficiary, the Trust would be unenforceable under Common Law and therefore, invalid, unless, of course, its purpose was charitable.

Historically, a Charitable Trust, although it may have no named beneficiaries, could be enforced by the local Attorney General. In the foregoing examples, however, certainly neither the antique automobiles nor the cats and dogs could sue the Trustee to enforce the Trust, and none of them is capable of having a Personal Representative.

Interestingly one jurisdiction (ie Seychelles) has specifically catered in its Foundations Law for any attempt by a foreign Court to declare a (non-Charitable) Purpose Foundation invalid by including a provision in its law which says that “Notwithstanding a provision of a written law or of a written law of any other country, a Foundation, other than a Foundation with beneficiaries being beneficiaries in terms of section 59, shall be a Foundation established to carry on a specific Purpose”.

That being said if your heart is set on establishing a Purpose Foundation and your aim is to fly under the radar or to claim tax deductibility for any “donations” made to the Foundation the wiser choice would be to establish your Foundation as a Charitable Purpose Foundation. Certainly such a Foundation would be far more likely to survive a legal a challenge such as those which have historically struck down Non-Charitable Purpose Trusts in the Common Law Courts.

Objects 

In a Charitable Purpose Foundation the objects of the Foundation must be set out in the Charter (that is the document which is publicly filed giving birth to the Foundation). Here is an example of such objects:

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

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

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

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

When used in combination with a Tax Free Offshore Company (ie where the Foundation is set up to hold the shares of the Company) a Purpose Foundation can assist you to do tax effective business abroad without you having to declare yourself (or your family members) to be, at law, the underlying beneficial owners of your Offshore Company. This affords one unparalleled Tax Deferral and Asset Protection opportunities.

The down side of a Charitable Purpose Foundation is that, once registered, it can’t later morph into a Foundation with named/specific beneficiaries.

The law of your home state can impact on your reporting requirements. Hence it would be wise to seek local legal and tax advice before committing to establish a Purpose Foundation or Purpose Trust.

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

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

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

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

Types of licences allowed when registering an Umm Al Quwain Company 

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

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

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

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

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

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

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

Obtaining an Umm Al Quwain tax resident certificate and residence permits

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

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

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

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

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

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

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

The Company usually only pays a dividend to your Foundation:

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

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

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

Offshore Company (IBC) Cash Flows

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Practicalities

So how does it work from a practical perspective?

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

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

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

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

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

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

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