Category Archives: Company- Management

We are often asked how do I close down my Hong Kong Company?

There are two ways to close down a Hong Kong Company:

(a)   De-registration;  and

(b)   Winding Up

Although both procedures will result in the dissolution of the company, the processes involved with each are significantly different.

Certainly of the two the simpler (and less expensive) option is Deregistration and that is the option that we will be examining in this article today.

The first thing to note is that the Deregistration option is only available if the company doesn’t owe any money to outside parties.

To be able to proceed with de-registration there are a number of conditions that must be fulfilled:

1. The De-registration application must be agreed to by ALL shareholders

2. The company must never have commenced business OR ceased business operation for more than 3 months immediately before the de-registration application

3. The company must have no outstanding liabilities (e.g. accounts payable, amounts due to third parties etc.)

4. The company must have no outstanding returns required to be filed with government (e.g. Annual Return, Business Registration fee & Tax Return etc.)

5. The company is not a party to any legal proceedings

6. The company’s assets must not consist of any immovable property situated in Hong Kong

7. If the company is a holding company, none of its subsidiary’s assets must consist of any immovable property situated in Hong Kong

8. The company must not be a company specified in section 749 of the Companies Ordinance (ie as stated below):

(a) a public company

(b) an authorized institution under Banking Ordinance (Cap 155)

(c) an insurer under Insurance Companies Ordinance (Cap 41)

(d) a corporation licensed under Part V of Securities and Futures Ordinance (Cap 571)

(e) an associated entity under Part VI of Securities and Futures Ordinance (Cap 571)

(f) an approved trustee under Mandatory Provident Fund Schemes Ordinance (Cap 485)

(g) a company registered as a trust company under Part VIII of the Trustee Ordinance (Cap 29)

(h) a company having a subsidiary that falls within item 1-7 above OR

(i) a company that fell within item 1-7 above at any time during the 5 years immediate before the application for de-registration

The good news is you do not need to visit HK during the whole procedure – everything can be done via email and courier.

The whole process takes around 6 months to complete after original documents are submitted to the relevant government agency (ie assuming no objection is received by the government during the de-registration process)

Important to Note:

•          once the company is dissolved, all property (including credit balances in bank accounts, motor vehicle, landed property, etc.) and rights vested in or held on trust for the company immediate before the dissolution is vested in the HK government as bona vacantia

•          If your HK Company has a Bank Account you’d be well advised to ensure that you properly close your Company’s account directly with the relevant bank (to begin the process you will need to present a board resolution to the bank formally authorising the account to be closed).

•          Following deregistration, you will need to keep company records for at least 10 years.

OFFSHORE COMPANIES INTERNATIONAL LTD.

www.offshoreincorporate.com

30.10.2016

The Seychelles Foundation law was drafted by a former business partner and ex law school classmate (1984 to 1988) of the Founder of OCI.

The OCI Founder also reviewed the final proposed provisions of the new/draft law in his then capacity as head of the Seychelles Offshore Practitioners Association (“SAOPRA”) Legislative Review Committee.

Armed with that knowledge what we can tell you is that the Seychelles Foundation Law embodies many of the key features of the Nevis Foundation Law (many of which were borrowed from the Panama Foundation Law) but with a number of additional (in our view, very attractive) features including:

• In Seychelles the key powers usually held by the Foundation Council can be reserved to the Founder PLUS the rights so reserved to the Founder of a Seychelles Foundation can be assigned. This enables you to remote control your Foundation with complete privacy because normally the Founder’s name appears in the Charter (which is publicly filed as part of the registration process). However with a Seychelles Foundation you can use a Nominee Founder (who then immediately following registration assigns his rights to you via a private Deed of Assignment)
• The Seychelles law specifically states that the Foundation is both legal and beneficial owner of any assets it holds. This is (a) a fantastic tax planning feature because traditionally onshore tax authorities have taxed such entities on the basis that the beneficiaries are the beneficial owners of the entity. It also means (b) when opening bank accounts or incorporating subsidiaries that you can avoid having to declare to the bank etc the names of the beneficiaries of the Foundation (which are usually you/your immediate family).
• The Seychelles law also states that the beneficiaries are owed no fiduciary duty by the Foundation Council (which bolsters the above proposition ie that it is the Foundation which owns the assets/income for tax purposes)

The Seychelles law also provides additional asset protection provisions eg:

• It specifically says that a transfer of property to a Seychelles Foundation, shall not be void, voidable, liable to be set aside or otherwise defective in any manner by reference to a foreign rule of forced heirship or any other written law of a foreign jurisdiction
• It also says that a transfer of property to a Seychelles Foundation, shall not be voided by the founder’s bankruptcy or by the liquidation of the founder’s property; or by any action, proceedings or other claims against the founder brought by any creditor of the founder ie Per sections 71 to 74 of the Seychelles Foundations Act (these asset protection provisions don’t appear in the Nevis law)
• A Seychelles Foundation can be capitalized with as little as $1. A Nevis Foundation’s minimum authorised capital is $10,000.
• Seychelles permits registration of a Purpose Foundation ie one where no beneficiaries are named – in the Charter you simply state that the Foundation is being set up to achieve a specific (usually charitable) purpose (eg to feed street kids in India)

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

No matter whether you trade forex or metals or commodities or oil/petroleum or futures or options a tax free Offshore Company or IBC (International Business Company) can assist you to minimize the amount of tax you would otherwise have to pay at home.

To summarise how it would work is:

• You set up a zero tax International Business Company (“IBC”)
• The IBC opens an account with a Broker
• 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 in a certain way)
• 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 ordinarily resident for tax purposes 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 banked or reinvested Offshore potentially tax free.

As always local laws can have an impact. So be sure to seek local legal and financial advice before you commit to establishing an Offshore Trading Company.

Irish Prime Minister Enda Kenny has publicly reiterated his commitment to the 12.5 percent corporate tax rate “from a tax certainty point of view.”

In a speech to the American Chamber of Commerce Ireland (Amcham Ireland), Kenny stressed that the rate will not change, and acknowledged that “that is an important element for consideration with American investors coming here to Ireland.”

Bob Savage, President of Amcham Ireland, welcomed Kenny’s statement. He said the Chamber “deeply appreciate[s] the Taoiseach’s unambiguous declaration that his Government will steadfastly defend our hard-earned reputation as a pro-business country that is defined by fairness and certainty of treatment.”

In its pre-Budget submission, Amcham Ireland emphasized the need for Ireland “to evolve its corporate tax regime in response to the post-BEPS landscape to remain competitive.” (Base erosion and profit shifting BEPS is a tax avoidance strategy used by multinational companies, wherein profits are shifted from jurisdictions that have high taxes such as the United States and many Western European countries to jurisdictions that have low or no taxes ie so-called tax havens).

Kenny’s comments were later echoed by his Finance Minister, Michael Noonan. “We could nearly put it on the flag now because everybody knows internationally that the rate is 12.5 percent. Actually, when industrialists think of Ireland, they automatically think of 12.5 percent. But just in case there’s doubt, I’ll confirm it again in this year’s Budget,” Noonan said.

Noonan added that the Government is under no pressure from the European Union (EU) to change the rate in the wake of the Commission’s decision that Ireland had provided selective tax treatment to Apple. “The European Commission acknowledge that the right to set tax rates is a matter for sovereign governments; it’s not for Europe or the European Commission,” he explained.

In the wake of these bold public statements you can expect the low Tax Irish Company to remain a popular choice of tax planning vehicle for discerning International Trading business owners the world over. That said the key to success in using Ireland as your corporate base is to ensure that you are not seen to be exercising management and control over the company from your home country (which would entail, as a minimum the appointment of a Nominee Director + establishment of an Offshore Discretionary Trust or, ideally, a Private Foundation to act as shareholder). For information on how that can work for you please contact us.

When setting up a tax free Offshore Company/IBC (particularly where a Nominee Director and or Shareholder is deployed) one of the most common questions we get asked is “If someone else is the Director what’s my role in the Company?”

The options here are (a) Have yourself appointed as a Consultant/Authorised Representative of the Company and/or (b) Have the Company issue you with a General Power of Attorney.

As option (b) is problematic from a taxation perspective (ie it points to management and control lying in your hands – any company which is seen to be managed and controlled from “onshore” can be taxed onshore) 90% + of clients choose to be appointed as a Consultant/Authorised representative of their International Business Company.

As an Authorised Representative of the Company you can do anything apart from bind the company legally (ie any legal agreements/contracts have to be signed by the Director).

This can also provide you with an income stream.

Here’s how the more intelligent/savvy clients manage their financial/billing affairs:

• The client (or his onshore/local business/company) is appointed via written agreement as a Consultant to the IBC
• The agreement sets out what fees the Consultant is entitled to claim each month/pay period and what expenses the Consultant is entitled to be reimbursed for
• In the month/period prior to billing the Consultant (or his onshore business/company ie whoever has been appointed as Consultant to the IBC) pays all expenses incurred with respect to supplying the Consulting services (ie/eg including rent, travel, internet, phone, IT costs, stationery supplies, license/govt fees etc as applicable)
• At the end of the month/billing period the client (or his onshore business/company as the case may be) invoices the Offshore Company (a) seeking reimbursement for expenses it/he has paid in connection with supplying the Consulting services) + (b) for Consulting fees as agreed.

Yes you could use the IBC’s Debit/Credit card to cover those expenses but that may not be the wisest choice. With current technology you can’t assume that local tax authorities will not notice if you use an Offshore Bank credit card onshore. Most clients usually only use the Offshore Company’s card when they are outside the country of tax residence (though technically even such withdrawals/payments, unless spent on business expenses, would be classified as “income” declarable in the country where you are resident for tax purposes).

Local laws can have an impact. Hence you should seek local legal/financial/taxation advice prior to forming, and or prior to signing a Consulting contract with, an IBC/Offshore Company

A lot of people these days offer products for sale on Amazon.

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

Let’s look at atypical example…

In this example the client sells Jewelry online via Amazon

How it works Is:

• Any jewelry you want to manufacture/sell should be manufactured by/purchased by the tax free Offshore Company (“IBC”)
• The company would be incorporated in a nil tax jurisdiction and would be managed/controlled from an Offshore (ie nil tax) jurisdiction (which would entail the appointment of an Offshore/Tax Haven based Nominee Director – which is a service OCI would provide)
• Any contracts to buy or sell or market the jewelry would be signed/concluded offshore (eg signed or ratified by the Nominee Director in a nil tax environment)
• In effect any/all profits generated have been generated online
• In the case of an online business typically tax liability lies only in the country from which the Company is managed and controlled
• As the Company has been structured with a (tax haven based) Nominee Director/Shareholder (ie management and control would be “Offshore” ie in a nil tax environment) any profits generated have been earned (and ideally banked) Offshore ie in a nil tax environment

How To Utilize Money Banked by Your IBC 

There are 6 ways to utilize money banked by your IBC:

1. Set yourself up as an arms’ length consultant and have the IBC pay you consulting fees periodically. This means you would only have to pay tax on what you bring into your home country (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). The rest of the IBC’s income can remain offshore and be (re)invested offshore potentially tax free. Say your target capital base is 3 million Euro and every year you leave at least half the IBC’s income offshore. Because you’re not paying tax yearly on all the IBCs income instead of taking 20 years to accumulate 3 million Euro, with the power of compounding, you could accumulate 3 million within 5 to 7 years. This is what my/our smarter clients do ie they pay a little bit of tax at home each year on their overseas earnings but most of their income is kept offshore and reinvested offshore.

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.

4. Have your IBC buy Bitcoins and then make a transfer of bitcoins to you (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 would 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, Seychelles, 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).

Generally speaking, 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.

Note unless you (have expatriated or) live in a country that does not have CFC laws (and/or unless or are structured in a tax effective/compliant manner) you may still be required to declare and pay tax at home on your IBC’s earnings.

Local laws can have an impact. Hence you should seek local legal, financial and tax advice before committing to set up an Offshore Company for the purposes as described above.

If you want to change Administrator/Manager of your IBC what must happen is the Director (or Board of Directors as the case may be) must pass a resolution formally authorizing a change of Company Manager + a Change of Director and Shareholder (eg if you wish to change the Nominee Director/Shareholder).

If you wish to change shareholder a share transfer must also be drafted and signed by the outgoing shareholder.

If you are the Director of the Company then it is easy. If your current Manager is providing a Nominee Director but is (or becomes) uncooperative what you may have to do is use documents in your possession to force a change of Director temporarily to yourself just so that the above resolution can be passed.

OCI can do all the work required and or manage the process for you. First you will need to hire us.  The procedures that we must undertake in order to move forward would be as follows:

1.      You will need to email us:

• a fully completed and signed order form
• certified copies of an ID doc (copy passport) and proof of residential address (eg bank/card statement or recent utility/tax bill) for each of the underlying beneficial owners of the company
•  written/dated instructions to change Registered Agent/Corporate Service Provider (“CSP”).

2. Once we have the above we will draft the necessary resolution/s authorizing the change of Registered Agent//Memo and Articles etc and forward that to you/the Company Director for signature and then to the outgoing Registered Agent/Corporate Service Provider.

3. Once we have received the signed meeting resolution we will then email the existing Agent/CSP to advise that we have instructions to change Registered Agent/CSP attaching an undertaking to meet fees, file transfer Resolution/s and provide copies (NOTE: We will file only an extract of the resolution so the Director’s etc name does not appear anywhere on the registry’s records)

4. The outgoing Agents (assuming their fees have been met to date) should then fax us and/or the registry a letter consenting to a change of Registered Agent

5. We will then have our people on the ground attend the registry with meeting extracts (& amended Memo and Articles if required) to settle the change of Registered Agent/Office

6.  The registry will usually fax us within 48 hours to confirm that the change of Agent/Office has been recorded

7. We will then have our people attend the registry within 24 hours to collect the filed change of Registered Agent/Office extract Resolution. Once we have those docs we will email you a letter to advise that change of Agent etc has been formally recorded/finalized

8. We will then airfreight (or courier if you require, please advise) a copy of the filed/sealed Extract and filed/sealed amended Memorandum and Articles (as/if required)

9. We will then contact the outgoing Agent to request the original file and then collect same

10. We will start and keep registers for Directors/Secretary/Shareholders.

The fee we charge for attending to all this is circa $US450 (payable in advance).

Fee/s as quoted includes all of the above + provision of registered agent/office services until the company’s next annual renewal date. If an amended Memo and Articles is required (ie updated by showing the new Registered Agent address/Office address) you would need to advise us.

Kindly note if you require us to supply Nominee Director or Shareholder (or other) services Nominee’s appointment and or etc fees will be additional to the above. (If you’re interested in changing offshore service providers) if you can confirm what you require exactly by way of nominee or other services we will happily forward you a firm quote.

A Nevis LLC allows you to shield your assets from lawsuits, agencies, and financial creditors – owners are shielded from legal liability and can manage the company without becoming liable for company financial obligations or legal liabilities.

One major benefit is that a Nevis LLC has members rather than shareholders. Therefore, there are not any shares that can be seized by a court of law. Moreover, members are not legally responsible for company obligations.

ADDITIONAL NEVIS LLC ADVANTAGES:

• A manager can have 100% control of the company.
• The manager of the LLC does not need to have any ownership and yet can control the entire company and all of its assets.
• The company can have as many members (ie shareholders) as one desires.
• Any person or company can own the entity.
• Nevis does not impose corporate tax, income tax, withholding tax, stamp tax, asset tax, exchange controls or other fees or taxes on assets or income originating outside of Nevis.
• Members of Nevis LLCs may be individuals or business entities of any nationality or domicile.
• Members of Nevis LLCs may amend the Company’s Articles of Organization, merge, or consolidate with other domestic or foreign LLCs or other business entities.
• Members may assign their interests to other parties unless restricted otherwise. Nevis permits single member LLCs.
• Management of a Nevis LLC may be by the members or by managers designated by the members.
• There are no stock limitations – a Nevis LLC can issue preferred interests analogous to preferred stock of corporations.
• A Nevis LLC is an excellent vehicle if used by a group of investors for a joint venture investment. In this respect it functions as if it was a Limited Partnership, but with all the added liability protection features and advantages of a corporation.
• A Nevis LLC can be set up within 24 hours and has low initial cost and low annual fees.
• Any law suit attacking the transfer of assets to a Nevis LLC must be brought within 2 years otherwise it is statute barred
• If you are a member of  Nevis LLC and somebody (ie a Creditor) is wanting to attack your membership units, before the Vulture can proceed with a law suit, he/she/it must first post a security bond of $100,000 with a Financial Institution in Nevis.

LLC vs. Corporation:

The primary distinction between an LLC and a “normal” company such as a “C” corporation (USA) or a PLC (United Kingdom), is that an LLC is a tax-neutral vehicle because it is taxed as a partnership, rather than as a corporation. Thus, using an LLC can eliminate tax at the corporate level. In this regard, it is somewhat like a U.S. “S” corporation or a German GmbH but without all the restrictions and disadvantages. So if the LLC itself has no tax payment obligation – then who does? The obligation for any taxes that would otherwise be owed by the company bypasses the company itself and attaches directly to the members. Members are to LLCs what shareholders are to corporations. Other companies, as well as individuals and trusts, can be members of an LLC. There are no limits on the number of members or the classes of members that an LLC may have and  each member is responsible for his, her or its own pro-rata share of any overall tax obligation, if any:- The LLC itself has no tax obligations.

An LLC as an alternative to or in addition to a Trust

Because of the flexibility available in LLC management structuring, and because of the favorable way in which the laws of Nevis are drafted, this type of entity can also be used as alternatives to or in addition to an asset protection trust. The manager of an LLC is somewhat akin to the trustee of a trust and the members are akin to the beneficiaries of a trust. OffshoreCorporation.com can act as a nominee manager of an LLC on behalf of a client who desires to take advantage of our corporate management services.

Substituting an LLC for a trust can change the reporting requirements of taxpayers in onshore jurisdictions. The income or capital gain of an LLC is not reportable as trust income or gain or as corporate income or gain but is treated as personal income (as in the US or UK) or gain or is non-taxable, depending upon the jurisdiction in which the owners reside.

Multi-National Joint Ventures:

LLCs are excellent vehicles for structuring joint venture arrangements between project participants from different countries. This is so because the venture can enjoy all of the benefits of incorporation, but each member is liable for his own taxation in his own country. Moreover, the membership flexibility allows different joint ventures to have different levels of ownership and reward based upon the value that each constituent member brings to the project.

Tax Free:

All Nevis LLCs are free from all forms of Nevisian taxation. There are no Nevisian taxes on dividends, income, capital distribution, or wages whatsoever. Moreover, unlike many onshore jurisdictions, Nevis does not tax an LLC for accumulated (but undistributed) earnings.

Privacy:

All of the affairs of a Nevis LLC are private and cannot be disclosed except under truly exceptional circumstances such as links to international terrorism. The only document that needs to be filed with the government is the annual corporate license and this contains minimal information. There is no annual report or annual financial return that needs to be made to the government. There is no public inspection of your LLCs’ records. Confidentiality is further enhanced if the LLC appoints a Nominee as manager (in which case we, as Nominee, perform the minimal corporate duties required under Nevisian law).

Enhanced Confidentiality:

Nevisian LLC laws contain many requirements related to confidentiality including financial secrecy laws. Strict legal requirements, known as fiduciary duties, also govern the behaviour of offshoreincorporate.com as a manager of an LLC. These fiduciary duties are imposed on managers by both the equivalent of the LLCs bylaws and by the proper law of the LLC (usually the law of the country where the manager is located).

Many of these fiduciary requirements relate to secrecy and accounting obligations by which the manager must abide. Nevisian LLC law prevents us from discussing your business with anyone to which you have not instructed us to speak.

Others cannot force us to discuss your business with anyone unless they obtain a court order in Nevis against you or us or both ordering a disclosure to be made. But a court order from their respective jurisdiction is useless in Nevis. In accordance with strong Nevisian law, a judgement from outside of Nevis will not be recognized by Nevisian courts. This means an onshore judgement creditor who won a lawsuit against you or your LLC onshore (eg in the U.S, UK, Canada or EU etc) cannot take that foreign judgement and require a Nevisian court to enforce it.

In addition to not recognizing the judgements of other countries, Nevisian law and Nevisian courts do not favor the granting of court orders against LLCs except under truly exceptional circumstances: Nevisian law favors upholding the independence and application of its own law over the enforcement of foreign, onshore laws.

For clients (in particular JVs involving partners from different countries) the Nevis LLC offers outstanding asset protection and tax planning possibilities. Hopefully the above summary explains how and why.

The term holding company is usually used to describe a company which is set up (not to own/operate a business but to) passively hold an asset eg the shares of another company or a piece of real property.

Usually all a holding company does is receive passive income eg dividends if it owns shares in other companies or rent eg if it owns real property. The advantage of setting up a Holding Company “Offshore” is, if you incorporate it in the right place and structure it properly, (a) you might minimize Withholding taxes when dividends etc are paid to the Holding Company (see below) and (b) you can potentially receive (and reinvest) your passive income free from tax.

The other advantage of setting up a Holding Company “Offshore” is privacy. If you don’t want certain persons to know that you own a particular asset or assets you might choose to set up your holding company in a privacy haven ie somewhere which does not have a public register of directors or shareholders or beneficial owners.

A Holding Company is often placed between a Trading company and the Ultimate Holding Entity (which might be a Company or Trust or a Foundation) as a means by which to access a favorable DTAT (ie Double Taxation Avoidance Treaty – see below) such as would enable you to reduce the Withholding tax (“WHT”) that would otherwise apply on dividends, interest or royalties paid by a Trading Company to your Ultimate Holding Entity.

Commonly when dividends, interest or royalties are paid by a local company to a non-local (foreign) shareholder Withholding Tax (WHT) of around 20% is payable in the country from where the payments are being made.

However deals are often brokered between countries and written in to a DTAT which afford WHT discounts if the shareholder is a resident of, or incorporated in, a particular country.

For example Mauritius Companies are commonly used to hold shares in Indian Companies as Mauritius has a favourable DTAT with India that affords WHT discounts to Mauritius persons or companies.

Likewise Seychelles Holding Companies (CSLs) are commonly used to hold shares in Chinese Companies as China has a favourable DTAT with Seychelles that affords WHT discounts to Seychelles persons or companies.

The Netherlands is another popular place for the incorporation of Holding Companies as it has an extremely wide network of WHT friendly DTATs.

What is Withholding Tax (WHT)?

Withholding tax (“WHT”) is tax levied:

(a)   When a company incorporated in one country pays dividends to a shareholder of that Company who is resident in a 2nd country

(b)   When interest is paid by a company incorporated in one country to a lender resident in a 2^nd country

(c)    When a royalty is paid by a company incorporated in one country to a party resident in a 2^nd country

The applicable rate of WHT is usually somewhere between 15 and 25%.

The rate of WHT applicable may be reduced if the person (or entity) receiving the interest/dividend/royalty payment is tax resident in a country which has a favourable Double Taxation Avoidance Treaty (ie one allowing for a reduced WHT percentage) with the country from which the payment is coming.

What is a DTA?

A DTA (Double Taxation Avoidance Treaty) is a bilateral treaty (ie a legal agreement signed by two countries) which is designed to avoid persons being taxed twice ie in 2 countries on the same income. DTA’s usually also set out the taxing rights of each country where there would otherwise be a dispute about who has the taxing rights over certain income/gains.

DTAs tend to reduce taxes of one treaty country for residents of the other treaty country in order to reduce double taxation of the same income. The provisions and goals vary highly; very few tax treaties are alike. Most treaties:

• Define which taxes are covered and who is a resident and eligible for benefits
• Reduce the amounts of tax withheld from interest, dividends, and royalties paid by a resident of one country to residents of the other country
• Limit tax of one country on business income of a resident of the other country to that income from a permanent establishment in the first country
• Define circumstances in which income of individuals resident in one country will be taxed in the other country, including salary, self-employment, pension, and other income
• Provide for exemption of certain types of organizations or individuals; &
• Provide procedural frameworks for enforcement and dispute resolution.

In summary, if you are looking to buy or otherwise acquire shares in a foreign Company (before committing to the purchase) it would be wise to engage an International Tax/Corporate Structuring Specialist to provide advice on whether a Holding Company regime might be available to facilitate savings on Withholding Tax.