Category Archives: Company- Management

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.

A lot of people these days are making money on the side renting out properties (or rooms) via Air BnB.

Interestingly, Air BnB has given entrepreneurial types access to a whole new model of business!

Briefly what these clever business persons are doing is they are locating properties which are likely to be of interest to short terms renters eg inner city apartments in much visited European/Asian/American city locales, beachside holiday apartments, unit accommodation near hospitals etc.

Once located they contact the owners of the properties seeking the right to either (a) lease the property for a fixed term or (b) manage the renting of the property/s for a percentage of rent received.

In the case of (a) typically the lease will contain a clause allowing the entrepreneur to sublease the property.

In the case of (b) the entrepreneur typically enters into a property management agreement with the owner agreeing to manage the process of finding renters for and renting the property in return for a percentage of rent received.

Once the lease/agreement has been signed the entrepreneur lists the property/s for rent on air BnB.

Let’s look at a very practical example of how that should (tax effectively) work using a tax free International Business Company (” IBC”).

Say you contact a bunch of property owners in London and you either (a) convince them to let you rent the property/s out to others for a fee or percentage or (b) lease the properties yourself and sublease them to holiday makers.

Either way how it would work using a tax free Offshore Company (“IBC”) is:

• The IBC would sign any contracts to manage or lease the properties in question
• Any add online to rent the properties would be placed in the name of the IBC
• The IBC would enter in to the agreement/contract with Air BnB
• The client would pay Air BnB
• Air BnB would keep their percentage and pay the balance to your IBC.
• 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
• The Company would be structured with a (tax haven based) Nominee Director/Shareholder (ie management and control would be “Offshore” ie in a nil tax environment)
• Thus  any profits earned have been earned (and ideally banked) Offshore ie in a nil tax environment

Local laws can have an impact. So be sure to seek local legal/tax/financial advice before committing to set up an Offshore Company for such purposes.

A cryptocurrency is a digital medium of exchange that uses encrypted software to operate a market for transactions. That market is overseen by those using the network, based on rules coded into algorithms. It’s a transparent, peer-to-peer operation, similar to the file-sharing protocol BitTorrent which is widely used for the illegal sharing of movies, TV shows and music.

How are cryptocurrencies propagated?

Crytocurrencies are created, or mined, based on a mathematical formula. In the mining process, computers are tasked to solve complex mathematical problems and rewarded with virtual coinage. Over time, the equations become progressively more difficult to solve, slowing down the supply of new cryptocurrency units.

Can anyone become a miner?

Theoretically it is possible to start mining at home. But as the mathematical challenge becomes harder, more computational grunt is required. For this reason, miners often pool resources to buy access to supercomputers or server farms (networked arrays of smaller computers).

How many cryptocurrencies are there?

The market for such payment instruments is dominated by Bitcoin, but there are scores of other currencies including Blackcoin, Litecoin, Dogecoin, Megacoin, Onecoin, Namecoin  etc and there is even a sexcoin.

What are they worth?

Values fluctuate based on supply and demand (and market sentiment). At the time of writing, one Bitcoin is worth $US651. But the price has gone as high as $US1145.  On the other hand, one Litecoin is worth just over $US4.30.

How do you buy and sell it?

A transaction is similar to a direct transfer between bank accounts. Algorithmic verification ensures that the same unit of currency can’t be owned by more than one person at the same time. In most cryptocurrencies, accounts known as wallets are stored either on hard drives or remotely in the cloud. Every transaction is recorded in a ledger called the blockchain that is accessible by every currency owner.

What can you buy with it?

Because of its widespread adoption, Bitcoin is the most liquid of the alternative currencies and can be readily exchanged into US dollars. In addition to being used to pay for goods and services on a person-to-person level, a number of larger enterprises have begun accepting Bitcoin as payment.

What are the benefits of Cryptocurrencies?

A Cryptocurrency is a digital or virtual currency that uses cryptography for security. It is a medium of exchange like normal currencies such as USD, but designed for the purpose of exchanging digital information through a process made possible by certain principles of cryptography.

Cryptography is used to secure the transactions and to control the creation of new coins. A cryptocurrency is difficult to counterfeit because of this security feature.

A defining feature of a cryptocurrency is that it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation. Encryption techniques are used to regulate the generation of units of currency and to verify the transfer of funds, operating independently of a central bank.

Moreover decentralized cryptocurrencies such as bitcoin provide an outlet for personal wealth that is presently beyond restriction and confiscation. Interestingly an Offshore Corporate Structure be can used to hold cryptocurrency so that any capital gain occurrs or is realized in a nil tax environment. Check our Blog Article of 18 July for details of how that can work.

OFFSHORE COMPANIES INTERNATIONAL LTD.

14 August 2016

To change the Trustee of an International tax free Trust (Offshore Trust) a certain procedure needs to be followed.

To begin with the existing Trustee of the Offshore Trust must resign or be removed.

The resignation can be verbal or in writing (in writing is preferable) however the Trust Deed usually dictates the required method.  If there is more than one Trustee, the notice, whether verbal or in writing, is given to the other Trustees.  If there is only one Trustee then the notice is given to the Nominated Beneficiaries.

A Trustee can be removed by the Appointor/Settlor. Depending upon the wording of the Trust Deed, either the retiring Trustee appoints a new Trustee or the Appointor/Settlor appoints a new Trustee.  The appointment should be in writing, preferably by Deed and should be signed by the new Trustee and incorporate an undertaking by the new Trustee to act as Trustee and discharge the duties of a Trustee set out in the Deed and at law.

Most Discretionary Trust Deeds provide that it is the Appointor/Settlor that has the power to remove an existing Trustee and appoint a new Trustee however:

• If there is no Appointor/Settlor then a Trustee (either the retiring Trustee or a continuing Trustee) has the power to appoint a new Trustee.
• If the Trustee has died then the deceased Trustee’s Executor (Legal Personal Representative) has the power to appoint.
• If the Trustee or Legal Personal Representative fail or refuse to appoint then the Nominated Beneficiaries can appoint.

It is important for Trustees to be mindful that if there is a change of Trustee then the Trust Deed must provide or be amended to provide (before the new appointment is made) that neither the retiring Trustee or the new Trustee can ever be beneficiaries of the Trust.

How is a new Trustee added?

Depending upon the wording of the Trust Deed, it is either the Trustee or the Appointor/Settlor who has the authority to add a new Trustee.  The appointment can be verbal or in writing (in writing is preferable). Generally the appointment is in the form of a Deed.  The new Trustee must, when accepting the appointment, undertake to carry out the duties of Trustee and discharge the obligations contained in the Trust Deed and at law.

Resignation: A Trustee may resign as Trustee of an Offshore Trust by giving the Appointor/Settlor(s), or Trustee(s) as relevant, notice. However, unless there is a remaining Trustee, the resignation is only effective when a new Trustee has been appointed;

Removal: If the Trust has an Appointor/Settlor(s), then, depending on the wording of the Trust Deed, the Appointor/Settlor(s) may remove a Trustee at any time by signing a statement to that effect.

Appointor/Settlor’s and Trustee’s powers: If the Trust has an Appointor/Settlor (and if the Trust Deed provides for it)  then the Appointor/Settlor, or otherwise the Trustee, may appoint an additional or replacement Trustee at any time by a written statement to that effect.

First named Beneficiary’s powers: If the Trust has no Appointor and no Trustee, then (if the Trust Deed provides for it) the first named Beneficiary who is still alive may appoint an additional or replacement Trustee at any time by a written statement to that effect.

Automatic termination of Trustee’s appointment: Also, a Trustee’s appointment terminates automatically if any of the following occurs:

(a)   the Trustee is found to be of unsound mind, or the Trustee or his or her estate becomes liable to be dealt with in any way under a law dealing with mental health;

(b)   the Trustee becomes bankrupt or makes an arrangement or composition with his or her creditors; or

(c)    the Trustee enters into compulsory or voluntary liquidation (except for the purposes of amalgamation or reconstruction), or has an administrator, receiver, official manager, or receiver and manager appointed to any part of its assets.

The documents that would have to generated to effect a change of Trustee usually include:

• Trustee consent forms;
• Appointor minutes (if applicable);
• Current Trustee minutes;
• New Trustee minutes;
• First Named Beneficiary minutes (if applicable);
• Draw and Settle a Deed of Amendment

Local laws can have an impact. Hence you should seek the advice of a Trust Law expert in the jurisdiction where the Trust is registered or domiciled before committing to try and change Trustee/s.

A lot of time, money and energy is spent around the world each year by people looking to reduce their taxable income to the lowest possible figure. Some employ high level tax advisers, some set up Tax Free Offshore Companies, some try and disguise their income by engaging in all manner of questionable local tax schemes.

But there is another way…

Have you ever heard of a PT?

PT stands for Perpetual Traveller.

A Perpetual Traveller is a person who has no home, or, in legal speak, is not resident anywhere for tax purposes.

So how do you become a PT? By creating a situation where you are not resident for tax purposes anywhere.

To explain…

Most countries have a multifaceted tax residency test:

(a)   Generally speaking if you are inside a particular country for more than 6 months you would be classified as tax resident in that country and liable to declare income in, and pay tax in, that country

(b)   That said you can be resident somewhere for less than 6 months a year and still be classified as a local resident for tax purposes if you have a “substantial connection” to the country.

In determining whether you have a “substantial connection” the tax authorities would look at a range of factors including do you have a spouse from or living in that country? Do you own a residence there? Do you have children there? Do you own a car there? Do you have a bank account there? Do you own assets there? Do you have a driver’s license there? Do you have insurances there? Are you a member of a club there (eg golf club, tennis club, social club) etc etc etc.

If you want to become a PT the starting point is to create a situation where you are no longer tax resident in your home country.

How might you go about that?

To maximise the chances of being able to escape your home country’s tax system probably what you will need to do is:

• Sell your current business (or quit your local job)
• Sell your local home
• Sell all your locally located assets
• Close down your local bank accounts

Then what you do is you jump on a plane and head abroad. Once you’ve reached your next destination what you do is you send a letter to the tax office/IRS of the country you just left advising them that you’ve departed the country permanently and filed your last tax return.

In the perfect world what you then might do is spend 5 months in one country, 5 months in another country & spend a couple of months travelling.

Then you set up a tax free “Offshore” Company as your business ownership or income receiving vehicle.

It takes courage, time and effort to become non tax resident. But the rewards could be massive; (as well as living a more adventurous/exciting life) you might (LEGALLY) never have to pay income or business tax again!

Pre IPO buyin, and in particular Cryptocurrency speculation, is becoming a popular way to potentially make a lot of money very quickly.

We’ve seen many clients invest in the early stages of the development of new Technologies & Cryptocurrencies and go home with substantial sums of money in their pockets.

So what is a cryptocurrency and why are cryptocurrencies so popular?

In very simple terms a Cryptocurrency is a non-asset based digital means of exchange. Typically value is created by a mathematical process called mining whereby the ”coin’ is birthed once a mathematical equation has been closed. This equation grows mathematically tougher to solve the more coins are mined.

Particularly for those investing in the embryonic stages of a digital currency’s development (eg pre IPO) there is the potential for a massive capital gain to be realised. For example when Bitcoin came to market it started at circa $1 and grew at its height to over $1,200.

For those who get in on the ground (eg if you help fund the cost of bringing such products to market) the returns are potentially even higher.

If you are investing or thinking of investing in a program such as this, the prudent thing to do would be to set up a tax free Offshore Corporate structure to hold this investment before its value booms.

To summarise how it would work is:

• You set up a zero tax Offshore Company eg an International Business Company (“IBC”).
• The IBC would enter into a contract with you to buy the Investment/Cryptocurrency at its present value.
• The sale will need to be seen to be at fair market value (you can’t just sell the Investment to the IBC for one Dollar/Euro!). And the contract of sale will need to be seen to be on normal or reasonable commercial terms. That said the sale contract could be an instalment or vendor finance contract ie where a deposit is paid and ownership is transferred but the seller retains a mortgage until such time as all the instalments have been paid.
• Depending on where you live you may be able to “gift” the property to an Offshore entity. It might be difficult to explain why you’re gifting a piece of property to an IBC hence the smarter thing to do might be to set up (and transfer ownership of the property to) a PIF ie Private Interest Foundation (eg a Charitable Purpose Foundation). This one might survive the “sniff test”. Why? Because all day every day well intentioned wealthy persons gift money or assets to Charitable causes.
• Once the investment booms your IBC sells or exchanges the investment for hard currency (eg USD) and banks the profit free of tax.
• For all intents and purposes the IBC’s trading profits are generated in a nil tax environment tax free/offshore (ie provided the IBC Is structured properly).
• If you structure the Company correctly you should only be liable for tax at home once you draw down money from the Company.
• This should enable you, via the power of compounding, to grow your nest egg MUCH faster than you would otherwise had your company been liable to account for Corporate tax each year (eg up to 40%, depending on where you live).

Timing

Are you involved in an Investment or Trading Program (ie Trading bank/negotiable instruments) or a Private Placement Program and expecting a big pay day soon or in the not too distance future?

If so there are certain things you need to be aware of.

Often we are approached by persons looking to set up a tax free Offshore Company and or Tax Free Offshore Bank Account in anticipation of receiving profits from a private placement or bank trading programs.

The common misapprehension of 99% of such clients is that all they have to do to avoid paying tax at home on such a windfall is to set up an Offshore Company or Bank Account and have the proceeds paid into that

If you are in this position, to avoid tax in your home county, you will need more than just an offshore bank account to receive funds into.

Tips:

1. You will need to ensure that any contracts or instruments held or signed entitling you to a payday are sold to, transferred to or assigned at law to your tax free Offshore Company before you becomes entitled to be paid the profit.
2. Immediately you become entitled to receive the profit, even if you haven’t received the money yet, it’s a taxable event.
3. Hence if you want to avoid having to pay tax at home on the profits of your trading or private placement program you will need to set up a tax free Offshore Company BEFORE he become entitled to the profit.

Local laws can have an impact. Hence it would be wise to seek local legal/tax/financial advice before committing to invest in such a product/offering and before committing to set up an Offshore Corporate structure for such purposes.

We are often asked “What are the differences between a Seychelles Foundation and a Belize Foundation?”

What I can tell you is that the Seychelles Foundation Law is basically a copy of Panama’s and very similar to Belize’s (which is also modelled on Panama) but with a couple of additional (in my view, very attractive) features including:

• The rights of the Founder of a Seychelles Foundation can be assigned. This enables complete privacy because normally the Founder’s name appears in the Charter (which is publicly filed as part of the registration process). With a Seychelles Foundation however you can use a Nominee Founder (who then immediately following registration assigns his/her/its rights to you).
• The Seychelles law specifically states that the Foundation is both the 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 and thus entitled to income from the entity. It also means (b) when opening bank accounts or incorporating subsidiaries that you can avoid your name being recorded as the beneficial owner of the Company notwithstanding that you/your spouse/your family may be named as beneficiaries of the Foundation.
• 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 void as a consequence of the founder’s bankruptcy or the liquidation of the founder’s property; or any action, proceedings or other claims against the founder brought by any creditor of the founder. (Note: these asset protection provisions don’t appear in the Belize law).

With the advent of the internet, the spread of economic liberalisation and the rise of the global village more and more professionals (and skilled workers) are being offered the opportunity to work as contractors particularly for International/Multinational business/es.

No matter whether you a Civil Engineer, Software Developer, Accounting/Finance Professional or some other kind of skilled worker if you are able to work online or on the ground outside of your home country (or even if you are simply employed locally on a contract basis) the opportunity exists for you to potentially minimise your tax via “Offshore” Incorporation.

For the purposes of this article I’m going to break down the opportunists into 3 categories (ie Online Contractors, Expat Professionals an Local Contractors) and then explain how each can potentially benefit from “Offshore” Corporate Structuring.

1. 1.      Online Contractors

Contractors capable of receiving “orders” (ie work instructions) online and delivering services online would include:

• IT professionals
• Design professionals (eg Engineers, Architects, Draftsmen etc)
• Finance Professionals
• Marketing Professionals
• Etc.

If you fit into one of the above categories here’s how an Offshore Corporate Structure could work for you:

(a)   A nil tax offshore company (commonly an International Business Company “IBC”) is incorporated

(b)   An Offshore account is set up in a nil tax banking centre

(c)    Customers/clients contract with and pay the IBC. The IBC Invoices the clients from offshore. Payment for invoices rendered are banked free of tax in the first instance.

(d)   In the case of an online business typically tax liability lies only in the country from which the Company is managed and controlled

(e)   The Company would be structured with a (tax haven based) Nominee Director/Shareholder (ie management and control would be “Offshore” ie in a nil tax environment)

(f)     (Thus) any profits earned have been earned (and ideally banked) Offshore ie in a nil tax environment

(g)   You or your local company would be sub-contracted by the IBC to actually perform the services

(h)   You would invoice the IBC periodically (eg monthly) for this work which income would be assessable income in your home country – though a smart Tax Accountant should be able to assist you to claim a series of expenses against this income (eg home office, equipment, travel, phone/internet/utilities etc) to significantly reduce the amount of tax payable on this income.

(i)     The rest of the income earned by the IBC can be held (and potentially invested) offshore tax free.

Note if you live in a country which has CFC Laws (see below which explains what they are) you’d be wise to include a Foundation as part of your Corporate structure. See below which explains why.

1. 2.      Expat Professionals

The most common example here is a qualified eg technical professional who is offered a fat contract to work for several years in a faraway place.

If that’s you here’s how an Offshore Corporate Structure might work for you:

(j)     A nil tax offshore company (commonly an International Business Company “IBC”) is incorporated

(k)    An Offshore account is set up in a nil tax banking centre

(l)     Your employer contracts with and pays the IBC. The IBC invoices the clients from offshore. Payment for invoices rendered will be banked free of tax in the first instance.

(m) As a general rule tax liability lies only in the country from which the Company is managed and controlled. Hence the Company would be structured with an Offshore (tax haven based) Nominee Director/Shareholder (ie management and control would be “Offshore” ie in a nil tax environment)

(n)   (Thus) any profits earned have been earned (and ideally banked) Offshore ie in a nil tax environment

(o)   You would be sub-contracted by the IBC to actually perform the services

(p)   You would invoice the IBC periodically (eg monthly) for this work – this money you would send home to your family and or to cover your expenses (eg mortgage/loans) back home.  These payments would be assessable income in your home country – though a smart Tax Accountant should be able to assist you to claim a series of expenses against this income (eg home office, equipment, travel, phone/internet/utilities etc) to significantly reduce the amount of tax payable on this income.

(q)   The rest of the income earned by the IBC can be held (and potentially invested) offshore tax free. (see also below re how to access money banked Offshore).

NOTE: if you fit the above criteria you could also set up an Offshore recruitment agency Company – see below which explains how that can/will work

Note further if you live in a country which has CFC Laws (see below which explains what they are) you’d be wise to include a Foundation as part of your Corporate structure. See below which explains why.

1. 3.      Local Contractors

With the deregulation of the labor market world-wide, more and more workers are being shifted from “Full time” to “Contractor” status.

If you’ve recently been asked to (or decided, moving forward, to) work on a contract basis what you could do is set up an Offshore Recruitment Agency Company.

Here’s how that might work:

1. You would incorporate a nil tax Offshore Company. It might be called something like International Professional Recruitment Services Ltd  (hereinafter, “IPRS Ltd” or the “Employment Agent”)
2. This business would be characterized as and appear to the outside world to be a Professional Recruitment Agency or a (Specialist) Labour Hire Company
3. You would tell anyone who wants to hire you eg your existing employers (or contract counterparty if you are on a contract) that, as IPRS Ltd can offer you (a) consistent employment + (b) jobs the world over, and as they are experts in finding contracts for your Profession/Trade/Occupation, you are contracted exclusively to IPRS Ltd and anyone who wants to hire you has to sign an agreement with, and must pay, IPRS Ltd.
4. Your existing employers (or contract counterparty if you are on a contract), assuming they wish to keep you employed/engaged, would then have to sign a labour hire agreement with IPRS Ltd.
5. Your existing employers (or contract counterparty if you are on a contract) would thereafter pay your wages (or contract fees as applicable) to IPRS Ltd.
6. IPRS Ltd would keep a percentage of these payments as Agency commission (it could be anywhere from 2.5% to 50%).
7. The remainder of monies (ie after IPRS Ltd has retained its agency commission) would be paid to you by IPRS Ltd
8. The monies received by IPRS Ltd should be receipted free of tax and could be held and or invested Offshore potentially tax free.

For the above to work the agreement between your employers (and the agreement between you) and IPRS Ltd would need to be (and be seen to be) commercially realistic.

Note if you live in a country which has CFC Laws (see below which explain what they are) you’d be wise to include a Foundation as part of your Corporate structure. See below which explains why.

What is a Controlled Foreign Corporation Law?

A Controlled Foreign Corporation (or CFC) Law is one which purports to tax onshore income or capital gains made by Companies incorporated Offshore but which are controlled from onshore.

Essentially how a CFC law works is if an individual owns or has the capacity to own the overriding majority of shares in an Offshore Company (the percentage of which varies from country to country) the that person is required to declare in his local tax return profits made by the Offshore Company.

How CFC laws came about was around 30 years ago the big western countries began to realise that certain of their citizens were using nil tax Offshore companies to avoid having to pay tax at home on their non-local sourced (ie international) income. In particular the CFC laws target the use of Nominee Shareholders and Directors. If you live in a country which has CFC laws (regardless of whether you are the director/shareholder of the Company or not) if you have the capacity to own and control the company by reference to shareholdings then you would be required to declare and pay tax at home on your Offshore Company’s earnings.

There are several ways to get around CFC laws. Historically clients used commonly to deploy an Offshore (Discretionary) Trust to own the shares of the Offshore Company. However with more and more “Onshore” tax systems claiming tax from any Trust with an onshore resident beneficiary discerning clients these days choose to establish Private Foundations (in particular Seychelles Foundations) as the ultimate holding entity as such entities should not caught by CFC laws or by CFT (Controlled Foreign Trust) Laws. For more detail click on these links:

https://offshoreincorporate.com/private-interest-foundations/

https://offshoreincorporate.com/seychelles-foundations/

https://offshoreincorporate.com/seychelles-foundations-fact-sheet/

Why set up a Foundation?

If an IBC alone is used you will still be liable to declare and pay tax at home on your IBC’s earnings if/when you live in a country which has a Controlled Foreign Corporation (“CFC) law. Failure to do so I believe would constitute tax evasion.

What you might do then is set up a Private Interest Foundation to own the shares of the Offshore Company.

We used to use Offshore Trusts for such purposes back in the noughties but the problem there is that you have someone (ie a Trustee) holding property for the benefit of 3^rd parties who are inarguably beneficial owners of that property and probably/potentially entitled to the income/capital of the Trust (which can have tax consequences onshore).

A Foundation is very similar to a Trust in that it’s set up by a Founder (like a Settlor in the case of a Trust) and managed day to day by a Councillor (like a Trustee in the case of a Trust) who manages the Foundation property for the benefit of the beneficiaries of the Foundation. A key advantage of a Foundation is that it’s a separate legal entity in its own right (ie the Foundation actually owns the assets held by the Foundation – unlike a Trustee who holds property for someone else ie the beneficiaries) and generally speaking the beneficiaries are not entitled to the income or capital of the Foundation until it’s actually received.

What this means as a beneficiary is that you should be able to defer paying tax at home on the income of investments held by the Foundation enabling you to reinvest 100% of that income not just the after tax component. (One jurisdiction ie Seychelles has even taken this a step further by specifically stating in their law that the legal and beneficial owner of any asset held by the Foundation is the Foundation itself).

Seychelles Foundations

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 back 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 attached).
2. The Foundation is a legal entity in its own right not a mere Trustee (See section 23)
3. The Councillor of the Foundation owes no Fiduciary duty to the beneficiaries (see section 63)

As such there is no “beneficial owner” of the Foundation. The beneficial owner of any property/asset owned or held by the Foundation is the Foundation itself.

There are a number of ways to bring home money from an IBC. Contact me for details.  

Note also 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/tax/financial advise before committing to set up a Corporate structure such as that described above.  

An LLC (Limited Liability Corporation) is, effectively, a hybrid of a Limited Company and a Partnership.

An LLC is like a Company in that that liability of the Company is limited to the capital invested and assets purchased by the Company.

Like a partnership an LLC is a flow through entity: An LLC does not have to file a tax return; the nett profits are passed through to the members of the LLC (members are to an LLC what shareholders are to a Limited Company) who are responsible for taxes (if applicable) in their country of tax residence (ie same tax treatment as Partners in the case of a Partnership).

From a member/partner’s viewpoint, in terms of liability, an LLC is superior to a Limited Partnership (“LP”) because in the case of a Limited Partnership (which is constituted by a Limited Partner and a General Partner) one partner can be made liable for the debts of the partnership. In the case of an LLC the liability of the members is limited to the extent of the member’s capital contribution (unless a personal guarantee has been given by a member to a supplier of the LLC).

LLC members can fully participate in the management of the LLC (which is different to an LP – in the case of an LP the Limited Partner usually can’t participate in the management of the enterprise without risking his/her Limited Liability status).

Key Benefits of the Belize LLC include:

• Privacy: There is no public register of owners/members or Directors/Managers in Belize
• Tax Effectiveness: Belize LLCs are not liable for corporate tax or business tax or any other form of tax in Belize
• Simplicity: There is no requirement in Belize to prepare annual accounts or appoint an auditor
• Flexibility: Belize LLCs can be used to own/operate a wide range of businesses as of right
• Asset Protection: Before you can sue a Belize LLC you have to pay into Court a deposit being an amount equal to the greater of (i) one half of the amount claimed or $US50,000 whichever is the greater

Other features of the Belize LLC Law include:

1. A Belize LLC:

(a)   can be structured according to its own rules rather than being dictated to by statute

(b)   is a legal entity with separate rights and liabilities distinct from its members & managers. This means no-one other than the LLC itself can be made liable for the debts of the LLC, (save for the case of a personal guarantee)

(c)    Somebody suing a Belize LLC member at best can only have the members rights assigned to him/her; he/she can’t participate in the management of the LLC

2. Belize doesn’t recognize foreign judgments. Only a judgment made by a Belize Court can be executed against a Belize LLC

3. LLCs from other jurisdictions can migrate to Belize and vice versa (ie a Belize LLC can redomicile and become eg a Nevis LLC)

4. Civil legal proceedings against a Belize LLC must be held in private (and there are penalties for unauthorised disclosure).