Category Archives: Company- Management

Irish Companies investing in research and development will be able to avail of a new 6.25 per cent corporation tax rate under a new “knowledge development box” (KDB) announced in the Irish budget on October 12. 

Such an announcement could herald a boon for persons looking for low tax Offshore IP Company options – Ireland’s Minister for Finance Michael Noonan is boasting that said the KDB will be the first such measure in the world that is compliant with the new recommendations of the OECD (Organisation for Economic Co-operation and Development). 

“This puts Ireland in a unique position to offer long-term certainty to innovative industries planning their research and development investments,” he said. 

Mr Noonan said fostering innovation would be critical to Ireland’s new economic model and the KDB was designed to incentivise this. 

Income that qualifies for the KDB will be subject to a reduced rate of corporation tax of 6.25 per cent. Ireland’s corporation tax rate is 12.5 per cent. 

The KDB adds a further dimension to our ‘best in class’ competitive corporation tax offering, which includes the 12.5 per cent headline rate; the R&D tax credit; and the intangible asset regime, Mr Noonan said. 

Joe Bollard, a tax partner with global “Big 4” Accounting Firm Ernst & Young, said the report on redrafting the global tax regime, released recently by the OECD as part of its Base Erosion and Profit-Shifting (BEPS) programme, had changed what Ireland had been intending to do with its knowledge box. 

New recommendations as part of BEPS are behind a move from the ownership of an IP asset, to the expenditure of money on research. Activity in relation to scientific and technical work, as against brand development, is also being targeted under the new regimes. 

The new Irish knowledge box, he said, is not likely in itself to “turn the dial” in relation to attracting new talent to Ireland so that companies can avail of the lower tax rate. He said Ireland’s relatively high income tax rate was an issue in this regard. 

What remains to be seen however is what income will attract the 6.5% tax regime. Early indications are that to qualify for the 6.5% rate the innovation/IP in question will need to have been developed in Ireland. If not (and or if the IP/Technology is on paper seen to have been incubated in Ireland) then an Irish Company could be formed to hold any form of IP (regardless of where it was developed) in which case nett income received by way of royalties/license fees would be taxed at just 6.25%.

For clients looking for a transparent controversial low tax “Offshore” IP Company solution such an offering could prove extremely popular.

Watch this space for developments!

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).

A PTC is a privately owned company that acts as trustee, usually exclusively for a wealthy family trust or group of trusts. The board of the PTC can be populated with a mixture of professional advisers and a client’s family members. Often PTCs are at the heart of The Family Office. They have a number of popular advantages including:

• They provide a means by which a Settlor, or his family, can retain a greater degree of control over their trust affairs without compromising the validity of the trust(s).
• The Board of the PTC will have a heightened knowledge of the family’s business and financial affairs and be sensitive to the range of those interests, whilst also being empathetic to the needs of the beneficiaries, and having an intimate knowledge of the Settlor’s wishes. All of this should allow them to deal with sensitive family issues more freely and often with greater speed and flexibility;
• Having a PTC as trustee of family trusts will also avoid the need for future changes in the trusteeship;
• Professional trustees are often reluctant to take ownership of assets or participate in ventures where substantial risks may be present, and a PTC (due to the composition of the Board) can enable riskier investments to be included in the trust fund, (although the PTC will still have the usual trustee obligations).

Not all Trust jurisdictions enable the registration of Purpose Trusts. We can assist to register a Purpose Trust in Seychelles, Belize and the Cook Islands.

Though not as widely known a Purpose Foundation could also be used in lieu of a Purpose Trust. But more on that another time.

For more information on PTCs check my Blog Article of 25 October (scroll down to below my last published article)

Eccentric entrepreneur and privacy advocate Kim Dotcom is building his own private internet, allegedly safe from the prying eyes of surveillance authorities.

Via video link at Sydney (Australia)’s SydStart conference this week, the web mogul explained that “MegaNet” will work on a non-IP-based internet “that uses the beauty of blockchain [Bitcoin's public ledger] and new protocols to communicate and exchange data”, while still using the internet’s existing physical infrastructure.

“If you don’t have IP addresses you can’t hack the server, you can’t execute denial of service attacks on gaming services or websites,” Dotcom said from New Zealand, where he is currently awaiting the result of an extradition trial.

“Most importantly it will make it difficult for governments to invade our privacy. This entire network I’m working on is fully encrypted. It literally works from the people for the people.”

How will it work?

MegaNet will rely on people’s unused processing power on their phones and laptops, and allow them to donate bandwidth to the service.

“The more people that install the MegaNet app on their devices, the more powerful it will become,” Dotcom said.

If 100 million smartphones joined up, the network would have more online storage capacity, bandwidth and calculating power than the top 10 largest websites in the world combined, he said.

It will rely on existing physical internet infrastructure people use today – so-called “dumb pipes” – but will add a new layer of encryption running through all communications.

Dotcom claimed the encryption technology he’ll use is so powerful no super computer will be able to crack it.

In order to function, MegaNet is literally going to be using up your device’s battery power, storage capacity and web bandwidth to power its so-called private network.

If you consent, it will draw from your smartphone’s processing power and bandwidth while it’s idle – for instance, when you’re asleep – if it’s plugged in and connected to Wi-Fi.

However, Dotcom told media that default settings would use only processing power, and users would opt in to donate bandwidth.

“In the beginning you set your restrictions,” he said.

“The default is no use of bandwidth, and only storage on your phone. But if you want to, it enables us to utilise some of your bandwidth. Users are fully in control. It’s not costing them anything.”

As for the blockchain, MegaNet will borrow from Bitcoin’s lauded method of recording transactions (even the Australian Securities Exchange is considering it), but instead of users storing transaction records, they will store some of the files that make up this new “alternative private internet”. Presumably these will be encrypted too, otherwise everyone who connects to MegaNet will have some record of who is using the system and for what purpose, and that would contradict Dotcom’s pitch.

When can we get it?

The millionaire admitted that phone technology, including battery life, will need to improve before MegaNet can really take off.

“We’re looking at a 10-year plan,” he said.

“Over the next decade, current smartphones are going to be replaced by phones 10 times stronger and faster, with massively more computing power, that are as powerful as desktop computers are today.

“Battery tech in the making is going to give you 24 to 48 hours battery time with full usage. There are lots of advancements currently taking place. Today’s bottlenecks might be a challenge, but over the years, with new devices and new capacity with mobile bandwidth, there will be no limitations.”

The mogul is confident that a technology solution will keep people secure and that privacy doesn’t require new infrastructure.

“Right now they’re just my words, but I’ll prove it to you with proof when the service goes live. You watch. The security community will appraise it and validate this service.”

Dotcom expects 100 million users to sign up within the first year of launch (expected sometime in 2016).

A Private Trust Company (PTC) is a Company which is established with the sole purpose of acting as a corporate trustee to a trust or a number of connected/related trusts (eg Trusts with common Settlors or Beneficiaries).

PTCs are commonly used by High Net Worth (HNW) families as a key plank of their wealth management (and succession planning) strategy, for a number of reasons:

1. They deliver confidentiality
2. They provide a comprehensive framework under which family members can be involved in decision making (by being on the board of the PTC)
3. They can avoid the complications of succession law ie when used in conjunction with a tailored Offshore Trust or Offshore Private Foundation
4. They reduce management costs (ie there’s no need to engage or pay a Private/Outside Trustee)
5. They provide protection from fiduciary risk (ie a PTC eliminates the chance of an external Trustee turning rogue and stealing or wasting assets).

As long as certain criteria are fulfilled the PTC will not have to obtain a licence to carry out trust company business. The speed at which a PTC can be established, and the relatively low cost of operation have made PTCs extremely attractive to HNW families and their advisors.

A PTC’s sole purpose is usually to act as trustee of a trust (or group of trusts) belonging to a family or commercial group; these trusts may be family succession-oriented, commercial or philanthropic in their aims.

A PTC can be particularly useful for wealthy families who either do not wish to relinquish control to professional trustees or where the trust fund is to be invested in assets, which a professional trustee may be reluctant to deal with, such as works of art or family businesses.

For maximum confidentiality it would be preferable to register your Private Trust Company as an IBC in a privacy haven (ie somewhere which does NOT have a publicly accessible Register of Directors or Shareholders or Beneficial Owners – contact me for details of which jurisdictions meet that criteria).

A Private Trust Company is commonly deployed to act as Trustee of a Purpose Trust or as Councillor of a Purpose Foundation (ie a Trust/Foundation which is established purely for the purpose of holding a particular asset).

Given their nature and structure Purpose Trusts and Purpose Foundations (as they do not have to name specific beneficiaries) can deliver cutting edge asset protection and tax minimisation possibilities (more on that next week).

Local laws can have an impact. Hence it would be wise to seek local tax/legal/financial advice before committing to set up a PTC.

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

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

• You set up a zero tax International Business Company
• The IBC opens an account with the Cryptocurrency Exchange/s
• You are appointed as the IBC’s authorised trader (ie you place the buy and sell orders on behalf of the company)
• For all intents and purposes the IBCs trading profits are generated in a nil tax environment tax free/offshore (ie provided the IBC is structured properly)
• When you need some living/spending money the IBC pays you a wage, or consulting fees or a commission (eg a percentage of trading profits generated – see below)
• That living/spending money can be paid to your local bank account (which means it would be assessable income wherever you are tax resident though you should also be able to claim a sizeable amount of allowable deductions eg for home office, car, equipment, insurances, travel, stationary etc etc to reduce the amount of your “taxable” income at home)
• If you don’t want the authorities to know how much money you are earning by way of wages you could use an anonymous ATM or Debit/VISA card to withdraw your wages from an Auto Tele Machine (see below fmi)
• The majority of trading profits could be reinvested Offshore potentially tax free.

Other Ways To Utilize Monies Earned Offshore

There are 5 ways to bring home money from an IBC:

(a)   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 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.

(b)   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.

(c)    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.

(d)   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.

(e)   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:

(i)     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

(ii)   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).

Note, 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.

Particularly given all such services can be provided online Translation Service Businesses lend themselves well to “Offshore Corporate Structuring.

Here is how such a business could work from an Offshore Perspective:

1. You would set up a nil tax Offshore Company
2. The nil tax company would sign contracts to supply Translation Services and/or receive orders/service requests via email/online
3. The Company would be set up in such a way so that’s it’s seen to be (a) managed/controlled from, and (b) supplying services from, Offshore
4. The Company would appoint you as an authorised representative of the Company (ie empowering you to negotiate such contracts and to bid for such contracts on behalf of the Company).
5. Once the contract has been signed the Company would subcontract the work to you
6. You would be paid a profit share (eg a third of the work you invoice – which is a common practice in professional firms) or a minimal hourly rate.

As part of your brief you might also be given signing power on a bank account reporting/answerable to the Director. However that relationship is structured for legal reasons, it would need to be seen to be commercially realistic. The income you generate from this would be paid to you (or your local company which, I imagine, would then pay a dividend to you) which would be assessable income at home for you.

The remainder of the profit could be held (and/or reinvested) offshore potentially tax free. (See below How to Bring Offshore Money Onshore for more details).

How To Bring Offshore Money Onshore

There are 5 ways to bring home money from a tax-free 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 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 could be held 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 the 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 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;
5. 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).

Note: 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 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 it would be wise to seek local tax/legal/financial advice before committing to embark on such an endeavour.

U.S. authorities are reportedly targeting a Belize-based bank in a brazen bid to try and extract names of US citizens with accounts at the Bank.

A federal court in Miami on Wednesday approved a special “John Doe” legal summonses seeking information about U.S. taxpayers who may hold undeclared accounts at Belize Bank International Limited (“BOBI”)

The court order gave federal investigators authorization to seek records of so-called correspondent accounts maintained by BOBI at Bank of America and Citibank. The US IRS is hoping to extract information from those records, (“Correspondent” accounts enable foreign banks without a U.S. presence to handle transactions in U.S. dollars), to help the IRS identify U.S. taxpayers who hold or held accounts at or with BOBI.

Given the nature of a “Correspondent” Bank Account – where the account is held in the name of a Bank and not an individual – the manoeuvre smacks of desperation of the highest order. Why? (a) Because most people bank Offshore in the name of a Company and (b) Even if the correspondent bank hands over details of the BOBI’s account held at the correspondent bank it will not reveal the names of the beneficial owners of the account (eg if the account is held in the name of a Company); the only information on file at the correspondent Bank will be the name of the BOBI account holder (which in 99% of cases will be a Privacy Haven Tax Free Offshore Company).

Moreover such a move is a disincentive to persons and businesses the world over (not just Americans banking offshore) to transact in USD. Like bycatch in an illegal whale hunt the manoeuvre risks the name of non US persons with accounts at BOBI being revealed to the US Courts. Doubtless smart investors will become aware of this and will start transacting in stable non USD currencies.

The court action marks federal investigators’ latest use of the special summonses to try and compel account disclosures by offshore banks suspected of helping American clients evade U.S. taxes. The IRS previously used the tactic to pursue account data from banks elsewhere around the world, including Switzerland’s Zurcher Kantonalbank, Bermuda-based N.T. Butterfield & Son and Swiss banking giant UBS.

This case however seeks to push the envelope in that each of the aforesaid banks either had Banking licenses in or a physical presence in the US such as might afford the US courts some, albeit tenuous, jurisdiction.

Moreover the case smacks of desperation in that it is the first time that the US IRS has attempted to extract bank account holder information from a bank with zero US presence.

It will be interesting to see how BOBI responds. If I were their Lawyer I would either ignore the order or appeal the decision . It’s hard to see how the US Courts can legitimately claim that they have jurisdiction…

Two things that can be said for sure and certain are:

(a) That US residents (and non US Residents) banking Offshore will soon begin to abandon the USD in favour of other currencies; and

(b) More and more Americans will be looking to set up Private Offshore Foundations as a way of shifting “legal and beneficial ownership of their Offshore Companies/Bank Accounts away from any US person/s.

(Even if only as a hedge bet) if I were an American banking Offshore I would (if I could) only be transacting in currencies other than the USD.

Have you conceived an idea for an app or web-based business that might operate in a similar way to Uber or AirBnB?

Such a business (ie an Online Business) lends itself well to an “Offshore” Corporate Structuring Plan. (See below “HOW TO SET UP AN ONLINE BUSINESS OFFSHORE” which explains generally how).

Structuring Options

These kind of businesses usually operate in one of two ways:

1. Where all the marketing and service delivery is done online and the customer deals with one central Trading (nil or low tax jurisdiction incorporated) Company
2.  Where the business has its headquarters Offshore but for credibility/marketing reasons (or for licensing reasons) needs an on the ground presence in each of the country/s where it is selling/providing services

In the latter example a local subsidiary company is usually incorporated to market to, or liaise with, the customers but certain key functions are exported to (and a large chunk of the sale price diverted to) the business’s Trading Company (or a tax haven subsidiary thereof)

In either example what you normally have is a twin company structure at the top of the tree ie a Trading Company + an IP Company.

How and Why To Set Up An Offshore IP Company

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 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.

Businesses Who Pay Royalties or License Fees for the use of IP

Once it has acquired the Property the Offshore IP Company can then issue (IP) sub-licenses or exploitation rights to appropriate third party structures.
For example, a majority of software companies license their users through companies which are established in an offshore jurisdiction, or through a firm, which is not established in a classical offshore jurisdiction, but is owned or controlled by such a firm.

Typical examples of businesses that might pay license fees to a nil/low tax Offshore Company include:
- Software companies
- Companies doing business in information technologies
- License and copyrights to books, articles, music, films, etc.
- Users of Franchise operating systems

- Trademark product (e.g. Clothes/Consumer Goods/Accessories etc. Brand) manufacturers and or retailers

In some circumstances the royalties may be subject to withholding tax at source, however, the interposing of a second company in another jurisdiction may reduce the rate of tax withheld at source (a carefully selected jurisdiction can withhold taxes on royalty payments with the commercial application of double tax treaties).

Partner Options

Another option, whilst you are still in the process of creating a new piece of intellectual property, is to involve or engage an offshore (nil tax) company as a foreign partner or financial sponsor. Participation in development at this early stage would entitle the tax free Offshore Company to register as the owner or co-owner of the property.

If you involve an offshore company later, you will have to sell or assign the title to the property to the offshore company, and these kind of transactions require at the least that a fair market price deal be apparent as if no associated parties were involved (+ the transfer may involve the incurring of some CGT on the part of the inventor/creator of the IP).

Benefits of an Offshore IP Company

There are numerous benefits that an IP holding company can deliver including:

• By placing your IP in one entity you are able to streamline the internal processes for inter-group licensing
• Cross-jurisdictional tax issues become simpler as you will be regularly licensing IP between the same jurisdictions
• You can justify staffing that entity with people who have the skills to manage the same so protecting valuable assets of the company further, simplifying the licensing process
• Assets can be valued due to the income stream that accrues for the benefit of the IP holding company
• The value of the shares in the entity can be included into the accounts which will benefit the shareholders of the holding company
• You can split your income streams in two enabling you to sell one chunk of your business first up (i.e. the operational business) whilst retaining the other (i.e. IP) arm of the business which would entitle you to receive passive income
• If your business or trading company ever gets sued and the IP is owned by a 2^nd (e.g. Offshore) Company the most precious asset of your business can/will not be lost.
• You get to retain ownership of your IP in a highly private environment where no one knows what you own or how much the IP is worth. (There have been many documented cases of inventors and artists who rise suddenly to fame only to lose their fortune just as quickly via a law suit filed by a disgruntled gold digging ex-lover or confidante… The chances of that happening if your IP is owned by a privacy haven company are GREATLY reduced)
• You can significantly if not dramatically reduce the tax that your operating/trading company would otherwise have to pay

Where to Incorporate?

Ideally you will want to incorporate the IP (and Trading) Company in a jurisdiction which does NOT Have a TIEA ie Tax Information Exchange Agreement with your home state. A Tax Information Exchange Agreement (TIEA) provides for the exchange of information on request relating to a specific criminal or civil tax investigation.

Let’s assume that you set up a Tax Free Offshore Company in a country which has a TIEA with your home/taxing country.

How it works in practice is, if your home state becomes suspicious of your connection to or involvement with an Offshore Company (ie if they think an Offshore Company is being used by you to avoid domestic tax obligations), the Tax Authorities of your home country can request of the Tax Haven country Government, as of right, (ie if there is a TIEA entered into between the 2 countries) that they give up the name and address of the “underlying beneficial owner” of the company in question.

Although the information isn’t publicly filed this information must/will be kept by the Tax Free Offshore Company’s local Registered Agent who is obliged by law (as a condition of its International Corporate Service Provider’s License) to hand over this information upon request by/to the local Financial Services Authority (who then pass ownership details to the Tax Haven’s Attorney General’s Office who then pass it down the line to the requesting country).

Proprietors Holding Entities

By the time you become/s entitled to a share of the profits you would be wise to have already in place a nil tax entity to hold your interests in the business.

If you are a resident of a less developed country all you will need is an IBC.

However if you live in a country which has Controlled Foreign Corporation (“CFC”) laws a nil tax Offshore Company or IBC by itself won’t be of much use to you. (a CFC law requires you to declare and pay tax at home on any Offshore Company profits where you own, or have the capacity to own, 10% or more of the Company’s shares)

If you fit that bill the solution is to set up a Foundation as well as an IBC.

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 would constitute tax evasion.

What such clients usually do they is they set up a Private Interest Foundation to own the shares of the Offshore Company.

A Private Foundation is like a Trust (eg it has beneficiaries) but it has corporate personality. Moreover the Foundation is presumed or deemed to be both the legal and beneficial owner of any asset it holds . 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. 

Prices start from as little as $1,600. For more information on Seychelles Foundations (including details on pricing and inclusions) please visit these pages from our website:

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

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

How To Set Up An Online Business Offshore

Offshore Companies are commonly used to own/operate online businesses. Please check out these links for some examples of how certain kinds of businesses can be set up “Offshore”:

https://offshoreincorporate.com/common-offshore-corporate-strategies/#1

https://offshoreincorporate.com/common-offshore-corporate-strategies/#2

In principle here’s how it can work:

1. A nil tax offshore company (commonly an International Business Company “IBC”) is incorporated
2. The IBC owns/operates the web based business (eg ownership of the web-domain and the website/artworks or trademark/s or any sole distributor rights are held by or transferred to the IBC)
3. An Offshore account (which received payments via a merchant account) is set up in a nil tax banking centre
4. Ideally the server is located in a country which does not tax business on the basis of server location (eg Singapore)
5. Customers contract with and pay the IBC. All such monies are banked free of tax in the first instance
6. You or your local company would be contracted by the IBC to manage sales/delivery of product/website maintenance/whatever.
7. You would invoice the IBC periodically (eg monthly) for this service which income would be assessable income in your home state – though a smart Tax Accountant should be able to assist you to claim a series of expense against this income (eg home office, equipment, travel, phone/internet/utilities etc) to significantly reduce the amount of tax payable on this income.
8. Often there is some kind of intellectual property (“IP”) created or behind the website based business (even if it’s just the website/design). It may be advantageous to you down the track if ownership of the business and the IP were held by 2 different entities. What you can do there is set up a 2^nd IBC to own the IP. The first IBC (ie the Trading Company) pays license fees periodically to the 2^nd IBC which fees wold be receipted tax free. This could be advantageous if you wanted to bring ownership of the web-business onshore or if you wanted to sell the business but keep a passive (potentially tax free) income stream
9. Ideally once you start to grow you and to add substance you would be wise to set up your MD/Board and or a sales team onshore to take orders and receive income in a low tax onshore environment (eh Hong Kong, Ireland, Singapore, Cyprus etc as per the Amazon/Google model)

To minimise the chances of the IBC being taxed onshore ideally the IBC should be (and be seen to be) managed and controlled from offshore. How this can be achieved is including a Nominee Director etc as part of the Corporate structure. See this page for details of how that can work:

https://offshoreincorporate.com/faq/should-i-engage-nominees-or-should-i-direct-and-hold-the-shares-in-my-offshore-company/

https://offshoreincorporate.com/faq/how-can-i-protect-my-underlying-ownership-of-my-offshore-company-where-a-nominee-is-engaged-to-act-as-director-or-shareholder/

As ever local laws can have an impact. Hence you should seek local legal/tax/financial advice before committing to embark on such a program as detailed 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 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.  

Every other day I’m asked to advise on how ownership and commercialization of IP can be managed from an Offshore Perspective. 

Let’s look at a particular example.

Recently I was consulted by a cutting edge motor vehicle designer looking to begin manufacture.

Here are the steps you would need to undertake in order to establish such a business (ie once you’ve worked out where, ie in what country, you intend to manufacture):

1. Register a tax free Company in a hand-picked jurisdiction (where to incorporate depends on a number of things including where you live, where you intend to manufacture, where you intend to sell etc etc, contact me for advice on this).
2. Transfer ownership of the IP (eg the car design) to the nil tax Offshore Company (or have the Tax Haven Company apply for registration/recognition at law as the initial owner of the IP ie if you are not, at law, presently the registered/legal owner of the IP).
3. Obtain the necessary government approvals for your business in, then incorporate a domestic Company in, the country where you intend to manufacture.
4. Have the Tax Free Offshore Company License the use of the IP to the domestic/manufacturing Company

1.      Register the Tax Free Offshore Company

This is the easiest part. All you need to do to register an Offshore Company is:

(a)   Complete, sign and email your provider an order form.

(b)   Email your provider certified copies of your passport driver’s license and proof of address as per the requirements.

Note: If, whilst setting up/conducting operations, you remain tax resident in a country which has CFC laws you will want to also include a Private Foundation as part of your Tax Free Offshore Company structure.

2.      Transfer ownership of the IP

All forms of intellectual property –  copyrights, trademarks, trade secrets and patents – can be transferred in two ways: the property can be temporarily transferred under a license; or the property can be permanently transferred by way of an assignment.

An Assignment is a permanent transfer of the rights. In other words, you’re selling the rights to someone else and you will not be getting them back. Assignments are typically made under employment or contractor agreements, when companies acquire the assets of other companies, or when intellectual property is used as security such as when a movie studio secures finance by assigning movie rights in return for a loan.

If you create or invent something with commercial potential, someone may eventually want to buy the rights from you. That’s usually done with an assignment (or, as its sometimes called, an assignment agreement). An assignment is a permanent transfer of your ownership rights to a copyright, patent, trademark, or trade secret. Why would you give up all rights? Usually it’s because someone makes you an offer that’s hard to refuse — typically a lump sum payment, or periodic royalty payments based on a percentage of sales or units. When you assign your creation, you are the assignor and whoever purchases the rights is the assignee.

There are three common types of assignments in intellectual property: trademark assignments, patent assignments, and copyright assignments.

Trademark Assignments

Trademarks are the names or logos that are used to identify goods and services. If you were buying the Coca-Cola Company, you would want to make sure that the sale included an assignment of the company’s trademarks and their associated goodwill (the intangible value that the trademark possesses because consumers know it). Trademark assignments typically occur when a company is sold. A trademark assignment may also occur as part of a bankruptcy or may be used as a security interest when a business seeks to obtain a loan.

Once the assignment is made, the business buying the mark, the assignee, becomes the owner, and the assignor (the seller) has no further ownership interest. On some occasions, an assignment may be transferred back to the original owner if certain conditions are met. Most countries’ national trademark laws require the assignment of a mark to be in writing. Assignments should be recorded with the local Government’s Patent and Trademark Office and the new owners can obtain new certificates of registration in their names.

Patent Assignments

Patents protect inventions, industrial designs, and plants. Assignments of patent rights must be in writing. Many inventors assign their invention, either to the company they work for under an employment agreement or, in the case of independent inventors, to outside development or manufacturing companies. These assignments typically transfer ownership of any patent that issues on the invention and may (although usually not in the case of employed inventors) provide for compensation for the inventor, although employed inventors often receive little or no additional compensation, because they are getting paid to invent. Like trademark assignments, patent assignments usually must be recorded with the responsible local government department. Trade secrets – confidential information that provides a business advantage – and patent applications or unpatented inventions can also be assigned.

Copyright Assignments

Copyrights protect music, art, writing, software, and other forms of creative expression such as websites, blogs, and video. Copyright assignments must be in writing. Usually, a copyright assignment involves the transfer of the entire copyright, as when a freelance writer assigns all copyright interests in a particular article to a magazine. But an assignment may also transfer less than the whole copyright. For example, an author might assign the right to promote, display, and distribute a novel to a publisher while reserving the right to create derivative works (such as a screenplay) from that novel. Copyright assignments may be recorded at the Government Copyright Office. Copyright assignments, unlike patent and trademark assignments, can be terminated under certain conditions.

 3. Forming a Domestic Company

Given you will probably need to engage a lawyer on the ground (in the country where you intend to manufacture) to help you obtain the necessary business/residency permits, it may be cheaper and more efficient to have that lawyer incorporate the domestic Company for you.

4. License the use of the IP to the Offshore Company

What this entails is having a Lawyer draw up an agreement between the Offshore Company and the manufacturing Company which affords the manufacturing Company the right to manufacture the item (eg cars) provided it makes regular license or royalty payments to the Offshore Company. The royalty payments are receipted by (and may potentially be reinvested) by the Offshore Company free of tax. The key to this working is that the amount of the Royalty payments should be seen to be commercially realistic for that type of industry/market/product.

Practically speaking, commonly the manufacturing Company will pay the Offshore Company a fee (eg a percentage of sale price) for every item (eg car) sold. Obviously you’ll need to do some research to find out what a fair percentage would be.

As ever local laws can have an impact. Hence you should seek local legal/tax/financial advice before committing to embark on such a program as is detailed above.

For one country to gain revenue, another has to lose. 

The biggest hurdle to stopping multinational tax evasion isn’t the companies themselves. It’s the governments behind them.

As the OECD works on its plan to stop multinational tax evasion, the United States has already signalled it’s not happy with what’s being proposed.

The US has always been clear on its position: it will not agree to any plan that will cannibalise its tax base.

So you can understand why it is not overjoyed by recent moves by Great Britain and Australia to try to unilaterally collect more tax out of multinationals (GB & Australia have proposed a penalty tax on the transfer of local profits by multi-nationals to “tax haven” countries)

One of the US Treasury’s top officials has labelled these measures as evidence the debate is heading ”in a disturbing direction”.

US deputy assistant secretary for international tax affairs at US Treasury, Robert Stack, told the OECD international tax conference in Washington last week that the discussion about how to improve global tax laws is being driven by politics.

The need to fix budget deficits means that governments take actions that aim to raise more revenue for themselves, without taking account of the impact on the tax base of other nations.

Stack has been involved in negotiations on the OECD plan against profit-shifting known as Base Erosion and Profit Shifting (BEPS) and is a strong supporter of it.

But he’s worried that certain aspects of the BEPS plan – there are 15 parts to it – will fall down on implementation.

At the heart of the problem the OECD is trying to tackle is where a company has its location in the digital world.

There are no longer physical “permanent establishments”.

To try to create a virtual one, Stack says, will create winners and losers.

Tax authorities have to work out among themselves how and where to tax intangible items such as intellectual property.

For one country to gain revenue, another has to lose.

Stack’s fear: the United States will be the loser.

Most of the multinationals accused of dodging tax are US-based companies such as Apple, Google and Microsoft.

These companies have already complained to the US Treasury about Australia’s aggressive approach to getting more tax out of them.

By October, the OECD will have delivered its final BEPS plan.

What will happen next? Stack says 2015 will be a year in which the OECD will engage in “horse-trading”.

Or more unilateral moves.

Stack has condemned Britain’s Google tax, and Australia’s multinational tax avoidance legislation, saying they had “shone a spotlight on the degree to which political pressure can trump policy”.

To recap, the British  government has proposed a diverted profits tax, whereby companies get hit with a 25 per cent levy on profits generated in Britain, but “artificially shifted” overseas.

The Abbott government wants to strengthen anti-avoidance laws to go after 30 companies with more than $1 billion revenue that shift profits through low-tax or no-tax nations.

Never mind that we don’t actually know what the government means by low-tax nation.

Or that Australia’s proposed laws were never costed by Treasury and may not raise a cent in revenue.

Or that the laws risk breaking Australia’s international tax treaties and could provoke revenge taxes being imposed on local businesses operating overseas.

The reality is that politics is already dictating how governments behave.

The Australian Senate inquiry into corporate tax avoidance – which gave the Australian public a closer look at the tax affairs of big companies from Google to Glencore – increased the stakes politically.

Tony Abbott and Joe Hockey’s hands were forced, even if reluctantly.

They couldn’t hand down a budget without addressing the multinational tax avoidance issue. Even if it was just months before the OECD was due to deliver its plan.

As Stack said: If “two of our closest friends are going their own way”, then “how soon until others follow”?

The OECD’s tax director, Pascal Saint-Amans, also isn’t thrilled about Britain and Australia’s unilateral moves.

But he believes that once BEPS is finalised, those moves won’t matter.

“Are they massive?” he told tax news publication Tax Analysts. “I don’t think so, compared to what would have been the case without the [BEPS] exercise.”

Without saying so directly, Saint-Amans is pointing out that in the end it may not matter if the US plays ball.

With the European Union, China, India, Brazil, and a bunch of nations looking to preserve their tax bases, the US will have to move in sync.

If multinationals can no longer shift profits to tax havens – that is, no longer pay zero tax because everyone is in agreement that tax has to be paid somewhere – then negotiations will have to begin on where that tax is paid.

Tax experts are warning that the laws could deter business investment and spark revenue wars with overseas tax authorities.

So what happens in the post-BEPS, no-more-tax-havens world?

The initial impact could be tax revenue wars.

In the longer term, however, the debate will inevitably return to tax competition.

Multinationals will always base themselves where they can get the most competitive tax rates.

Expect to see countries jumping over themselves to get more tax-competitive.

Read more: http://www.smh.com.au/business/the-economy/joe-hockeys-multinational-crackdown-is-bad-tax-law-that-will-spark-global-revenue-wars-say-experts-20150916-gjnsds.html#ixzz3lzqfVln4

The Sydney Morning Herald