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 minimise 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 a Trust or a Foundation) as a means by which to access a favourable DTAT (ie Double Taxation Avoidance Treaty) 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 an onshore company to an offshore shareholder Witholding 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.

American Citizens Abroad (ACA) has reportedly submitted a proposal to the US Senate Finance Committee (individual and international tax reform working groups) for the enactment of residence-based taxation (RBT) for American expatriates.

ACA proposes that US lawmakers should enact RBT instead of the present citizenship-based taxation (CBT) because it would reduce compliance burdens for expatriates, provide more efficient taxation, and improve competitiveness.

Under the current CBT, Americans abroad remain subject to US taxation as though they were still US residents. Under RBT, only US residents, whether Americans or foreigners, are subject to US income, estate, and gift taxation, while Americans resident abroad are taxed under essentially the same rules applicable to nonresident aliens.

It was pointed out in ACA’s submission that “the IRS has recognized that the vast majority of Americans residing overseas do not owe US taxes; according to the National Taxpayer Advocate, about 82 percent of all Americans abroad owed no US taxes. For most Americans abroad, the real hardship of CBT is the cost, time, and legal risks involved in compliance.”

ACA proposes that, as part of a general tax reform package, an election should be provided to citizens who are long-term nonresident citizens to be taxed as nonresident aliens if they meet certain conditions – for example, a minimum three-year period of residence abroad.

Americans abroad would still be taxed through a system of withholding taxes on passive US source income (such as dividends, rents, and pensions), capital gains taxes on US real estate, and normal income taxation on income earned in a trade or business in the United States. They would also remain subject to US estate tax on assets located there, including real estate and securities.

ACA believes that RBT would “match CBT in tax revenue generation; reduce the administrative workload and enforcement costs of the Internal Revenue Service (IRS); provide for a more efficient, equitable taxation of Americans abroad; align US law with that of all other nations; and free overseas citizens from the CBT and Foreign Account Tax Compliance Act straitjacket which imposes unreasonable compliance burdens and prevents many from accessing required financial services.”

ACA has previously accepted that an exit tax could be imposed on taxpayers electing RBT, where they would pay a capital gains tax on assets deemed to have been sold at the time of election. However, it suggests that such a tax should be subject to conditions where it would be “viewed as an anti-abuse measure aimed at wealthy individuals who might consider leaving the US for tax reasons, not as a source of US tax revenue.”

Meanwhile non resident US Citizens concerned about having to account to the IRS for tax on income earned abroad would be wise to consider setting up an Offshore Corporate Structure to hold and or receive Offshore Income – in particular a Seychelles Foundation holding entity – which can shift underlying legal and beneficial ownership of the Offshore income/assets away from the US citizen to a non-US person ie the Foundation itself  (ie an entity which should not have to report Offshore income/assets to the IRS).

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 “offshore” jurisdictions, 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).

Structuring 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 Zero Tax Company to register as the owner or co-owner of the property.

If you involve an offshore company later, you 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 the Offshore IP Company 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

Australia is being “picked off” by online foreign exchange brokers that are able to obtain a local licence and offer clients extremely high leverage of up to 500 times, Australia’s corporate watchdog the Australian Securities and Investments Commission (“ASIC”) says. 

Mr Greg Medcraft, chairman ofASIC, said the issue had been raised with the country’s top financial regulation forum, which comprises ASIC, the Reserve Bank, Treasury and the Australian Prudential Regulation Authority. 

“We’ve discussed this more globally, and we are being picked off as a jurisdiction that allows very high leverage, 500 to 1,” Mr Medcraft said at a parliamentary hearing on Friday. “We’re doing what we can in terms of vetting those who apply for licences in this area, particularly those that don’t have a [true] connection with Australia that are operating outside of Australia. 

“It is an issue that’s been discussed recently at the Council of Financial Regulators.”

Asked if participants in the foreign exchange market were sophisticated enough to understand the risk, ASIC Commissioner Cathie Armour said there was an “open issue”whether Australia should take the approach of other countries about limiting the amount of leverage.

CAPPED LEVERAGE

The US, Japan and Hong Kong have capped leverage. The watchdog has taken action against some Australian-based brokers. In October 2014, ASIC forced one of Australia’s foreign exchange brokers, Pepperstone, to exit the Japan market, after it was found not to have the appropriate licence. Pepperstone was offering clients leverage of up to 400 to 1, significantly above the regulatory maximum in Japan of 25 to 1.

Given the high leverage allowed in foreign exchange trading, ASIC’s Ms Armour said Australia was “quite fortunate” that brokers here had been able to operate effectively during the significant shock caused by the de-pegging of the Swiss franc in January.

High leverage creates the potential for greater profits, but also greater losses. January’s 30 per cent spike in the Swiss franc after its central bank dropped a peg with the Euro was one of the most dramatic moves ever in currency markets, and resulted in widespread losses for traders, brokers and investment banks.  

For a trader with 400 times leverage, the instant 30 per cent move resulted in a 1200 per cent loss, which exceeded the balance of most traders. FXCM, the world markets’ largest online foreign exchange broker, was forced into a distressed sale while British-based Apari declared insolvency.

The popularity of online foreign exchange trading has surged as technology has allowed individuals to bet on currency moves. Daily ­turnover has more than doubled from $136 billion to $380 billion since 2007 as speculators opt to trade foreign exchange markets that operate 24 hours a day. But foreign exchange markets are largely operated on the often opaque and unregulated over-the-counter basis.

Australia has become a hotbed of the global retail forex broking industry by virtue of its trading culture, and a safe jurisdiction for locally based players to market themselves to traders around the world. Such is its popularity that daily turnover at some of Australia’s largest brokers can exceed the entire cash equities volume of the Australian Stock Exchange on a given day.

THE SYDNEY MORNING HERALD

23 March 2015

Given we are now living in the Global Village, and as more opportunities exist now than even before for qualified professionals and trades/skilled persons to work as Consultants to (or to take up contracts offered by) non-local Companies, more and more clients are setting up (and hiring out their services via) a nil tax jurisdiction based Recruitment Agency or Labour Hire Company.

Here’s how it can work:

1. You would incorporate a new zero tax Offshore Company which 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 might 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 (the commission could be anywhere from 2.5% to 50%).
7. The remainder of monies (ie after the tax free Offshore Company 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 the Tax Haven Company IPRS Ltd would need to be (and be seen to be) commercially realistic.

Local laws can have an impact. Hence you would be wise to seek local legal and or tax advice before committing to create such a company/structure.

The Nevis Multiform Foundation Ordinance is a very unique and cutting-edge piece of legislation which was designed to remedy some of the problems seen in other foundation products.

The Nevis Multiform Foundations Ordinance provides that each Nevis Foundation will have a stated ‘multiform’. This means that the constitution of the foundation will state how it is to be treated whether as a trust, a company, a partnership or an ordinary foundation. Through the ‘multiform’ concept the stated identity of the Foundation can be changed during its lifetime, thus allowing for there to be greater flexibility in its use and application. Generally, the Nevis Multiform Foundation product can be used for estate planning, charity, financing and special investment holding arrangements.

There are five basic requirements for establishing a Nevis Multiform Foundation:

-       It must have a Nevis based registered agent (which OCI supplies)

-       It must have a Nevis registered office (which OCI supplies)

-       It must have an acceptable name

-       It must have a management board and secretary (which OCI can supply via Nominees); and

-       It must have a memorandum of establishment

Like the formation of a company, you must first engage the services of a registered agent who is authorized to act as agent of the entity, and that registered agent must have an office to which all communications and notices may be addressed. The Promoter of the Foundation, through its registered agent may reserve a name prior to establishment of the foundation. If the foundation is a trust foundation, then the name must accord with that multiform so that the trust foundation has the word “trust” in it. The name must not be prohibited by law: Irrespective of the prohibited word list the Registrar of Foundations will not reserve a name that is misleading, undesirable, confusing or similar to another name of an entity registered in Nevis.

Once the Registrar confirms that a name is available and valid for use, that name can be reserved for a period of one month. The Registrar has discretion to permit a name to be reserved for a longer period. Once a name has been reserved, the following establishment documents must be submitted to the Registrar in order to establish the Multiform Foundation:

-       Application Form

-       Consent Schedule

-       Memorandum of establishment

-       By laws (if standard by-laws are not adopted)

-       Evidence that the existing entity has been dissolved or discontinued or an undertaking that an application for dissolution or discontinuance has been submitted in the existing jurisdiction (where applicable)

The relevant fees must accompany the documentation for establishment of a Nevis Multiform Foundation.

The Nevis Multiform Foundation Ordinance also provides for entities to be converted or transformed, continued or consolidated and merged into a Nevis Multiform Foundation. Through the process of Continuance, a foundation in another jurisdiction can be continued in Nevis as Multiform Foundation.

Through the process of Transformation, any entity outside of Nevis can be transformed into a foundation in Nevis. Therefore, a trust in Jersey can become a multiform foundation in Nevis. Through the process of Conversion, an existing Nevis entity like an IBC can be converted to a multiform foundation.

Through the process of Consolidation or Merger, any two or more entities can merge into a multiform foundation and alternatively, through the process of Discontinuance, a multiform foundation can move to another jurisdiction. These provisions allow for the mobility of the foundations as an entity into and out of Nevis and give the founder an extremely valuable asset protection tool.

A new special economic zone (SEZ) has been confirmed in Qatar near the new Hamad Port, just south of Al Wakrah.

The zone, to be known as Um Al Houl Special Economic Zone, will seek to attract companies from the petrochemicals, building materials, maritime, metals, logistics, food processing, automobiles, tools, and machinery sectors.

The new zone, announced on March 2, is one of three SEZs being developed by Manateq, a company established by the Ministry of Business and Trade in 2011. Manateq intends to allow investors to develop land on the 33.52-square-kilometer site from the second quarter of 2016.

Manateq’s SEZs will offer zero duties on trade within the Gulf Cooperation Council and low import duties or exemptions for inputs and machinery.

Qatar’s Minister of Economy and Commerce, Ahmed bin Jassim bin Mohamed al-Thani, said: “This groundbreaking ceremony of Um Alhoul special economic zone is testament to the firm resolve and unwavering commitment of the State of Qatar towards a strategically and fully diversified economy.”

A company set up in such a Free Zone offers benefits to owners including:

• 100% ownership( A single individual is required for setting up (no sponsor required))
• Tax exemption
• Owning properties is allowed (25 years lease options, warehouse facilities, availability of areas for production and assembling etc.)
• Fair renewal fees
• Confidentiality of your business is maintained
• Allowed to open bank account in Dubai
• No restriction for doing more than one activity
• Can wind up at your discretion

The best known jurisdiction for Trade Free Zones is Dubai which has  more than 20 Free Zones operating within its confines including:.

• Dubai Airport Free Zone
• Dubai Cars and Automotive Zone (DUCAMZ) also known as Dubai Auto Zone
• Dubai Healthcare City
• Dubai International Academic City
• Dubai Internet City
• Dubai International Financial Centre
• Dubai Knowledge Village
• Dubai Media City
• Dubai Gold and Diamond Park
• Dubai Multi Commodities Centre (DMCC)
• Dubai Silicon Oasis (DSO)
• International Media Production Zone
• Jebel Ali Free Zone
• JLT Free Zone
• Dubai World Central(DWC) Business Park

A number of our clients hold US Real Estate via Offshore vehicles.

What those clients usually do is this:

• They set up an LLC in a state other than where the property is situated; and
• How they structure the LLC is they have the membership units (akin to shares in the case of a Limited Company) in that LLC held by a tax haven IBC (which depending on where the client lives, is usually owned by a tax free Offshore Private Foundation, see below).
• All incomes are passed through the LLC and paid to the member/s leaving the LLC with no Corporate/Business Tax liability in the US (LLCs are treated as partnerships for tax purposes ie as a “flow through entity”. In other words provided all the income is distributed to the LLC’s members by tax year’s end the LLC should not be required to file a tax return).
• Provided there is only one member (shareholder) of the LLC and provided that member is not a US resident or citizen the income can flow through to the member without the LLC having to declare and pay tax in the US on its profits or capital gains
• The tax haven IBC is not liable to pay tax at home on those receipts
• If there are no further holding entities beneath the IBC, and the owner of the IBC lives in a country which has CFC laws, then he/she will have to declare the IBC’s income at home
• But if the owner of the IBC is a tax free Offshore Private Foundation the IBC’s income could be held and or reinvested by the IBC Offshore potentially tax free

Note the above information is based on advice received from a US Accounting firm which is experienced in tax filing for foreign owned Delaware companies.  You would be wise to seek independent US and local tax advice before committing to put together such a structure.

It’n not easy for an “Onshore” government to find out who is behind X Company assuming you set up an Offshore Company (eg an IBC ie International Business Company) in a Privacy Haven ie somewhere which:

(a) has no public register of Directors or Shareholders or owners; and

(b) which has passed laws prohibiting release of ownership info except by Court order.

As regards the latter in most IBC jurisdictions, unless the country seeking ownership info has a a TIEA (ie Tax Information Exchange Agreement – see below which explains what that is) with the country wherein the IBC is incorporated, the Courts only have the power to release that info if the Company or someone closely connected to it has been involved in very serious criminal activity eg drug trafficking, money laundering, terrorist financing, illegal arms dealing etc

Privacy Haven jurisdictions include:

• Seychelles – For detailed info click on this link: https://offshoreincorporate.com/seychelles-offshore-companies/
• Belize – For detailed info click on this link: https://offshoreincorporate.com/belize-offshore-companies/
• BVI – For detailed info click on this link: https://offshoreincorporate.com/products-services/offshore-companies/bvi-tax-free-ibcs/
• Nevis – For detailed info click on this link: https://offshoreincorporate.com/st-kitts-and-nevis-offshore-companies/
• Anguilla – For detailed info click on this link: https://offshoreincorporate.com/anguillan-ibcs/

What is a Tax Information Exchange Agreement?

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 TIEA has been 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).

If you’d like to know what TIEAs have been signed by the country where you live please Contact us via email at this address: info@offshorecompaniesinternational.com

International Yacht Chartering, given its international clientele, is a business that lends itself well to “Offshore” Corporate Structuring. Here’s how it will typically work:

1. The yachts will be owned by (or the leases held in the name of) the/a tax free Offshore Company
2. Your international clients will enter into an agreement with the said Offshore Company (which is commonly an “IBC” ie International Business Company)
3. The situs of the agreement (ie the place at which the contract was formed and or services provided) will be deemed in the agreement to be Offshore
4. The nil tax IBC will have a bank account Offshore ideally in a nil tax International Offshore Financial Centre
5. You will want to set up a merchant account facility for your Company so clients can pay you by card (and also ideally by paypal) as well as by bank wire if/as they may prefer
6. Funds are ultimately directed to the Offshore Company’s tax free bank account and receipted free of tax in the first instance
7. Your or your local company will be engaged by the Offshore Company to perform certain functions (eg client liaison, yacht sourcing, fleet maintenance, logistics management etc etc etc)
8. The operating expenses can/will be paid from the Offshore account
9. To cover your local living costs you could draw down regular instalments as wages (or consulting fees) and/or you could access funds using the Offshore Company’s VISA/Mastercard and/or the Offshore Company could loan you money
10. If you want to make substantial purchases onshore eg to buy a car or a piece of realty or shares/investments your tax free IBC could buy these or (eg if you want to make these purchases as discreetly and as privately as possible) your existing IBC could form a subsidiary IBC to buy these
11. The remainder of your Yacht Charter Business profits could be held and/or invested offshore potentially tax free.

Local laws can have an impact. Hence you should seek local legal/tax advice before committing to set up an Offshore Corporate structure such as that described above.