Category Archives: Company- Management

Recently I was asked “How do I structure the commercial relationship between me and my Offshore Company?

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

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

Yes you could use the IBC’s Debit/Credit card to cover those expenses but that may not be the wisest choice. With current technology you can’t assume that local tax authorities will not notice if you use, onshore, a debit or credit card issued by an Offshore Bank.

Most clients usually only use the Offshore Company’s card purely for business/company expenses or when they are outside the country of tax residence (though technically even such withdrawals/payments, unless spent on business expenses, would be classified as “income” declarable in the country where you are resident for tax purposes).

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).

The moral to the story? If you are looking to incorporate Offshore – and you’d prefer to keep ownership of your Tax Free Offshore Company as private possible – as a starting point you’ll want to exclude from your jurisdiction shopping list any country which has a TIEA with your home state.

EBay’s PayPal service will start accepting bitcoins, opening the world’s second-biggest internet payment network to virtual currency transactions.

“We’re announcing PayPal’s first foray into bitcoin,” Bill Ready, the chief of eBay’s Braintree unit, said at Techcrunch’s Disrupt SF conference on Monday.

“Over the coming months we’ll allow our merchants to accept bitcoin. On the consumer side it will be a sleek experience.”

As the world’s biggest online marketplace and operator of the global payments service, eBay is the most significant business to embrace bitcoin to date. The move could potentially enable PayPal’s 152 million registered accounts to transact using the virtual currency, spurring wider use and acceptance, according to Gil Luria, an analyst at US-based Wedbush Securities.

“PayPal integrating bitcoin into Braintree is a very substantial development,” Luria said. “Not only will it make it possible for some of the fastest-growing apps to integrate bitcoin seamlessly, it opens the door for PayPal to integrate bitcoin into its main wallet functionality. If that happens millions of retailers will de facto be accepting bitcoin overnight.”

Braintree provides payment capabilities on websites and in mobile apps such as mobile car-booking service Uber and Airbnb, the short-term home rental service for travellers.

EBay acquired Braintree for $US800 million in cash last year to expand its mobile-transactions business. PayPal and Braintree will work with bitcoin payment-service provider Coinbase to enable payments in the virtual currency, Ready said.

Goods, services

Ready said that tens of thousands of PayPal merchants using Braintree will be able to accept bitcoins if they choose to do so.

“We’re at the right time for this, and to see how to propel it forward,” Ready said. He expects to announce which merchants will accept bitcoin in the coming months.

EBay would join other companies in accepting bitcoin, a digital currency that started to enter the mainstream in 2013. Dell began accepting bitcoins for for good such as computers in July.

Dish Networks, Overstock.com and Expedia also accept the virtual currency. Numerous online and offline businesses worldwide now accept bitcoins be it for beer, coffee or facials.

In total, about 63,000 businesses handle bitcoins, and users have set up more than 5 million digital wallets to keep their holdings at the end of June, according to CoinDesk, a website tracking the digital money’s use.

Bitcoins emerged from a 2008 paper written by a programmer or group of programmers under the name Satoshi Nakamoto, becoming the most popular virtual currency. It relies on a public ledger and cryptography to record transactions and protect ownership.

Uncertain future

A Bloomberg Global Poll of financial professionals in July indicated that there’s still skepticism of the virtual currency even as technology entrepreneurs, venture capitalists and hedge funds plow money and effort into building it into a global payment system.

Bitcoin prices have swung between more than $US900 to as low as $US341 this year as enthusiasts try to address the digital currency’s weaknesses, persuade consumers to embrace it and overcome governments’ concerns that it could be misused by criminals.

Fifty-five per cent of those surveyed said the virtual currency trades at unsustainable, bubble-like prices, according to the quarterly poll of 562 investors, analysts and traders who are Bloomberg subscribers. Another 14 per cent said it’s on the verge of a bubble.

Generally speaking a Controlled Foreign Corporation Law is one which requires you to declare at home any income earned by an Offshore Company where you hold or have the ability to hold the shares of that Company (eg an IBC where you have deployed a Nominee Director and Nominee Shareholder).

These days given that many countries have CFC Laws more and more clients are choosing to establish a dual structure ie a Tax Free Offshore Company and Tax Free Offshore Private Foundation (or a Tax Free Offshore Company and a Tax Free Offshore Trust) as such structures can potentially get you around CFC rules.

In the above scenario/s the shares of the Company are held by the Foundation or Trust as applicable.

I’m often asked by clients who live in countries with Controlled Foreign Corporation Laws. Can I set up a Company now and add a Trust or Foundation later?

Ideally the Foundation should be registered first as it is the “parent” entity (and the child should not be older than the parent!).  You could just incorporate a Company first and then add a Foundation later but there are two problems with that idea:

1. Without the Foundation ie until such as time as the IBC Is owned by the Foundation you would be liable to declare at home any income earned by the IBC. Failure to so declare would be an act of tax evasion which is a criminal offence punishable by imprisonment.
2. If you want the transfer of ownership of the IBC to the Foundation (or Trust) to be beyond legal challenge you would need to have the company valued and the Foundation (or Trust) would need to be seen to be paying fair market value for the shares it receives. And a sale and purchase agreement (contract) would need to be drawn up which would be need to be seen to be on commercially realistic terms.

Forex and Commodity Trading are activities which lend themselves well to Offshore Corporate Structuring. For details on how you can minimise tax on trading profits using an Offshore Company as your trading vehicle please take a look at this page from our website: https://offshoreincorporate.com/trading-forex-using-an-offshore-company/

To summarise how it would work is:

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

Google has backed down on its plan to launch its “digital wallet” in the Australian market, says Australian managing director Maile Carnegie.

Unveiled to much hype in the United States in 2011, Google Wallet sought to replace credit cards by allowing customers to pay for purchases with their smartphones.

But while some local start-ups are eyeing payments services, a market dominated by banks, Ms Carnegie on Thursday said this was not a high priority for the technology giant.

She said Australia rather was one of the world’s most innovative markets for digital financial services, leaving few obvious gaps for the company to fill.

Australians had been the most enthusiastic adopters of contactless payments in the world, she noted, whereas in the US, where Google Wallet was launched, many people still wrote cheques.

Despite Ms Carnegie’s comments Big banks view technology companies as threats to their lucrative businesses.

Australia’s largest Bank The Commonwealth Bank’s chief executive Ian Narev last year said the competitive threat from Apple or Google was as large as that posed by rival lenders.

The co-founder of technology firm Atlassian, Mike Cannon-Brookes last month described bank profitability as “insanity” and said companies including payments firm Tyro, where he is a director, were targeting the potentially lucrative market.

However, the chief executive of ANZ’s Australian operations, Phil Chronican, stressed that banks made most of their money in the highly regulated markets of lending money and taking deposits, rather than arranging payments.

“Many of the start-ups that are looking at the convenience of consumer payments are looking at a part that delivers a very small part of the profit pool of the banks,” said Mr Chronican, who was speaking alongside Ms Carnegie.

“Indeed one of the conundrums is that the banks are offering their consumers free payments today, and therefore it’s hard to know where the profit pool that can be attacked is.”

Mr Chronican added that many technology start-ups eyeing financial services were solving issues specific to the United States, rather than Australia.

“You hear about all these things happening in the US, and then you realise that 70 or 80 per cent of them just don’t transport,” he said.

It comes as the government’s financial system inquiry grapples with how to harness technology to encourage competition, without weakening regulations designed to protect consumers and promote financial stability.

Inquiry chairman David Murray told a separate conference on Thursday that financial services were a key target for leading technology entrepreneurs, and this presented an opportunity to lift competition.

“These technologies in our view will create substantial new competition in financial services and put pressure on existing players to make some significant investments in technology that, frankly, they might have made years ago if they had anticipated some of these developments,” Mr Murray said.

Online retail behemoth Amazon will soon offer borderless card payment facilities enabling your business to accept customer payments by card regardless of where you might be located.

The new product, Amazon Local Register, is a black, compact rectangular card reader stamped with Amazon’s logo across the front. The $US10 device plugs into a merchant’s smartphone or tablet, and works in conjunction with a smartphone app to process and track all of a merchant’s business transactions.

It also comes with an enticing offer: lower processing fees.

The device is a new stomping ground for the Seattle-based web company, which has expanded its online storefront over the years to include goods of nearly all sorts – books, furniture and electronics, to name a few. While many of the products on Amazon.com are sold directly by Amazon, the site also lists products sold and shipped by smaller retailers.

And that, some analysts say, is why this move was not entirely unexpected.

“So much of this is about Amazon building platform lock-in,” said Heath Terry, an internet analyst with Goldman Sachs, who said the Local Register card reader was just one more component filling out an entire suite of offerings for the small businesses that sell goods on Amazon.com.

“If you’re a third-party seller on Amazon’s site that’s using them for one thing, ultimately you’re using Amazon for everything,” Terry said.

This should all sound familiar. Square, the San Francisco payments startup valued at $US5 billion ($5.37 billion), has offered its sleek version of a mobile card reader since 2010.

PayPal, eBay’s payments division, which processed $US55 billion in transactions last quarter, offers a similar device.

And then there are the huge incumbents like Verifone, which has sold its own terminals to merchants of all sizes for decades.

So by most measures, Amazon is late to the game. And yet no company with a mobile card reader has emerged as a clear winner. Amazon could push its way into the market with its own set of attractive incentives for small businesses.

For instance, Amazon is offering early adopters an especially low processing fee on each credit card swipe processed. If a merchant signs up before the end of October, each swipe will cost 1.75 per cent of the total transaction, a deal which will last until the end of 2015.

That is a full percentage point below Square’s cut and less than PayPal’s 2.7 per cent charge as well. Even after the promotional deal expires, Amazon will charge merchants 2.5 per cent.

This is classic Amazon. With its low rate, the company is most likely losing money on transactions it processes, according to Colin Sebastian, an analyst with Baird Equity Research.

“In typical Amazon fashion, they’re using price as a motivator,” Sebastian said. “It’s pretty obvious in this case that they’re losing money on the swipes at least.”

That is similar to the company’s strategy with Kindle Fire tablets and smartphones; while Amazon makes little to no money on selling the Fire devices, each one acts as a portal to Amazon’s retail universe, where customers are encouraged to spend more money buying goods online.

But a better rate does not necessarily guarantee success. As competition has increased, payments companies have expanded the scope of their services, aiming to attract merchants with more than just a lower transaction cut on credit card swipes.

Both Square and PayPal, for instance, offer lending programs for merchants looking to expand their operations.

This week, Square started an appointment scheduling service for businesses. It has also acquired Caviar, a startup that provides food delivery service to small restaurants that do not otherwise offer it.

Some businesses may be reticent to sign up for Amazon’s new reader, lest they hand over scores of information to the online retailer. Packaged with its new card reader, Amazon’s Local Register software will manage detailed data on a merchant’s overall business operations, including sales trends and volume. That is the kind of data set that could help Amazon operate more successfully in the long run.

Every business needs a card payment facility, in particular online and Offshore incorporated businesses.

Whether you’re a fan of Amazon or not more competition in the often hard to access (and expensive) world of merchant account service providers can only be a good thing.

I’m sometimes asked how can I retain control of my tax free Offshore Foundation without anybody knowing?

The Seychelles model of Private Foundation provides an interesting option in this regard.

Howso?

When you register an Offshore Foundation the name of the person authorising the registration of the Foundation (ie “the Founder”) appears in a publicly filed/accessible document called a/the Charter.

However Seychelles law allows the Founder’s rights to be privately/secretly assigned to a third party.

What this means is you can deploy a “Nominee” Founder to create the Foundation and reserve the Founder’s rights/powers to yourself without anybody apart from you and your Offshore Foundation Service Provider knowing.

The following powers can be reserved to the Founder of a Seychelles Foundation (which rights you would secretly inherit ie if/when the Founder’s rights are assigned to you post registration):

• The right to appoint or remove Protectors
• The power to direct the dissolution of the Foundation and to direct the amendment of the Charter
• The Power to direct or approve the appointment or removal of a Councillor
• The Power to direct or approve the addition or exclusion of a Beneficiary
• The Power to direct or approve the continuation of the Foundation as a Foundation registered under the laws of a jurisdiction outside Seychelles
• The Power to direct or approve the Council to effect the forfeiture by a Beneficiary of his/her benefit, right and interest under the Foundation if the Beneficiary challenges in writing: (i) the establishment of the Foundation; or (ii) the transfer of any assets to or by the Foundation; or (iii) the Charter or any provision of the Charter; or (iv) the Regulations or any provision of the Regulations; or (v) any decision of a Councillor, the Protector or the Founder
• The Power to direct or approve the amendment of the Charter and/or the Regulations by the Council
• The Power to direct or approve investment activities of the Foundation, including the acquisition and disposal of investments by the Foundation
• The Power to direct or approve the rights, entitlements and restrictions relating to each Beneficiary, including the power to direct or approve the making of any distribution of Foundation Assets (or any part thereof) to a Beneficiary.

Note – The Offshore Foundation Council’s role is to manage the Foundation and carry out its objects. If a Founder is given very wide powers in respect of a Foundation (e.g. the power to direct or approve Foundation investment activities or distributions and the power to direct the dissolution of the Foundation or amendment of its constitutional documents) this may cause the Foundation to be viewed as a mere nominee of the Founder or may constitute ‘management or control’ so as to make the Foundation ‘tax resident’ where the Founder is resident or domiciled.

This could have adverse onshore tax consequences for the Offshore Foundation or Founder, especially if the Founder is resident or domiciled in a high tax country with a worldwide tax system. Hence if you’re looking to establish a tax free Offshore Foundation it would be wise to seek local legal and tax advice before deciding what powers might be reserved to the Founder (or to you as assignee Founder).

I’m often asked if I set up an Offshore Foundation using Nominees how can I still control the Foundation?

The day to day business of a tax free Offshore Foundation is overseen by a Councillor or Board of Councillors.

However you can ask, when the Offshore Foundation is registered, that a Protector is included as part of the Foundation structure.

What is a Protector? 

A Protector is a person whose prior written consent is legally required ahead of a Foundation Council doing certain key things. 

Certain rights can be reserved to a/the Protector including:

• The power to direct or approve the appointment or removal of a Councillor
• The power to direct or approve the addition or exclusion of a Beneficiary
• The power to direct or approve the continuation of the Foundation as a Foundation registered under the laws of a jurisdiction outside its country of registration
• The power to direct or approve the amendment of the Charter and/or the Regulations by the Council
• The power to direct or approve the dissolution of the Foundation
• The power to direct or approve investment activities of the Foundation, including the acquisition and disposal of investments by the Foundation
• The power to direct or approve the rights, entitlements and restrictions relating to each Beneficiary, including the power to direct or approve the making of any distribution of Foundation Assets (or any part thereof) to a Beneficiary.
• The power to direct or approve the Council to effect the forfeiture by a Beneficiary of his benefit, right and interest under the Foundation if he/she (ie the Beneficiary) challenges in writing:

(i)                 the establishment of the Foundation; or

(ii)               the transfer of any assets to or by the Foundation; or

(iii)             the Charter or any provision of the Charter; or

(iv)              the Regulations or any provision of the Regulations; or

(v)                any decision of a councillor, the Protector or the Founder

I’m often asked is there any advantage in spreading your Offshore Company and or Offshore Offshore Trust and or Offshore Foundation and Offshore Bank Account across several jurisdictions?

The bottom line is the more jurisdictions you mix into your structure the harder you make it for people to attack your (Offshore) assets.

Say you have 3 structures in place ie an Offshore Company an Offshore Trust and an Offshore Foundation (ie a serious asset protection structure). Say a firm of vulturous lawyers are suing you and  they suspect you have assets held by an Offshore Company (from which the Lawyers hope to extract recovery for their client + a fat fee for themselves).

The first thing that would happen is the vultures would try and find out who owns the Offshore Company. Unless you are involved in some very serious criminal activity (eg drug trafficking, money laundering, terrorist financing etc) no one should be able to find out who the owner/shareholder of that Offshore Company is (or who the beneficiaries of any Offshore Trust or Offshore Foundation beneath it are – see below).

To crack the privacy veil anyone wanting to either (a) attack/get hold of assets held by the Offshore Company or (b) find out who actually owns the Offshore company would have to apply to the Supreme Court of the Country where your Offshore Company is incorporated for a disclosure order ie a court order compelling the names of the shareholders/owners of the Offshore Company to be revealed.

Before the Court will even hear the application the vultures would have to produce evidence ie a prima facie case proving that the Offshore Company or persons closely connected to it have more likely than not been involved in serious criminal activity as defined.

If they do get the order they would find that the Offshore Company is owned by an Offshore Trust in a 2^nd country.

The lawyers for the vultures would then have to pack their bags go home and start all over again. That is they would then have apply to the Supreme Court of the country in which the Offshore Trust is registered for a disclosure order (ie for an order requiring that the names of the beneficiaries of the Trust be revealed). Again, usually before the Court will even hear the application, the vultures would once again have to produce evidence ie a prima facie case proving that the Trust or persons closely connected to it are more likely than not to have been involved in serious criminal activity as defined.

Say by some miracle they do get that order. All they will find out is that the sole beneficiary of the Trust is a Foundation registered in a 3rd jurisdiction.

The lawyers for the vultures would then (again) have to pack their bags go home and start over. That is they would then have apply to the Supreme Court of the country in which the Foundation is is registered for a  disclosure order ie a court order requiring that the names of the beneficiaries of the Foundation be revealed. As usual before the court will even hear the application the vultures would again have to produce evidence ie a prima facie case proving that the Foundation or persons closely connected to it are more likely than not to have been involved in serious criminal activity as defined.

And if the Offshore Company’s bank account is held in a 4^th country the vultures would need to appear before a Court in that 4^th country seeking an order that the Company’s Bank Account in that country be frozen (ie pending finalisation of litigation/claims against the company or its owners).

As any experienced litigation lawyer will tell you what’s described above is the lawyer’s equivalent of having to climb Mount Everest. The time it would take and the legal costs involved would be virtually inestimable.

It should come as no surprise to anyone then (given the proliferation of litigation lawyers and the advent of information exchange between OECD type jurisdictions) to hear that the use of multi-national Offshore Corporate Structures is on the rise.

Hopefully after reading the above you can well understand why…