Category Archives: Company- Management

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…

Information was released publicly in the US last week showing that the number of US Companies re-incorporating in Offshore Tax Havens continues to climb.

The practice known as Corporate inversion is used by US companies, when bidding for (generally smaller) foreign companies, as a means of moving away from the higher American 35 percent corporate tax rate. Under current US law, a company that merges with an Offshore Company can move its headquarters Offshore (even though management and operations remain in the US), and take advantage of lower taxes offered Offshore, as long as at least 20 percent of its shares are held by the Offshore company’s shareholders after the merger.

The published list shows that 47 US corporations have reincorporated in Offshore Tax Havens through inversions in the last 10 years, as against only 29 in the previous 20 years. According to the data, there is estimated to be about ten prospective inversion deals that are pending completion.

To try and counter this ever increasing trend of Offshore Incorporation bills have been introduced into the House and the Senate in the US which propose to restrict corporate inversions by putting the minimum foreign shareholding at 50 percent.

However, the bills have yet to move forward with the house leaders reportedly preferring to deal with the question of Offshore re-Incorporation within the framework of future comprehensive tax reform. At the same time leading Republicans are said to have decided that using tax reform to lower the corporate tax rate and having a more internationally competitive tax code would be the better option.

With knee jerk positions on Offshore Tax Havens being released almost daily (following little if any reasoned debate) it is refreshing to see policy makers taking a more holistic approach to the issue of Offshore Tax Competition. In this instance the bigger picture sees that the practice of Corporate inversion is sending a clear message to Legislators… that if they want to retain the tax business of these companies they must be prepared to compete on price.

Whilst people are always resistant to change, in the commercial world – if a customer feels he/she is being taken for granted by a supplier – (and the customer knows that he/she can get a better deal elsewhere) what does he/she do? The customer weighs up the inconvenience of changing suppliers against the benefits of a move (ie fiscal savings).

It’s incumbent then on the supplier, knowing what the competitor is offering, to make it sufficiently attractive for the customer to stay loyal.

Why should the relationship between taxpayer and government be any different?

Forex trading is strictly forbidden in India and any individual caught trading in the Forex market will be charged with a crime and may even serve jail time.

Corporations are allowed to trade provided they use only free dollars from their reserves. Free dollars usage means that they are not allowed to convert the Indian currency to dollars and then use those converted dollars for trading. Moreover they are conditioned to stick to a leverage of less than ten times.

If you want to avoid jailtime and or have greater freedom to trade you may be interested to know that a combination of a tax free Offshore Company and a tax free Offshore Foundation can gift you the ability to trade more freely.

In terms of how that can work structurally and practically:
• The shares of the Company would be held by the Foundation; and
• The beneficiaries of the Foundation would be whoever you nominate.

And if you choose a Seychelles Foundation if/when the bank or a broker asks who is the beneficial owner of the company/account you can lawfully answer “the Foundation” as section 71 of the Seychelles Foundation Law clearly states that the legal AND beneficial owner of any asset transferred to a Seychelles Foundation is the Foundation itself. That can get you access to brokerages/trading platforms that won’t accept Indian residents or Corporations as customers. Such an argument could also be used in defence to any criminal claim as may be made against an Indian resident individual trading forex via an Offshore Corporation.

How does it work from a practical perspective?

In terms of structure the Offshore Company would be set up with a Nominee Director and with the Private Foundation as shareholder. Commercially, the company would do the buying and selling, ie it would generate the income. Ideally, you would be appointed as Consultant or as an arms’ length adviser to the Director of the Company with certain areas of responsibility (eg you could be an authorized Trader or Trading Manager or an IT Consultant or Management Consultant  or Sales Consultant etc) for which you would be paid a commission (eg a percentage of profits) or Consulting fees.

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 i.e. Indian company which, I imagine, would then pay a dividend to you, which would be assessable income at home for you.

And as India does not have Controlled Foreign Corporation (or Controlled Foreign Trust) Laws the remainder of the profit could be held (and/or reinvested) offshore potentially tax free.  (Though that’s something you should speak to your tax adviser about).

What is clear however is that a combination of a Tax Haven Company and an Offshore Foundation can gift you the opportunity to trade (and or greater freedom to trade) plus get you access to a wider choice of brokers.

I’m often asked What is the difference between a Tax Free Offshore Foundation and a Tax Free Offshore Trust?

Bottom line is if your reason for wanting to set up an Offshore Trust is to try and avoid tax at home on the earnings of the Trust (or to build a bullet proof fence around any assets to be held by the Trust) you might want to consider setting up a Foundation instead. The disadvantage of a Trust is it’s caught by local Controlled Foreign Trust laws. Put simply if you have the means to remote control an Offshore Trust or are a presently entitled beneficiary of an Offshore Trust chances are you would be required to declare locally and pay tax on the Trust’s earnings or at least your share thereof.

A Private Offshore Foundation is very similar to an Offshore Trust in that it’s set up by a Founder (like a Settlor in the case of an Offshore Trust) and managed day to day by a Councillor (like a Trustee in the case of an Offshore Trust) who manages the Offshore Foundation’s property for the benefit of the beneficiaries of the Offshore Foundation.

Moreover a nil tax Offshore Foundation may get you around the tax issues as it’s a separate legal entity in its own right (ie an Offshore Foundation actually owns – both legally and beneficially – any assets held by the Foundation – unlike an Offshore Trust where the Trustee holds property for someone else ie the beneficiaries) and by law the beneficiaries are not entitled to the income or capital of the Foundation until the Foundation Council actually resolves to pay a distribution to the Foundation Beneficiaries. What this means is potentially you can defer paying tax at home on income of investments held by the tax free Offshore Foundation enabling you to reinvest 100% of that income not just the after tax component.

This can enable you to access the power of compounding on those investment earnings meaning your net worth will grow MUCH faster than what it would were you to pay tax each year on your investment income.

Local laws can have an impact hence you should seek local legal/tax advice before committing to set up a nil tax Offshore Foundation or nil tax Offshore Trust.

In an embarrassing about face the American Internal Revenue Service (IRS) has stated it will be substantially diluting key features of its offshore voluntary compliance program (“OVCP”) which was hitherto designed to force US citizens with undisclosed Offshore Bank Accounts, (or Offshore Companies or Offshore Income or Offshore assets) to declare the existence of same to the IRS.

The changes came about after considerable pressure was applied by tax payer groups concerned that various Americans (in particular long term expat Americans who would in any other tax system be regarded as non-residents for tax purposes), unaware of their obligations to report the existence of their Offshore Income, (or Offshore Company or Offshore Bank Account) could be treated the same way as criminal tax evaders.

The IRS has said that the changes are intended for US taxpayers whose failure to disclose their offshore assets was “non-willful,”. There are also other important modifications to the 2012 OVDP.

The original ie 2012 procedures were available only to non-resident non-filers, and taxpayer submissions were subject to different degrees of review based on the amount of the tax due and the taxpayer’s response to a “risk” questionnaire. Under the new arrangements, the procedures are available to a greater number of US taxpayers living outside the US who have unreported Offshore accounts and, for the first time, to certain American taxpayers residing in the US.

The changes include an elimination of the requirement that the taxpayer should have USD1,500 or less of unpaid tax per year; the abolition of the risk questionnaire; and a new requirement for the taxpayer to certify that previous failures to comply were due to non-willful conduct.

For eligible American taxpayers residing outside the US, all penalties are to be waived. For eligible US taxpayers residing in the US, the only penalty will be a miscellaneous offshore penalty equal to five percent of the foreign financial assets that gave rise to the tax compliance issue.

Since expatriating in 2001 I’ve met many Americans who, upon hearing that their non- American expat counterparts were not required to declare and pay tax at home on Offshore  earnings, simply assumed the same rules applied to them (as indeed they should if they’ve permanently departed America though that’s an argument for another 60 seconds). Hence the changes as effect such US persons are to be applauded as a common sense approach given the lack of criminal or unlawful intent on the part of parties concerned.

As of 1 July however the US Foreign Account Tax Compliance Act will come into effect, at which time banks will begin to report to the IRS the existence of Offshore Bank accounts held by US persons. Persons who wish to avoid this reporting requirement should speak to their Lawyer or Offshore Company Provider or Offshore Bank Account Provider ASAP about setting up a Seychelles Private Interest Foundation (or an Offshore non FATCA effected bank account) as a potential means of avoiding US reporting requirements.

Often I’m asked how can I access money earned by my Tax Free Offshore Company?

There’s 3 ways to bring home money from a nil tax Offshore/International Business Company:

1. Set yourself up as an arms’ length consultant and have the IBC pay you consulting fees periodically. This means you would only have to pay tax on what you bring into your home country (and even then you should be able to minimise tax payable on that 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 in tax friendly investments. Say your target capital base is 3 million Euro and every year you can 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 be able to accumulate 3 million within 5 to 7 years. This is what many 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. The loan would need to be seen arms length ie seen to be on commercial terms.

3. Use an anonymous debit card and withdraw cash from automated teller machines. This can still work in some places though it should that some of the bigger countries now have the ability to trace and connect one to such withdrawals

Note unless you 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 law can impact on such plans and hence you should seek legal/tax advice before committing to travel down such a path.

Offshore Companies are commonly used to own/operate online businesses.

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 etc)
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 inquiries/delivery of product,to manage marketing or to oversee website maintenance/whatever.
7. Ideally the product would be delivered online or delivered directly by the manufacturer to your customer.
8. You would invoice the IBC periodically (eg monthly) for the services you provide which income would be assessable income in your home country – though a smart Tax Accountant should be able to assist you to claim a series of expense against this income (eg home office, equipment, travel, phone/internet/utilities etc) to significantly reduce the amount of tax payable on this income.
9. 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, down the track, bring ownership of the web-business onshore or if you wanted to sell the business but keep a passive (potentially tax free) income stream
10. Ideally once you start to grow (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 (a) a Seychelles Private Interest Foundation should be set up to shift underlying legal and beneficial ownership of the Company away from yourself and (b) the IBC should be (and be seen to be) managed and controlled from offshore. How this can be achieved is by including a Nominee Director etc as part of the Corporate structure. See these pages 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/

Local laws can have an impact hence it would be wise to seek legal/tax advice before committing to travel down this road.

International Business Companies (“IBCs”) are commonly used as Offshore Tax Minimization vehicles for businesses that source product in one country and sell it in another.

Often I’m asked how such a business might be structured.

Essentially there are three different ways such a business could be run:

• As an import/export business ie where instead of your onshore business buying stock from an overseas supplier you have your tax free Offshore Company buy it and on-sell it to your onshore business for a substantial mark-up (thus enabling you to potentially bank the majority of the ultimate sales profit in a nil tax environment). See here for details of how that can work: https://offshoreincorporate.com/how-to-use-an-ibc-for-international-trade-import-and-export/

• As a website based business. In this situation you set up a zero tax Offshore Company to own the domain name/website/server. All orders are placed either via the website or via email and all payments made direct to the nil tax Offshore Company (eg via card through a merchant provider or payment gateway such as paypal). Packages once ordered would be airmailed or couriered direct to the customer by the manufacturer (albeit with your packaging/branding).

• Where the tax free Offshore Company (“IBC”) buys the stock and keeps a warehouse in your home country/city – but pays you (or your local business/company) a modest sales commission /percentage to distribute the stock. If that is your preferred option you’ll need to get legal and or taxation advice (a) firstly to see whether the IBC will require some kid of business license in your home state and (b) to find out whether having a warehouse in your home city/state will make the IBC liable to pay tax there on its sales profit.

Note these are generic structuring models. Local law can impact on viability hence legal/tax advice should be sought prior to commencing such a business.

I’m often asked the question what is the difference between a Panama Foundation and a Seychelles Foundation?

In essence the Seychelles model of Offshore Foundation is basically a copy of Panama’s but with a couple of additional (in my view, very attractive) features including:

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

The Seychelles law also provides additional asset protection provisions eg:

• It specifically says that a transfer of property to a Sey Foundation, shall not be void, voidable, liable to be set aside or otherwise defective in any manner by reference to a foreign rule of forced heirship or any other written law of a foreign jurisdiction
• It also says that a transfer of property to a Sey Foundation, shall not be void the founder’s bankruptcy or the liquidation of the founder’s property; or any action, proceedings or other claims against the founder brought by any creditor of the founder. (Refer See sections 71 to 74 of the Seychelles Foundations Act – these asset protection provisions don’t appear in the Panama law)
• A Seychelles Foundation can be capitalised with as little as $1. A Panama Foundation’s minimum authorised capital is $10,000.

AND The Government Incorp and annual license fee in Seychelles is $100 cheaper than in Panama.

Panama still has the better name but we are seeing more and more people choose Seychelles as the place to register their Private Tax Free Offshore Foundation.

With these competitive features it’s not hard to see why.