Are we living in the golden age of Pharma?
Every news publication you read these days is saturated with adds from formulation chemists offering pharma products which claim:
- to help you lose weight & gain muscle easily; or
- to enhance your libido; or
- to prolong your lifespan; or
- to cure everything from high cholesterol to a broken heart!
If you’re in the business of manufacturing and or marketing such products you’ll be pleased to hear that such a line of business lends itself well to an “Offshore” Corporate Structuring Plan.
Here’s how it usually works:
- A nil tax offshore company (commonly an International Business Company “IBC”) is incorporated, in a low regulation jurisdiction, to own/operate the business
- You (ie via your IBC) either develop the product or you win a contract entitling you to market the dietary supplement/pharmaceutical product in question
- You design/launch a “shop front” website which is owned by the Offshore Company
- All proprietary items (including also logos, artwork, brand or product names/IP, Operating software/systems, soft products to be delivered to customers etc) are owned by or assigned to the IBC
- The website ideally should be hosted in a nil tax/private Jurisdiction (Iceland is currently the most popular destination for such web hosting, Singapore is also often favoured)
- The clients find you and/or contact you via the web
- The IBC should be seen to be managed and controlled from (and ideally beneficially owned from, see below) Offshore. This is typically achieved via the deployment of a (nil tax jurisdiction based) “Nominee” Director.
- Your standard sale agreement/website terms and conditions should provide that a contract is not formed until the customers offer is accepted by you (ie the IBC)- making the source of the income the contract.
- Before the client clicks “Buy” he/she clicks on a button acknowledging that he/she has read and agrees to be bound by your terms & conditions
- Ideally acceptance of the buyer’s offer would be provided by the IBC (which is seen to be managed/controlled from Offshore) automatically sending an email to the buyer, after he/she has paid online, concluding the contract (Offer+ Acceptance + Intention to create legal relations + tender of consideration = a contract);
- In this case the source of the income is the contract. AND if the above system is deployed (as the parties never met in a physical place to conclude the contract) the situs of the Contract ie the place where the contract of sale is formed (ie where tax may apply) is the place from which the Company is seen to be managed & controlled ie the (Nominee) Director’s domicile which should be a nil tax jurisdiction…
- Hence the income – from which the contract of sale is the source – has been/is derived, prima facie, in a zero tax jurisdiction (every time a client buys and you send an email thanking him for payment that concludes a contract of sale at law)
- An Offshore account (which can/will also be set up to receive card payments via a merchant account) is opened in a nil tax banking centre
- Customers/clients contract with and pay the IBC; All such monies are banked free of tax in the first instance
- You or your local company would/could be contracted by the IBC to manage sales/delivery of product/website maintenance/customer liaison/whatever
- (If you need a regular income) 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 expenses against this income (eg home office, equipment, travel, out of office meals, phone/internet/utilities etc) to significantly reduce the amount of tax payable on this income (assessable income less allowable deductions = taxable income)
- The remainder of the IBCs sales revenue is banked and/or reinvested tax free offshore
- Ideally once your business starts to grow and to add substance you would be wise to set up your MD/Board and or a sales team to take orders and receive income in a low tax onshore environment (eg Hong Kong, Ireland, Singapore, Cyprus etc as per the Amazon/Google business models).
Ideally, so that you can swear on oath in the event of a tax investigation, law suit or regulatory inquiry – I am not the beneficial owner of this Company, (which should enable your lawyers to argue, in the event of an investigation, sorry this is tax deferral not tax evasion) it would be wise to set up a Private Foundation to act as the shareholder of your IBC. This should also assist you to get around CFC rules ie if you live in a country which has such regs.
For more details on what CFC laws are check this link: https://www.dropbox.com/scl/fi/6k5w0cc5rgtbfdwe2wc4d/What-is-a-Controlled-Foreign-Corporation-Law.docx?rlkey=asb0fgmgn4y9kb369aw26u50w&st=nyrb347y&dl=0
For more details on what a Foundation is and how one can be deployed check these links: https://www.dropbox.com/scl/fi/su8xw70q5x81xs39xn1aq/Why-set-up-a-Foundation.pdf?rlkey=7r3w6bdaypaxbiexvsd9lam0m&st=i7tntzjt&dl=0
https://offshoreincorporate.com/private-interest-foundations/
With a bespoke legal/admin structure in place you should only be liable to declare and pay tax on income paid to you by the company (and/or on any distributions paid to you by the Foundation); The rest of your Pharma Company’s earnings you should be able to accumulate, and or reinvest, Offshore in a nil tax environment. Tax should only be payable when you sell the business (unless at that time you’re living in a nil tax country) enabling you to grow your capital far quicker during the lifetime of your business thanks to the power of compounding.
Similarly, if a product that you sell doesn’t perform and a customer tries to sue you the good news is your personal assets should not be at risk as the customer has contracted with a limited liability Company (ie the Company carries the legal risk, not you personally). Moreover, having your business incorporated Offshore in a foreign/strange land is of itself a deterrent to such law suits. (Have you ever tried to sue/get money out of an “Offshore” Company? It’s the Litigation Lawyers equivalent of climbing Mount Everest!).
Moreover given the controversial nature of and heavy regulation of such products (eg in many offshore jurisdictions you would need a special license to sell such products) incorporating Offshore ie in a low regulation can also enable you to avoid regulatory arbitrage.
That said, local laws can have an impact. Hence you should seek local legal/tax/financial advice before committing to set up an IBC for such purposes.
Would you like to know more? Then please Contact Us:
info@offshorecompaniesinternational.com
