Offshore Company Formation – Offshore Company

Offshore Company Formation: Tax haven rankings

• Index Offshore Company formation
• Offshore Company: Tax planning via a network of international tax advisers and attorneys
• Offshore Company formation: Why form a company in a foreign country with a tax accountant specialized in international tax law?
• Basic Considerations regarding the Formation of Companies in „Zero-Tax Havens“ i.e. in countries that have not entered into Double Taxation Agreements with other countries 
• Offshore Company formation: Download all Company Information
• Examples for the legal reduction of corporate taxes
• DTA permanent establishment concept
• Parent companies and their subsidiaries in the European Union
• OECD: Articles of the Model Convention with Respect to taxes on income and on capital
• Beware of cheap founders!
• Basic considerations within the framework of international taxation
• Contact us

Offshore Company formation: About us

We are an English tax and law office within the network of international tax consultants and lawyers (LowTax Network International), focussing, in particular, on „international tax planning for natural and legal persons“. Other focal points are: the setting up of financial services companies and banks abroad, licences for games of chance within the EU and offshore, the setting up of trusts and foundations and, in addition, the transfer of domestic assets into trusts within the English-speaking legal area (asset protection,bankruptcy protection,inheritance law).

In so doing, we look after clients from various countries. Our head office is in London. In addition, we have branch offices/representative offices and/or fee-based tax advisers and lawyers in many countries. The setting up of companies abroad is carried out by the lawyers’ offices with whom we collaborate in the country where the foreign company will have its head office. Through this form of organisation clients are assured of the best possible advice in the various countries as well as the legally trouble-free setting up of the companies in the countries where the companies are to have their head office. Our work also includes, of course, the drawing up of expert tax appraisal reports within the context of the cross-border restructuring of companies.

Our work focusses on the following activities:

• the setting up of companies abroad : the setting up of companies within the EU (Bulgaria,Cyprus,England etc.) and other countries (e.g.United Arab Emirates,Singapore,the USA,Belize,Cayman Islands,Liechtenstein), incl. all the necessary services:
  • setting up the company, recording it in the register of the county
  • registered office, virtual office up to and including an office (proper registered office)
  • if required: provision of a trust manager or salaried manager in the country where the company has its head office  (5 DTAs: location of the senior management of the company as the location of the business premises for tax purposes). This task is only taken on, in our case, by lawyers or tax consultants within the country where the company has its head office.
  • if required: provision of trust shareholders
  • opening of an account in the name of the company, incl. credit card and online banking
  • bookkeeping, preliminary turnover tax return and annual accounts

• Setting up holding companies within the EU (Cyprus,the Netherlands,Spain,Denmark) and other countries for the purpose of collecting the dividends of the subsidiary companies as free of tax as possible, the non-taxation of purely holding revenues (holding privilege),the further distribution of the dividends as free of tax as possible to the actual owners of the shares (dividend routing). In addition: the setting up of management and administrative holding companies,including the choice of location and all the measures required for the purpose of tax recognition.
• Cross-border restructuring of companies, expert tax survey reports
• Law on double-taxation agreements
• Europe PLC, company mergers, EU guidelines on mergers

1. Offshore Company formation: EU member countries

Advantages: The recognition of a permanent establishment in the foreign country, from the point of view of EU member states, does not require establishment of a commercial business operation (see also EU Freedom of Establishment); also, applicability of the EU Parent-Subsidiary Directive (tax free receipt of foreign dividends, e.g., in the case of a German capital investment firm) and general existence of DTAs.

1.1. Company formation Cyprus: 10% income tax, regardless of profit. Profit distribution is not taxed in the case of foreign shareholders. Holding companies are tax exempt.

• EU Freedom of Establishment Yes
• DTA: Yes, with most countries
• EU Parent-Subsidiary Directive applicable: Yes
• Holding company privileges: Yes
• Banking secrecy: High
• Nominee relationships allowed: Yes

Advantage: EU Freedom of Establishment as well as DTA, very low taxes compared to the rest of Europe, dividend payouts to non-Cypriots are tax exempt (otherwise subject to 15% defense tax). Holding companies are completely tax exempt.

1.2. Company formation England: 21% for small to medium-sized companies (up to GBP 300,000 in profit), thereafter gradual increase up to 30% VAT registration required only upon reaching GBP 60,000 (approximately EUR 100,000). Very liberal attitude toward offshore companies, maintains a DTA with the Isle of Man.

• EU Freedom of Establishment Yes
• DTA: Yes, with most countries
• EU Parent-Subsidiary Directive applicable: Yes
• Holding company privileges: No
• Banking secrecy: High
• Nominee relationships allowed: Yes

Advantage: EU Freedom of Establishment; also DTA, low tax rates for small to medium-sized companies compared to the rest of Europe

1.2.1  Setting up a UK Ltd with an offshore company, UK Ltd as agent only: Up to 90% profit transfer before taxes allowed

A maximum of 90% of UK profits BEFORE taxes in the UK may be transferred to an offshore country as long as the UK Ltd acts only as an “agent” (profit transfer and domination agreement between the offshore and UK Ltd).

1.3 Company formation Ireland

• EU Freedom of Establishment Yes
• DTA: Yes, with most countries
• EU Parent-Subsidiary Directive applicable: Yes
• Holding company privileges: Depending on type of formation
• Banking secrecy: High
• Nominee relationships allowed: No

Ireland has a corporate tax rate of 12.5%. Disadvantages include a high income tax rate of 20-60% for natural persons and the fact that nominee relationships are either prohibited or practically impossible. Suitable for “actual company relocation.“

1.4. Company formation Portugal/Madeira

Short summary of advantages:

• EU membership, EU Freedom of Establishment and EU Parent-Subsidiary Directive applicable
• Portugal/Madeira belong to the VAT Zone (the Canary Islands and Canary Island Special Zone (ZEC), for example, do NOT); no import sales tax on the import of goods into the EU, 6th EU Directive applicable

Taxes:

• Type I: Completely tax exempt
• Type II: Tax rates of 4 % until 2012 and 5 % until 2020 guaranteed  

Tax exemption or reduced taxation are subject to requirements such as creation of jobs and establishment of a commercial business operation. Our office in Madeira is equipped to meet the necessary requirements (normally only suitable for actual corporate relocation or establishment of an actual business in Madeira.) However, even in the case of no actual business establishment, our partners can help you meet the requirements for tax exemption or reduction. This requires the contractual employment of local citizens in the company (at EUR 400/month) and the leasing of an office. Monthly costs apply in this case.

2. Offshore Company formation Non-EU, but with DTA

From the point of view of most countries, the recognition of a permanent establishment requires establishment of a commercial business operation in the country of residence. The financial authorities in your home country may require proof of residency from the foreign country’s financial authority. If no commercial business operation is established, the domiciling of the company via a Business Center (www.regus.com) with 10 hours of monthly office space use is usually sufficient. The nominee General Manager may act as a permanent employee, in which case his compensation must be „regular.“ 

2.1. Company formation Switzerland: Tax rates vary by canton, as the total tax liability equals the federal tax (8.5%) plus the cantonal tax. An income tax rate of 15.5% is achievable (in Zug). Special conditions: Tax payments are considered business expenses, which correspondingly reduces tax liability as of the second year.

• EU Freedom of Establishment No
• DTA: Yes
• EU Parent-Subsidiary Directive: Switzerland has subscribed to the EU Parent-Subsidiary Directive; bilateral recognition agreements are in place
• Banking secrecy: Very high
• Nominee relationships allowed: Yes
• Bearer stock: YES

Advantages: Low tax liability, easy access to cash, banking secrecy.

Special terms regarding branch offices of EU foreign companies: These are treated as Swiss corporations without the initial CHF 20,000 capital stock investment requirement; commercially established business operation not required. Tax liability under domicile privileges only 8.5%.

2.2. Company formation Dubai: ZERO taxation, except for oil companies, chemical companies and banks.

• Low tax country as per the German Foreign Transactions Act (AStG): Yes
• Applicability of Section 8 of the AStG (CFC taxation in the case of dominant influence by a German national): YES
• EU Freedom of Establishment No
• DTA: Yes
• EU Parent-Subsidiary Directive applicable: No
• Banking secrecy: Very high
• Nominee relationships allowed: Yes

Advantages: No taxes. If adequately structured, so-called “white income” (i.e., tax free income in Germany) may be divertible to Germany.

Disadvantage: Very high capital stock required in comparison to other legal structures, high formation and licensing fees, at least 51% of the shares of the company must be held by local citizens except in Free Trade Zones, nominee solution is an option. The “Dubai Offshore Company” allows for the establishment of a legal corporate structure without capital stock.

2.2.1: Company formation UAE, Exempted Companies

• EU Freedom of Establishment No
• DTA: Yes, with most countries
• EU Parent-Subsidiary Directive applicable: No
• Banking secrecy: High
• Nominee relationships allowed: Yes

Advantages: No taxes. If adequately structured, so-called “white income” (i.e., tax free) can be channeled outside the country.

2.3. Offshore Company formation Singapore

• EU Freedom of Establishment No
• DTA: Yes, with almost all countries
• EU Parent-Subsidiary Directive applicable: No
• Banking secrecy: Extremely good
• Nominee relationships allowed: Yes

Singapore is known, not inaccurately, as the “new Switzerland.” Foreign income is not taxed. Domestic income is taxed at 18%; the first 200,000 Singapore dollars are tax-free.

2.4. USA: Tax liability depends on the individual state and the „object of taxation.“ An income tax rate of 15% is achievable. Normal tax rate: 30%.

• EU Freedom of Establishment No
• DTA: Yes, with almost all countries
• EU Parent-Subsidiary Directive applicable: No
• Banking secrecy: Average
• Nominee relationships allowed: Yes
• Bearer stock allowed: No, but shareholders are not entered in the commercial register

Advantage: The „Inc“ is the pure form of incorporation, and is a good structure for capitalization, no capital stock investment required, generally low costs in comparison to other corporate structures, one-person formation possible. Shareholders are not listed in the commercial register.  Most US states have no sales tax.

3. Offshore Company formation Non-DTA countries (offshore):

• EU Freedom of Establishment No
• DTA: No
• EU Parent-Subsidiary Directive applicable: No
• Banking secrecy: Very high
• Nominee relationships allowed: Yes
• Public commercial register: generally none
• Bearer stock allowed: Yes, bearer stock is allowed in most offshore countries In general, no nominee shareholder is required.
• Taxes: In most countries, Exempted Companies (those that only generate income outside the country of residence) are not subject to taxes. Isle of Man imposes a flat tax of GBP 450. Liechtenstein offers no tax exemption, depending on corporate structure and sales
• Sales taxes:  Typical offshore countries (Seychelles, Mauritius, Hong Kong, British Virgin Islands (BVI), Bahamas, Nevis, Dominica, St. Vincent, Belize) have no sales tax.

Countries include:

• Asia & Pacific: Seychelles, Mauritius, Hong Kong
• British Virgin Islands (BVI), Bahamas, Nevis, Dominica, St. Vincent, Isle of Man
• Latin America: Panama, Belize
• Liechtenstein (AG, GmbH, Trust, Anstalt [institution], Stiftung [charitable foundation])
• Isle of Man: GBP 450 annual flat tax for foreign income. Is a member of the EU VAT Zone.

When establishing offshore companies, the client should be aware of the political and economic stability of the country.

Advantages: Generally no or low taxes, no public commercial register, no international law enforcement treaties or fiscal extradition agreements with other countries.

Disadvantages: See above.

Offshore Company formation: Why form a company in a foreign country with a tax accountant specialized in international tax law?

The prospect will find numerous agencies specialized in foreign company formations in the internet. As a rule, however, these companies do not employ Tax Accountants specialized in international tax law.  Frequently, such formation agencies are not – or only insufficiently – versed in international tax law, or are not permitted to provide advice on legal or tax matters in countries as a consequence of the Legal Advice Act. Formation agencies – or even Tax Accountants – located in the forming countries (for example: Cyprus, Belize etc…) often are only knowledgeable in domestic tax law. If one takes a look at the relevant internet offers, it quickly becomes apparent, that a great deal of the providers publish incorrect or insufficient information, working according to the strategy “The cheaper the better”.

The following factors, among others, are to be observed within the scope of international tax planning / company formation in a foreign country: 

-Most countries have laws for the prevention of tax evasion and/or have laws that formulate the right to impose taxes domestically.  It is not in the interest of these countries, that companies and individuals have their income taxed in foreign countries, even though “in truth” the managerial supervision is located domestically and / or the activities are transacted / performed domestically and / or “in truth” the taxpayer resides in country and/or a production site is not installed in the foreign country. In many countries, (for example: USA and Germany) “tax evasion” is, in fact, a criminal offense.  For this reason, it is somewhat naive to believe, that the right to impose taxes can be relocated to a foreign country, by simply investing a few hundred Euro for the formation of a company in a foreign country. It is true, that almost everything can be done, however domestic tax laws must be observed and – to the extent a production site is not installed in a foreign country, or no site for the exploitation of mineral resources or construction works, whose duration is greater than 9-12 months exist (in the event a Double Taxation Agreement exists this will always constitute a permanent establishment), the impression must be avoided that the foreign company is just a „bogus company”.  

– The permanent establishment in a foreign country:

1. Managerial supervision

A production site, a site for the exploitation of mineral resources or construction works, whose duration is greater than 9-12 months, always constitutes the establishment of a place of business in the formation country – at least in the event of a DBA-situation (Double Taxation Agreement).  Otherwise the definition of a permanent establishment is based, among other things, on the “place of managerial supervision”. As a rule, this means that a resident of the formation country (ordinary residence) acts as the Company Director. Either the client relocates his ordinary residence to the formation country and acts as the Director of the company himself OR a citizen of the formation country is hired to take the position of Director OR the client himself acts as the Director, and provides proof that he is present in the formation country to perform customary managerial supervision OR our Law Firm in the foreign country provides a Nominee Director.

In the event, a Nominee Director is provided the following factors must be observed:

-The responsibilities of the Nominee Director should be performed by an Attorney or Tax Consultant in the formation country of the company (in the case of a legal entity as a Trustee Director of a Law Firm). This ensures, that the trustee relationship is not disclosed for „incidental“ grounds. Only attorneys can effectively protect the trustee relationship from third party access.  It goes without saying, that attorneys will demand the corresponding fees and will not just demand a few Euros for their services as a Trustee Director.

Under certain conditions, it can even be required or useful, that a person in the formation country is employed as the Director of the company, i.e. with an employment contract between the company and the Director, payment of payroll taxes and social security contributions; to the extent they are collected. We are also able to provide such an “employed Director”.

The so-called „Formation Directors” are “absolute nonsense”, who resign after the company has been registered and transfer the company and position to the actual beneficiary.  In this situation, the „actual Director” can quickly be identified. A Trustee Director must of course be registered and reachable during the entire agreement term.

One “can” deviate from such an arrangement, if the foreign company is formed in a country, which has not entered into a Double Taxation Agreement and / or a Mutual Legal Assistance (MLA) Agreement.

An “Offshore Director is also “absolute nonsense”, an example of this is that a legal entity acts as the Director of an English Limited in Belize. Such a constellation is “asking for it” i.e. asking to be accused of “Avoidance Abuse” and of course, such a company will not be able to open an account or be issued a Value Added Tax ID Number.

2. The place of business in a foreign company

A “Post Office Box” or an „Answering Machine“ does not constitute an ordinary place of business. Accordingly, „Registered Office Addresses” do not meet the prerequisites for a proper place of business.

The minimum requirements of a proper place of business are:

• Serviceable postal address, also for registered mail
• Reachable by telephone during normal office hours, personal call reception with the name of the company.

It does not always have to be “large offices”, but it must not be a post office box. The configuration / structure of the place of business is to a high degree dependent upon the company activities.  If one assumes that a company can only perform its business activities, if it has 3 offices and 4 employees on-site, then a pure virtual office would indeed appear rather odd. In this situation a “sense of proportion” is required, everything must be plausible. 

3. The company account in a foreign country

Many formation agencies offer „help in opening an account”. This means, in plain English, that an account is not opened, for example an English bank will not open an account, if the Director resides on Belize (unless he is present at the opening of the account, which is not probable).  Also many banks will not open a company account, in the event only bearer shares are issued (with the exception that the owners are present at the opening of the account or in certain countries such as Switzerland or Belize.  However, in these countries the owners must at least be disclosed to the bank and often must be present at the opening of an account.) “Just fill out a few forms” and the opening of an account is done, is, in most cases, nothing but a fairytale and has nothing to do with real-world business practices. 

-Taxes must not be paid in tax-haven countries?

Also in this case, a great deal of nonsense is published in the internet.  In reality, there are only very few „zero-tax havens”, like for example the Cayman Islands. In fact, many countries (Belize, BVI, Nevis etc…) offer the formation of so-called offshore companies (as a rule International Business Companies, IBCs), i.e. companies who only transact business and generate revenues outside the country, however onshore companies (companies, who transact business domestically) are indeed taxed. Offshore companies must of course provide proof, that they only transact business outside of the country, and they must of course keep their books in order. In addition, there are a series of other taxes (withholding tax, capital gains tax, inheritance tax, property tax, income tax etc…) that may be of interest to our clients and may under certain circumstances be levied in “tax-haven countries”.

– Are tax-haven countries always the most suitable countries for the formation of a company?

Certainly NOT. Tax-haven countries are defined as countries that have not entered into Double Taxation Agreements, Mutual Legal Assistance (MLA) Agreements, or extradition treaties for fiscal offences with other countries that at a minimum do not tax revenues that have been generated outside of the country.

The “screening effect“ is not in effect against double taxation, specifically due to the lack of a Double Taxation Agreement. If a company, located in a tax-haven country is, for example, a stockholder of a company in Germany or the USA, in that event dividends distributed to such company in a tax-haven country are subject to the full withholding tax in Germany or the USA; while Double Taxation Agreements, as a rule, limit the withholding tax rate to 5%. Double Taxation Agreements also define under which circumstances the prerequisites for the existence of a permanent establishment are met and that a stock of goods or merchandise (warehouse), a permanent agent or a representation in another contracting state as a rule do not constitute a permanent establishment.  Should, for example, a company in Belize maintain a stock of goods or merchandise (warehouse) in another country, this warehouse as a rule does constitute a permanent establishment in the other country, i.e. taxation of the proceeds generated there.

Also the EU Parent Subsidiary Directive does not apply to tax-haven countries. This can have substantial disadvantages for associated companies; because in the case of the application of the EU Parent Subsidiary Directive the dividends distributed between the companies are tax-free (this fact of course is only advantageous to clients from EU states). 

Companies in tax-haven countries do not receive Value Added Tax IDs. This could result in substantial disadvantages, if these companies want, for example, to transact business with European companies.

In addition, if one considers the fact that for example Cyprus (EU Member, Double Taxation Agreement with almost all countries) has an income tax of only 10% or the Canton of Zug in Switzerland has a total tax burden of 15.5% for companies or that the EU special economic zones (Maderia, Canary special economic zone) entice with income tax rates below 5%, one should ask oneself the question, if the formation of a company in a tax-haven country is really the correct alternative. 

Factors, such as „economic and political stability”, play also a major role. Example Belize: As long as the British military protects Belize against territorial claims of its neighbor Guatemala, investments can reasonably be made. If the protectors withdraw, one can assume the worst will happen. Should one decide to make an investment, one should take out an insurance policy against imminent domain.

Of course, good reasons may exist with regard to forming a company in a tax-haven country. Specifically the fact that Mutual Legal Assistance (MLA) Agreements, and extradition treaties for fiscal offences do not exist and that many tax-haven countries do not maintain a commercial register, can be very helpful in certain constellations.

And of course there are also clients, who setup an “actual company” in tax-haven countries, with offices, employees and an employed Managing Director who maintains his ordinary residence in the foreign country. In such cases, of course, the situation is to be assessed differently. 

– Tax Planning within the scope of “associated companies”

Within the scope of associated companies, it is of extraordinary importance, if the EU Parent Subsidiary Directive is applicable and / or if a Double Taxation Agreement has been entered into and / or if the respective country levies withholding tax on outgoing distributed dividends.  This – and other details – must be considered in international tax planning. 

-Tax Planning within the scope of Holding companies

Numerous details must also be observed in the formation of a foreign holding:

• Location of the subsidiaries (DBA-Situation, EU, Non-DBA Situation?)
• Advantages and disadvantages of individual holding locations, with regard to the high priority objectives
• How are non-holding-activities taxed in the seat country of the Holding?
• Does a holding privilege even exist (for example Cyprus, Switzerland, Spain), i.e. no taxation on the distribution of incoming dividends (for example, Cyprus, Switzerland, Spain, the Netherlands) or low taxation?
• How are outflows /dividend distributions of the Holding taxed, if they are distributed out-of-country or distributed in-country (withholding tax)?
• How are interest and license payments of the Holding taxed?
• How are deductions due to losses from sale and write-downs to the lower going concern value addressed?
• How are deductions of expenditures for interests / stockholder debt financing addressed?

Conclusion

International tax planning is a very complex subject and belongs in the hands of trained specialists. “Just forming a company on the fly for a few hundred Euros“ can have fatal consequences for the client. Good advice costs good money. And a waterproof company constellation, which would standup to subsequent verification – is simply not feasible for a small amount of money.

About us:

We are a network of international tax advisors and attorneys, with focus of interest on foreign formation of businesses for the legal minimization of taxes,

limitation of liability and/or restart after domestic insolvency. We are able to found the following companies:

• English Limited (0-19% income tax for medium-sized businesses up to a profit of £300,000, EU company: EU freedom of establishment applicable, therefore EU directive on parent companies and their subsidiaries, DTA concept)
• Cypriot Limited (10% income tax rate, independent of profits, no taxation of distribution of profits, EU company: EU freedom of establishment applicable, therefore EU directive on parent companies and their subsidiaries, DTA concept)
• US Corporation (pure form of stock corporation, taxes depending on the kind of activity and on federal state, DTA concept)
• Company Formation United Arab Emirates (NO taxes, except for banks, oil companies and chemopetrol enterprises, DTA concept)
• Companies in Liechtenstein (low taxes, depending on purpose and legal form, offshore, no DTA concept)
• Swiss GmbH (low taxes depending on canton, DTA concept)
• Company Formation Belize,BVI,Cayman Islands,Nevis,Isle of Man,Panama,Seychellen (NO taxes)

Our English company is mainly consulted by clients from high tax countries in the EU, such as Danish and Swedish clients. In particular for these clients, there are broad opportunities within the framework of double tax agreements, EU freedom of establishment and the EU directive on parent companies and their subsidiaries to legally reduce the tax load in their domestic country (e.g. Sweden, Denmark), or to place the sole right of taxation abroad. Click here for examples…..

The fees for formation of businesses depend on the services:

• Formation of the company, entry in the commercial register, any required documents, apostille
• Nominee services: nominee direktor/supervisory board, nominee partner/shareholder

Please note: Nominee services are required, if the founder of the company has his centre of vital interests in a state other than the state of the company’s registered office, i.e. for example not in England in case of an English Limited company, but the state of registered office should still be entitled to the right of taxation: “place of business management” as the place of tax law permanent establishment according to double taxation agreement (DTA). Therefore, nominee services may be required, provided that the actual founder wants to remain unknown, e.g. after insolvency or prohibition of trade. It is important that the nominee is an attorney or tax office, respectively, in the formation state (state of registered office), and that the nominee can always be reached. Any “cheap founders” do not install any attorney or tax office as nominees, which may have disastrous consequences for the client.

• Domicile in the formation state: domicile address in the foundation state, deliverable postal address, mail forwarding service, telephone, fax

Please note: If taxation is to be effected in the state of registered office, for example in England, domicilation must meet the requirements of a regular registered office. A “mailbox” or an “answering machine” does not constitute a regular registered office, and may lead to the assumption of a bogus company (beware of cheap founders!)

• Opening of an account for the company, including internet banking and VisaCard

Please note: Most cheap founders only offer “help with opening a bank account”. The company usually does not get any bank account and/or the nominee has access to the bank account. We install a bank account for the company in the state of the company’s registered office, with sole account authority for the client!

Approach

Please send us an Email with your objectives. We require the following details:

• Where are you resident (as natural person) according to tax laws?
• What are your objectives (e.g. reduction of corporate taxes, indemnity, capitalization, restart after insolvency)
• Would you like to actively do business in the foundation country (state of registered office) of the company (such as industry), or do you not intend any active business in the foundation country?

We will then explain any possible constructions in a summary with advantages and disadvantages. Any futher consultation (per e-mail, telephone or in our office) will be charged at € 70.00 per hour.

Basic considerations within the framework of international taxation

• Tax planning via a network of international tax advisers and attorneys
• Offshore Company Formation: Tax haven rankings