By correctly using these legal structures, sometimes together, it is surprising what can be legally achieved
Perhaps the question most often raised by clients is how and when they should employ an offshore company, with the following just being a summary of some of the possible uses. Whether it is necessary to also employ a trust, foundation or otherwise will depend, as implied, on many different factors but largely on the beneficial owners nationality, residence and personal circumstances
International trading
It a firm has significant business in a third party jurisdiction it is often possible to reduce the overall tax position by transferring management and control to a more tax efficient area. For example, it a British firm purchased a given type of good in Italy for resale to the Middle East it would seem inappropriate to say the least that such a transaction should be subject to UK corporation tax. A potential solution would be to set up a company in a low tax area such as Madeira or Cyprus to specifically control these transactions. It this is done correctly and does not offend the anti-avoidance provisions of the Taxes Act, 1988, it should be possible to benefit from either the Cypriot ‘Flat Rate’ Corporate Tax rate of 10% or the EU sanctioned Madeiran Corporate Tax rate of only 5 %, or less, until 2020. Obviously, any remittances back to the UK may be subject to full UK taxes, however, those funds not so required should be available for investment elsewhere. In respect to both Cyprus and Madeira (Portugal), the fact that they both have extensive double taxation treaty network and demand the submission of annual audited, all go to prove the commercial veracity of the establishment of the Cypriot/Madeiran company/office. Even better, in certain circumstances it may be possible to reduce the Cypriot flat 10 % tax rate by inserting an offshore limited partnership (this being tax tree) with taxes only being paid on that ascribed proportion of profits earned by the Cypriot company in its capacity as the ‘general partner’. The ‘limited’ and ‘passive’ partners having no direct tax consequences. Therefore, if such ‘partners’ are tax haven companies (this preventing direct fiscal remittance to the appropriate high tax ‘mother’ country) all profits earned by the passive partner(s) will be totally tax free.
Investments
As already indicated, the direct use of so called ‘tax haven’ jurisdictions are often of little direct use because of their ‘black-listed’ status and dearth of suitable treaties. However, with treaty knowledge it is often possible to legally avoid all, or nearly all, withholding taxes on dividends, royalties and interest payments by creating a tax treaty ‘sandwich’ between the recipient and paying jurisdictions. For example, if a Canadian firm wanted to invest in Germany, all remitted profits would be subject to a withholding tax rate of 15% in addition to a ‘distributed’ profit tax of 30%. If, however, the Canadian firm had sought professional tax planning advice it might have been suggested that a Luxembourg societe de participation financiere (SOPARFI) ‘holding’ company be used as an investment catalyst. It this had been done, the Canadian company could avail of Portugal’s EU membership and, in particular, directive 90/435 which prevents the application of withholding taxes on almost all dividend profit distributions
International Consultancy
With the growing demand for professional consultants to work outside their usual country’s of residence there ‘s often the possibility of greatly reducing or even eliminating individual and corporate fax consequences often using offshore companies. The reason that this possibility arises is that if is often possible to legally extricate oneself from the tax system of ones home country for a fiscal year or more. During this expatriate period it may then be possible to avoid the fax system(s) of the chosen host jurisdictions by limiting ones period of residency in any given country to between 4 and 6 months. These being the normal European ‘breathing’ periods before full local tax obligations exist. The purpose of the offshore company is to provide a fiscally beneficial entity to issue necessary invoices, register for VAT and/or act as a controlling vehicle for future ‘home’ country remittance
Confidentiality
As competition becomes more intense, the ability to restrict competitors’ access to your company’s true financial position could mean the difference between success and failure. In certain circumstances it could also be necessary to ‘mask’ the true ownership of a company. Unfortunately, such confidentiality is not available directly in the UK or in most other Western European countries; however, it can often be guaranteed by using specified companies, trusts and/or foundations/establishments.
Property Investment Companies
In certain circumstances there are significant tax advantages to be gained by having properties ‘held’ by an appropriate domestic and/or offshore mechanism. For example, for non-domiciled individuals in the UK, a local company owned in turn by a tax-free company can legally avoid all capital gains faxes. The reason for this is that shares are considered ‘moveable’ property under British law and capital gains realized by a non-domiciled individual through his or her interest in the offshore tax free company are not a British taxable event unless the gains are directly remitted. Further, by using appropriate tax treaties it may also be possible to arrange ‘back-to-back’ loans to virtually eliminate domestic tax liability on rental payments. In respect to Continental property acquisitions, even in jurisdictions such as France and Spain, if is also possible — with correct planning — to avoid future CGT or equivalent taxes and various property acquisition duties (which are extremely high in the case of France) by using double taxation treaties/companies. In the case of Portugal, the SCF Group even has ifs own specialized division with products created to meet the demands of this market
Family Asset Protection
One of the major objectives of many tax mitigation clients is to ensure that wealth established during their lifetime is not fettered away by future generations/circumstances. To avoid this the SCF Group can provide a whole range of ‘tailor-made’ trusts, foundations and establishments which can be used together with many of the other tax mitigation mechanisms already outlined. In particular, they can often be formulated to allow, whilst the original ‘settlor’ is alive, for initial investment flexibility followed by a fixed structure upon his or her demise. In addition, with the correct advice, asset protection schemes can also legally avoid the almost universal ‘forced heirship’ provisions of civil law jurisdictions.
Intellectual Property
In many cases tax-planning companies can be very successful in exploiting the varying international withholding fax rates for dividends, royalties and interest. For example, it is very common, for a nominal consideration, to transfer patent, copyright or trademarks in favour of an appropriate tax-mitigating vehicle before significant appreciation. Once acquired, it is then possible to issue IP sub-licenses or exploitation rights to appropriate third party structures. For companies with valuable or potentially valuable IP advice should always be sought from professional tax consultants such as those employed by the SCF Group
Yacht/Vessel Registration/Management
Without doubt in recent years there has been a great transfer of merchant navy registration from traditional areas like Britain, Norway and Greece to offshore shipping jurisdictions such as Panama, Liberia, the Isle of Man, Cyprus and the British West Indies. Correctly advised an individual can also benefit from such tax free/low tax environments. Apart from the lower registration tees it may also be possible to rent or charter a vessel without any significant, or even any tax repercussions. Such benefits, together with the abilities to maintain a respectable flag — it a vessel is registered in the Channel Islands or a British colony it is fully entitled to fly the Red Ensign as if it was a native British vessel — have meant that few private yachts of any size are today registered in their home territory. In addition, for those using vessels in EU waters, if may also be possible to purchase a yacht through the Isle of Man with a local tax exempt company and then reclaim back any VAT paid by registering for VAT on the Island or to reduce VAT to 14% by registering your vessel in Madeira (with MAR) which of course is a fully integrated part of the EU.
