An importing or exporting company can be established in a low tax area. The company would typically take orders directly from the customer but have the goods delivered directly to that customer from the manufacturer or place of purchase. The profits arising out of the difference between purchase price and sales price would then be accumulated. With such trading companies it is important to incorporate in an area which has good communications as the efficient production of shipping and other documentation may be critical so Hong Kong is often suitable. If trade is occurring within the European Union necessitating VAT registration then the Isle of Man is recommended.
Funds accumulated through investment companies set up in offshore areas can be invested or deposited throughout the world. Generally returns or interest payable on those funds will be subject to local taxation but in most offshore areas funds may be placed either in tax free bonds or in banks where interest is paid gross and where no capital gains taxes are applicable. Many people set up an offshore company to hold investments to protect privacy. As such companies are generally not dealing with the public and a relatively simple structure will normally suffice and we therefore recommend companies incorporated in one of the Caribbean jurisdictions but particularly recommend the Bahamas, BVI, Mauritius and Turks & Caicos Islands.
A holding company can be established and used to hold the shares of subsidiaries located in high tax countries. Most high tax countries require tax to be withheld on dividends to be paid to non residents so a holding company is best incorporated in a country which has a tax treaty with the country in which the subsidiary is located which reduces or eliminates this withholding tax. There are many countries which have created specific holding company structures which do not tax dividends on arrival and which also have a wide range of tax treaties which will reduce or eliminate the withholding tax suffered in the country in which the subsidiary is located. The UK, Denmark and the Netherlands offer attractive holding company structures and all have wide networks of treaties. Cyprus, Madeira, Malta, Mauritius and Labuan have a limited number of treaties but may also be used to good advantage in certain circumstances.
Companies for the Avoidance of Probate and for Privacy
A high net worth individual with properties or other assets in a number of countries may wish to hold these through the medium of a personal holding company so that upon his demise the need to obtain probate in each country is avoided. This saves legal fees and avoids publicity. The recommended jurisdictions in which to incorporate this type of company would be as per the Investment Companies category above.
Property Owning Companies
There are often great advantages in using an offshore property holding company to own an overseas property. We offer specialist schemes which are specifically tailored for property investors in the various countries around the world particularly Spain and Portugal.
Advantages of offshore property ownership include avoidance of inheritance tax, avoidance of capital gains tax, ease of sale (which is achieved by transferring the shares in the company rather than transferring the property) and reduction of property purchase costs to the onward purchasers.
In the United Kingdom, holding property through an offshore company converts the UK asset – the property – to a non UK asset – the shares in the company – and so eliminates UK inheritance tax to which the non domiciled investor would be subject if UK property was held in his personal name.
In Portugal even greater advantages result from owning a property through a company. On resale of Portuguese property capital gains tax of up to 20% together with sales costs of approximately 13% would be incurred. If a transfer was made on the death of the owner then inheritance tax at a rate of up to 50% would be payable. All these taxes may be avoided if the property is owned by a suitable company.
Professional Service Companies
Individuals receiving substantial fee income can be employed by a company incorporated in a low or no tax jurisdiction. Fees they generate can flow into the company.
Though the individual would normally be taxed on any salary taken from the company, the surplus could be held by the company and re-invested free of tax. Additionally, the salary could be structured to minimise local tax, for example, by receiving housing benefit etc. at the expense of pure salary.
A further advantage of a professional services company is that liabilities, which might arise during the course of carrying out a contract, would fall upon the company, rather than the individual.
The use of offshore shipping companies can eliminate direct or indirect taxation on shipping. Such companies may own or charter ships and accumulate the profits from these activities tax-free.
Registration of vessels at British Ports of Registry such as Gibraltar and the Isle of Man should be considered. The British flag has always been regarded as one of the world’s most dependable and brings with it international recognition and protection.
Patent, Copyright and Royalty Companies
A company can purchase or be assigned the right to use a copyright, patent, trademark or know-how by its original holders, with a power to sub-license and subsequently exploit the intellectual property right in various countries.
In most cases royalties paid out of a high tax area will attract withholding taxes at source, but using an interposing company could reduce or eliminate the tax. Traditionally Netherlands companies have been used because of their extensive range of tax treaties and the exceptionally advantageous treatment given to royalty income received in the Netherlands. Cyprus, Ireland, Madeira, Malta, Mauritius and the UK could also be useful as all these jurisdictions have a network of tax treaties.
There are a number of offshore areas that are keen to encourage the establishment of insurance companies. Like banking companies, insurance companies bring employment and investment to the country of incorporation, enhancing that country’s reputation and range of financial services. There are a number of OFCs where it is possible to incorporate insurance companies that pay no tax on their premium or investment income. St Vincent and the Seychelles are currently two of the easier places in which to set up an insurance company.
Captive Insurance Companies
Many multinationals have created captive insurance companies to insure and re-insure the risks of subsidiaries and affiliated companies. Captive insurance companies are particularly suitable for shipping and petroleum industries, and for the insurance of risks that have prohibitive premiums.
Bermuda and Guernsey have long been favoured for the incorporation of captive insurance companies. Now countries such as the Isle of Man, Gibraltar and TCI are also competing for a share of this growing market.