Planning My First Offshore Venture

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This topic contains 21 replies, has 7 voices, and was last updated by  unstoppable 3 months, 3 weeks ago.

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  • #4058

    Naby
    Participant

    Hi,

    Avid Streber reader and long time lurker, here.

    UK resident and domiciled at present with a plan to leave the UK within 3 months. I expect to be bona fide non-resident by tax year 18/19. In the meantime I will be a permanent traveller with a view to gaining tax residency in a country with territorial taxation.

    I’m looking for some advice re: forming an offshore structure for a media company I’m planning.

    Priorities (in order)
    1. Limited liabilty
    2. Tax efficiency
    3.1 Privacy (Directors & shareholders names not available in public records)
    3.2 Repuation
    4. Cost effective <€5,000 year 1 (In renewals, audits, accountings etc)

    Company Profile
    No UK source income
    Numerous small transactions monthly
    Payments made to company via paypal and cheque

    From my own research a UK LLP with 2 offshore corporate partners seems like a legitimate option, but I’m unsure how well the alternatives would perform for someone in my situation.

    Thoughts?

    • This topic was modified 4 months, 2 weeks ago by  Naby.
    • This topic was modified 4 months, 2 weeks ago by  Naby.
    #4076

    Streber
    Keymaster

    The privacy requirement rules out practically all reputable options, perhaps short of partnership arrangements where the partners are offshore companies you control but you then anyway lose nearly all of the advantage of incorporating in a reputable jurisdiction. Also, a UK LLP would still be subject to public disclosure of you as a person with significant control.

    This might be a situation where nominees are a valid option. You’re not after secrecy from tax authorities and the like; I understand it as you simply wanting to keep your name away from public records.

    Since you also want PayPal, we lose typical IBC jurisdictions and there honestly aren’t many options left. Even if we go back to a more reputable jurisdiction, the nominees are a problem with PayPal. PayPal doesn’t like nominees and errs on the side of caution. It used to be quite easy to use a PSP like 2CheckOut or Adyen and use their aggregate, shared PayPal accounts but this is a practice PayPal now frowns upon.

    You’re going to have to let go of either PayPal or tight secrecy. What I find many are comfortable with is to be listed publicly as a director but appoint a secretive offshore company as the shareholder. This structure is generally understood and tolerated by banks and PSPs since they know you as a director run the company and if you are the sole owner of the offshore company, you’ve just inserted a layer for privacy.

    You might want to explore Malta, Gibraltar, Cyprus, and Isle of Man closer with a holding company in one of the more reputable secretive jurisdictions such as BVI or Anguilla.

    #4097

    Michael_Rosmer
    Participant

    Depending on where you and your team are going to be you might consider at US LLC. Also depends where money is going to come from. Receiving cheques internationally is an enormous hassle so I wouldn’t recommend it.

    #4107

    Naby
    Participant

    Thank you for the insights Streber after some more research and thought, I’ve decided that tight privacy won’t be worth the additional paypal and banking difficulties, which I imagine to be even more problematic for a new company without a trading history.

    My priority as of today would be establishing a set up that is non-resident in the eyes of HMRC, and overall ease of maitanence and banking in terms of both opening accounts and accepting payments.

    Gibraltar,IOM, and Cyprus + holding company look appealing. I’ve temporarily rulled out Malta because of appears to be a much more complex set up requirement to get sub a 5% corporate tax rate.

    • This reply was modified 4 months, 2 weeks ago by  Naby.
    #4108

    Naby
    Participant

    Thanks for the tips, the revenue will be from the US, no teams members from the states.

    #4127

    Michael_Rosmer
    Participant

    Revenue from the US doesn’t intrinsically create a problem depending on the type of revenue. You just need to verify carefully that you’ll have no US trade or business and no US source income (the IRS has a nice convenient table you can look up as a starting point).

    I’ve pretty much never seen a case where Cyprus worked out better than Gibraltar I’m sure some such situations must exist but in general I’m not a big fan of Cyprus, which in addition to audit requirements (Gibraltar has them too but with higher thresholds) adds language barriers, in my experience slightly higher costs.

    IoM I suspect will probably give you more troubles for less benefit than it’s worth but there might be exceptions to this.

    You might also investigate HK. They’ve been getting tighter lately but it’s still an appealing jurisdiction depending on your needs.

    #4205

    Naby
    Participant

    Thanks Michael, I will be taking a closer look at HK. Brexit is actually a bit of a concern for me with UK jurisdictions, so I may need to start looking further a field. Currently, that leaves HK, Cyprus, possibly Malta again. I understand that Cyprus has introduced a mandatory annual audit, so it would seem that the operational costs/paper work is comparable between these jurisdictions. From what I’ve read HK also requires audits to qualify for the foreign source income tax exemptions, but less frequently than annually?

    #4214

    bluebentley
    Participant

    Hi to all and especially Naby 🙂

    I won’t talk about my Xperience or knowledge, just my “feelings” ( which may seem quite unusual on such a financial / business oriented forum )….

    Personally, i would EXCLUDE Cyprus, just because it is a potentially problematic / unstable zone, politically speaking….anything may occur there, and could change the cards….

    Well, someone could reply me something like:”Well, you are afraid about Cyprus, and look at Lebanon, and its excellent banks so close to probably the 3% MOST unstable Zone on the planet….Even much much more unstable zone than Cyprus, right ? So what ? ”

    Nothing else than my feelings…;Europe is quite unstable globally speaking, at least from a political point of view, of course, some countries / regions are much “quieter” than others…Considering specifically the Turkey, i wouldn’t say it is really in a SAFE zone….and it is 50 / 50 ( or approx. ) in Cyprus….

    Voilà. Think what you want, i don’t pretend nothing, just saying some “things” which could be taken in consideration….

    Best regards

    BB

    #4224

    The Bull
    Participant

    Didn’t want to make new topic. I am now struggling between Gibraltar and Hong Kong for my freelance business.
    I want to keep couple of my internet projects generating advertising revenues and also my software development business under this company.
    I will pay taxes in my home country on dividends received from my offshore company, I already had consultation about this matter with local tax consultant.
    I live in European Union and Gibraltar is near me if I need to come in person there(will I need it?). But what about Brexit?
    IMHO Hong Kong looks more stable option for me. What are your opinions?
    I have read both(Gibraltar and Hong Kong) Streber articles, also article about freelancing, but articles was written when there was no Brexit, how is situation now with Gibraltar? And in terms of reputation, is Hong Kong over Gibraltar?

    • This reply was modified 4 months ago by  The Bull.
    #4227

    Michael_Rosmer
    Participant

    @Naby

    Thanks Michael, I will be taking a closer look at HK. Brexit is actually a bit of a concern for me with UK jurisdictions, so I may need to start looking further a field. Currently, that leaves HK, Cyprus, possibly Malta again. I understand that Cyprus has introduced a mandatory annual audit, so it would seem that the operational costs/paper work is comparable between these jurisdictions. From what I’ve read HK also requires audits to qualify for the foreign source income tax exemptions, but less frequently than annually?

    What about Brexit concerns you? There are definitely some cases where it might be relevant but for a lot of circumstances it shouldn’t be.

    Cyprus is more expensive than HK and you’ve got to deal with Greek among other things so unless you’re doing a resident company to take advantage of tax treaties or you’re looking for European payment processing I doubt it’s better than HK for you.

    HK requires annual audits and they have become more difficult for some people over the last few years both with respect to banking and tax exemption. This being said we’ve recently had accounts opened for clients at multiple major HK banks and haven’t had issues with tax exemption but you do definitely need to comply with audits. The real question is nature of your business and what will serve you best.

    You might consider receiving money by means other than Paypal and definitely you’ll have to get rid of cheques to operate cross border in most cases cheques take a long time to clear, which results in risk of non-payment, cashflow issues, etc. Optimally, you receive money by credit card, wire, maybe bitcoin but these aren’t necessarily always an option. With different payment methods you could potentially add UAE to your list though in general I’d look seriously at a US LLC treated as a disregarded entity.

    Malta I think you’ll find is going to be pretty expensive for your needs. First, at best you’ll end up with 5% tax, which on 100k of profit (super low amount) already reaches your 5k target without accounting for any other needs. Then you’ve got the whole set up, which requires two companies rather than simply one, which has some advantages in certain respects but also increases your compliance burden, doubles up on bank fees, etc. And Malta isn’t an inexpensive jurisdiction to begin with.

    There is another possible option, which has a number of drawbacks but could work if you’re genuinely non-resident anywhere, which is to operate as a sole operator/proprietorship (this has a downside where liability is concerned but gives you some potential flexibility. You could also potentially run payments through another entity at arm’s length to give you more freedom in how you form the company.

    #4228

    Michael_Rosmer
    Participant

    @The Bull

    Didn’t want to make new topic. I am now struggling between Gibraltar and Hong Kong for my freelance business.
    I want to keep couple of my internet projects generating advertising revenues and also my software development business under this company.
    I will pay taxes in my home country on dividends received from my offshore company, I already had consultation about this matter with local tax consultant.
    I live in European Union and Gibraltar is near me if I need to come in person there(will I need it?). But what about Brexit?
    IMHO Hong Kong looks more stable option for me. What are your opinions?
    I have read both(Gibraltar and Hong Kong) Streber articles, also article about freelancing, but articles was written when there was no Brexit, how is situation now with Gibraltar? And in terms of reputation, is Hong Kong over Gibraltar?

    Lots of questions for your freelance business such as:

    – How are you accepting payments?

    – Where are you doing the work and are there other employees? (It sounds like you’ve got bad tax advice if they are suggesting to you that you can simply form a foreign company and pay tax only on dividends, a Gibraltar company for example that you might manage from Germany or France or Belgium, etc. is no different from a local company and fully taxable locally. Further, even if it is a foreign company but you’re doing all the work yourself locally then all that income is fully taxable locally and you gain nothing by having an offshore company so you need to have actual work taking place outside your home country assuming your home country is subject to tax, which it almost certainly is)

    This being said, between HK and Gibraltar right now there’s an advantage for Europeans in using Gibraltar because of the EU treaties (parent subsidiary directive, royalties and interest directive, etc.). Brexit MIGHT remove those things, who knows but then if that happened it would likely make it the same as HK unless there’s an applicable tax treaty in place.

    HK is definitely a more legitimate financial center but will also be slightly more expensive to operate out of probably though will probably also give you better banking options.

    Those are a few thoughts to get you started.

    #4229

    tomas
    Participant

    I’d look seriously at a US LLC treated as a disregarded entity.

    What do you think of the new requirement to file form 5472? At least if you have a structure with several companies it will be hard to avoid any related party transactions. If this is the company then I guess it can be avoided, if you personally don’t borrow to or from the company or sell other services to the company.

    #4230

    The Bull
    Participant

    Thank you Michael_Rosmer for your answer!

    My clients are outside country from which I will be controlling everything. Payments will be received through bank, I guess wire transfers. No employees.

    Deloitte Tax Guide on my tax residence country and under “Residence” says,
    “A corporation is resident if it is established and registered – or required to be established and registered – in (my tax residence country)”.

    In reality, I live in two European Union countries and I am traveling a lot. I don’t need office, as everything I need is laptop and internet to do my job.

    #4232

    The Bull
    Participant

    If I am working from company in my tax residence country, total taxes will be 25%+.
    Just thought about Malta. Holding companies in my tax residence country do not pay tax on received dividends, unless they are received from offshore jurisdiction.
    Maybe I can form holding company in my tax residence country, which will hold shares for Maltese company.
    As Maltese company is taxed about 5%(after tax back), receiving dividends to my local company is 0%, paying out dividends to me, is 10%, total 15% in taxes, 10% savings, which makes 10K+ EUR every year.

    #4235

    Michael_Rosmer
    Participant

    @The Bull

    My clients are outside country from which I will be controlling everything. Payments will be received through bank, I guess wire transfers. No employees.

    If there’s no employees then the income is most likely (without knowing all the details I can’t say for sure) sourced wherever the work is done (ie. where you are located and fully taxable in that jurisdiction).

    I don’t need office, as everything I need is laptop and internet to do my job.

    That’s irrelevant, people who work from home aren’t suddenly deemed not to be working in a given jurisdiction.

    If I am working from company in my tax residence country, total taxes will be 25%+.

    Again I don’t know all the details but the way it sounds regardless of where you form the company this tax rate will apply legally. You might not get caught, people do get away with these things but technically speaking the income is almost certainly locally sourced and locally taxable.

    Just thought about Malta. Holding companies in my tax residence country do not pay tax on received dividends, unless they are received from offshore jurisdiction.
    Maybe I can form holding company in my tax residence country, which will hold shares for Maltese company.

    If the income was sourced someplace where it was zero tax then yes that might work.

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