(From 'Q' Newsletter, Q6.4)
Offshore International Business Corporations (IBC's) seem to be all the rage these days. Why are they so popular?
As they do not need to comply with bureaucratic onshore legislation, they provide an excellent international legal entity that offers many advantages without being constrained by onshore bureaucracy.
Some popular uses of IBC's are as follows:
1. Portfolio Management
Shares of onshore companies can be directly owned by IBC's. IBC's do not usually pay local corporate taxes and do not normally file accounts. In addition, anonymity of the IBC's owners can be maintained using nominee shareholders and management can be provided by offshore directors. In certain circumstances IBC's may offer significant opportunities to legitimately minimize tax - do seek professional advice.
2. Inter-Company Loans & Leasing
An IBC can own fixed assets, e.g. plant and equipment, which can be leased to an onshore company. The leasing profits accumulate offshore whilst the onshore company can claim the leasing costs as a legitimate expense. Loans and interest charges can similarly be levied by an IBC on an onshore company. Be careful of tax deducted at source by the onshore company when paying certain IBC's.
3. Trading Companies
Trading through an IBC can eliminate taxes, VAT, links with the EU, reporting requirements, licensing, etc., depending on your choice of jurisdiction.
4. Captive Insurance Companies
Many multinational companies establish captive insurance companies to insure and re-insure the risks of group companies. The aim is to provide insurance cover for risks, which are either only insurable at very high premiums, or not insurable at all onshore! These schemes are totally legtimate but only suitable for the more sophisticated IBC user.
5. Intellectual Property
Are you an inventor or copyright holder? Such holders of intellectual assets are increasing at a tremendous rate. By holding such rights in an IBC using an appropriate structure, tax can be minimised, withholding taxes worldwide reduced on payments and secrecy maintained.
6. Personnel Companies
If you work offshore, you can provide your professional services worldwide via an IBC. Thus profits are earned by the IBC rather than you. There are many advantages - easy to use, virtually no accounting and minimal taxes on profits. This is because you are now a humble employee of the IBC!
IBC SECRECY
Offshore corporations can either issue bearer shares or registered shares. It is important to understand the distinction between the two. Bearer shares are like cash - whoever holds them owns them. Bearer shares are generally turned in to the company secretary prior to the annual meeting and exchanged for voting certificates. After the meeting the certificates are re-exchanged for the shares. Often, to maintain confidentiality for the beneficial owner, a lawyer can be used to exercise votes on behalf of the bearer shareholders.
Registered shares disclose the legal owner of the shares. Nominee corporate shareholders can be used to hide the identity of the beneficial (real) shareholders. Nominee shareholders vote the shares according to the instructions of the beneficial owner, with whom they have a contract.
IBC TAXATION
There is a minefield of anti-avoidance legislation enacted by onshore countries which attempts to block any tax advantages of IBC's. However, if professional advice is sought, tax can be reduced in many, but not all, cases.
The operation of an IBC must normally adhere to the following restrictions if it wishes to be treated advantageously for tax purposes:
- IBCs cannot conduct business with people residing in the jurisdiction where it is established;
- IBCs cannot own interest in real property situated in that jurisdiction or lease property for use other than as an office;
- IBCs cannot carry on banking, trust, insurance or reinsurance business without a special license;
- IBCs cannot provide a registered office for companies.
- IBC shareholders are generally exempt from the following provisions in most offshore jurisdictions:
- local income taxes,
- capital gains taxes,
- corporate taxes,
- inheritance, succession and gift taxes,
- stamp duties with reference to transfers,
- and very importantly, foreign exchange control regulations.
The following information gives a general overview of International Business Corporations (IBCs) in the key areas of capital and members, directors and officers, meetings, and books and registers.
CAPITAL AND MEMBERS
What type of shares can be issued by an IBC?
An IBC can issue: registered, bearer, voting and non-voting, un-numbered, common, preferred, or redeemable shares, including non par value shares, subject to any limitations indicated in the Memorandum or in the Articles of Association of the corporation.
What resolutions or amendments need to be filed in the Registry office?
A copy of all resolutions amending the Memorandum and/or Articles of Association shall be filed in the Registry, and the Registrar shall retain and file said copies. This includes changes to the types of shares that may be issued or increases in the authorised capital, etc.
Is confidentiality of the Shareholders available?
Once again, this depends on the jurisdiction. For most tax haven countries, information regarding shareholders is confidential. The shareholder register need not be registered with the Registrar.
Therefore, the identity of a shareholder is not a matter of public domain, except when the Shares Register Book is filed at the Registry, or by the request of the Court. A copy of the Share Register Book shall be kept at the Registered Office of the company, indicating the name and address of the shareholders. (In the event of issued bearer of shares the identification number of the share certificate, number of each class or series of issued shares and the issuance date).
DIRECTORS AND OFFICERS
What is the minimum number of Directors and Officers an IBC can have?
In many jurisdictions, the Board of Directors can consist of one or more natural or legal persons. Often, there is no minimum number of officers, unless otherwise indicated in the Memorandum or Articles of Association. However, a Company should appoint both a Secretary and a Director. A single director should not occupy both offices.
How are the Directors and Officers appointed?
The subscribers of the Memorandum and Articles of Association appoint the first directors of the company. After that, the shareholders or the existing directors appoint directors for such term as determined by the shareholders or the directors. If not, unfilled positions can be filled by a resolution of the shareholders or of the remaining directors. The directors generally elect the officers.
What qualifying factors should the Directors and Officers of an IBC corporation submit?
There are no specific qualifications needed to be a director or officer, except for the age of majority. In many jurisdictions, corporate directors are allowed and there are no restrictions on shareholders being directors of the corporation.
What information can be revealed about the Directors and Officers?
None. The information regarding the directors and officers shall not be revealed, since this information is confidential and is not a matter of public knowledge. It does not need to be filed in the Public Registry. However, it is required that the names and general information of Officers and Directors Book be kept in the Registered Office of the Company.
MEETINGS
Is it necessary to hold annual meetings of Shareholders and/or Director?
In many jurisdictions, it is not required to have an annual meeting of the Shareholders or Directors.
Where can these meetings be held?
Subject to any limitations in the Memorandum and Articles of Association, the meetings of the shareholders and of the directors can be held in such moments, in such manner and places as the directors consider necessary.
Can a proxy (substitute) represent a member/shareholder?
A proxy can represent an individual shareholder in a meeting of the shareholders. This person is authorised to speak and vote on behalf of the member.
Can resolutions of the Directors and/or Shareholders be adopted by consent?
Subject to any limitations in the Memorandum or Articles of Association, a director can consent in writing, or by telex, facsimile, cable or any other written electronic vehicle, to any resolution that could otherwise be adopted by the directors or a committee of the directors in a meeting, without the need for notice. The same applies for the shareholders' resolutions or resolutions of a committee of directors.
BOOKS AND REGISTERS
Is it necessary to prepare or file accounts?
It is not normally necessary to prepare or file accounts or financial statements. However, an IBC must keep such accounts and registers, when the Directors consider appropriate, in order to reflect the financial status of the Company.
What books or registers are requisite for the Company?
An IBC must keep at all times, in the Registered Office of the company:
Does the company require a corporate seal and where is it kept?
Not all jurisdictions require an IBC to have a corporate seal. But such a seal can generally be kept wherever the directors find it convenient, with a stamp of the corporate seal always kept in the Registered Offices of the Company.
Must a Company file annual tax returns?
Generally it is not necessary to file annual tax returns. The only requisite is to fill out and pay the annual license fee that expires each year.
What information about the Company is available to the public?
The Registrar keeps all registered documents. However, only the Memorandum and Articles of Association of the Company and amendments are available for public scrutiny.
In summary, an offshore corporation should be inexpensive and straightforward to create. It should be incorporated in an offshore jurisdiction which exempts or minimises tax liability on the corporation's worldwide income. The corporation should be recognised both locally and internationally, allow for bearer shares and confidentiality of shareholders and allow for corporate directors and officers who can reside anywhere.
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