Registration and legal support of non-resident companies

International tax planning and registration of non-resident (offshore) companies.

Nowadays business becomes more and more international. Transnational corporations exists for a long time, but now – at the time of globalization- there are many small and medium business enterprises at foreign trade market.

However different countries of the world sometimes have totally different tax systems. It concerns not only tax rates, but the principles of taxation may differ a lot.

It’s obvious that every businessman would like to reduce manufacture expenses for goods production. Thus, manufacture of such goods as electronics, for instance, has been moved from developed countries to South-Eastern Asia, where labor cost is much cheaper. And to a certain extent advantages of national tax system of some countries became as useful resource for an entrepreneur as cheap labor cost or a mineral deposit, a recourse that attracts businesses from all parts of the world. It mostly concerns international trade and finances.

One of the most important facts that are taken into account in development of flow charts in international business enterprises is appeal of tax system of those countries where the business will take place. Moreover, in some cases it is tax reasons that determine localization of a company divisions and representative offices. It happens so that a corporation totally changes its structure due to tax reasons. This is strictly speaking international tax planning, or legitimate activity on tax minimization in international business. Of course, in order to build an optimal -from the tax point of view- international business structure it’s necessary to learn in detail the corporate and tax legislation of various jurisdictions, and also be familiar with international tax agreements.

Tax planning instruments.

The main elements in building corporate structures are companies registered in different countries. Companies acting under tax-free or low-tax treatment can be used to reduce taxes. It could be as offshore companies, or companies from ‘regular’ countries that have certain tax privileges.

The offshore companies are the companies that act under tax-free or low-tax treatment, registered in offshore territories. Offshore territories include countries and territories that purposely attract international businesses by providing them tax privileges or in some cases- absolute exemption from tax. There are several dozens of such countries and territories in the world, each of them has certain peculiarities, so for different goals in business are used companies from different jurisdictions.

Schemes of tax planning

The easiest way to use the offshore company in trade operations is to make import/export bargains through this company. By regulating contract price the owner of the company controls amount of taxes and duties. This method is called transfer pricing.

The offshore companies are frequently used to hold copyright, trademarks, patents and other intellectual property. In this case payments under a licensing agreement (royalties) coming from the country of main business activity of the transnational company are accumulated tax-free in the offshore territory.

The offshore company may be used as a financial party by issuing loans (usually to the companies connected with it) and receiving them back with a certain interest. The interest is accumulated tax free in this case too.

As offshore territories usually don’t have agreements on exclusion of double taxation, then very often not offshore companies are used in the schemes with royalties payment, countries that have this kind of agreement (for example, Netherlands)

Certainly there could be variants when various compound schemes are used with participation of both offshore and not offshore companies depending on the character of a business.

Tax planning or tax evasion?

Usually many people think that notions of ‘offshore company’ and ‘money laundering’ are almost synonyms. Actually, the offshore company (as any regular one) is only an instrument which can be used both legally and illegally, like a hammer, for instance.

Businessmen should clearly discriminate the difference between tax planning and tax evasion. Tax planning is an activity on tax minimization which is not restricted by the law. Tax evasion is violation of the law, in some serious cases- a criminal offense. Worst of all is when tax evasion is connected with other violations of the law, especially ‘laundering’ (it’s another legally defined crime, which differs from tax violations). However, it has nothing in common with real tax planning.

Nevertheless, under ambiguity of the law provisions, the line between tax planning and tax evasion is very vague sometimes. To keep with this line within the bounds of the law- the most important task of the international business planning.

Notion of ‘offshore business’ includes first of all -creation and registration of a non-resident company in the territories with preferential tax treatment.

An offshore company- it is a term characterizing a special organizational and legal status of a company which provides maximum tax reduction (in most cases reduces to 0). This status usually requires execution of business operations outside parent jurisdiction, where this company is officially registered. In other words, in most cases the offshore company cannot be a resident of its official jurisdiction. Legally, the offshore company is no different than any other companies or enterprises. It is a plenipotentiary economic player and it may conduct business activity equally with other legal persons.

Main peculiarities of the offshore company are connected with its non-resident status. It means that the management and governing center of the offshore company is situated abroad, and for business activity execution there are few formalities that are required- owners, directors, charter, bank account, set of registration papers.

Legislation of the offshore jurisdiction usually prescribes to have a registered office in the offshore territory, and a representative or an agent of the company.

A registered office is not an operating office of the offshore company. As a rule, it is just an address where authorities or other persons may contact a representative (an agent) of the offshore company. The offshore company may have resident representative offices and affiliated branches abroad. However the offshore company usually functions without such office.

There is a wide range of financial operations in offshore business that cover the requirements of legal and physical persons. One of them is using debit and credit cards opened for the name of the offshore company for corporate payments, besides that it is possible to access credit resources of foreign banks and to the international deposit market, and obtain services on capital and investment management. The offshore company owner receives gets possibility of choice between many financial mechanisms and schemes of work. By placing your finances in first-class foreign banks through the offshore company you may defend yourself from economic crises and political risks.

Financial service, investments, currency dealing, owning and disposal of foreign property, transfer operations and securing in-house assets reallocation – this is only a part of all operations that can be made through offshore companies.

Managing the offshore company, signing contract from its name, disposal of bank accounts and other assets provide flexible mechanism of tax planning and open for its owner a wide circle of business opportunities. Using the offshore company is confidential, secured by legal norms and the jurisdiction legislation of the territory where the offshore company is registered. And you don’t need complicated accounting and financial reporting. Even if the volume of operations of the offshore company is quit big, you will need just simple computer program.

Consult the experts

In order to make tax schemes both effective and legal, they should be worked out by experts in this sphere. Ukrpo Ltd offers services on registration and further legal support of non-resident companies for all participants of foreign economic activity.

We have 12-year experience in this direction and long-term partner relationship with the Registration Agents in various jurisdictions all over the world.