18 OFFSHORE BUSINESS STRUCTURES THE INTERNATIONAL BUSINESS COMPANY

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International business companies (IBCs) are common in most tax

havens, particularly in the Caribbean. They are easy to form, easy to

operate, and they are ideal for e-commerce business. A local attorney

or bank in the desired tax haven can perform the function of incorporating

the IBC for you and providing additional, valuable services to

the beneficiaries, meaning you, the owners. Many reliable onshore

professionals (in the United Kingdom, the United States, or Canada)

can also provide these incorporation services. Refer to the contacts in

the Appendix, or contact Barber Financial Advisors (BFA) in Vancouver,

BC, Canada, to establish an IBC quickly. Although BFA can provide

these services anywhere, they specialize in Nevis, Belize, and

Panama, three preferred no-tax havens.

The IBC is like a domestic corporation, providing many of the same

features for the same reasons you would incorporate in the United

States. They resemble Delaware, Wyoming, and Nevada corporations in

having more attractive features and benefits than corporations of other

states, but an IBC is even more f lexible. These benefits can vary by

country of incorporation, but generally are characterized as follows:

_ Personal liability is limited to the amount of money paid into

the corporation by its shareholders.

_ A corporation is more attractive to potential investors than

other business forms.

_ A corporation has many more tax options than do other forms

of business, such as proprietorships or partnerships.

_ Favorable pension plans, profit-sharing, and stock option

plans may be adopted for shareholders, directors, officers, and

employees.

_ In the event of the owner’s death, a corporation can continue

to operate without interruption.

_ Shares can be readily distributed to family members.

_ Ownership interest can be transferred without the corporation

having to be dissolved.

_ Management is centralized.

_ Additional shares of stock may be issued to raise more capital.

_ Shares of stock may be used for estate and family planning.

_ Earnings may be accumulated by the corporation to ease the

tax burden.

_ A corporation may own shares of stock in another corporation

and receive dividends.

_ Life insurance and health programs are available to shareholders,

directors, and officers at reduced group rates.

_ Corporate owners receive greater benefits than self-employed

individuals.

_ Shareholders may borrow money from the corporation and pay

it back at their convenience and at a preferred interest rate.

There are many other advantages and creative uses for the corporate

form of doing business.

Some of the typical advantages of an IBC are as follows, where

permissible. In addition, the benefits will also vary with the individual

tax haven. Check with your expert prior to choosing the jurisdiction

for your new corporation. There are often these advantages:

_ A minimum of one shareholder is allowed.

_ A minimum of one director is allowed and is not required to be

a shareholder. A corporation, trust, or partnership may act as

director.

_ Telephonic board and shareholder meetings are acceptable;

also attendance by proxy. Actions can be ratified after the fact.

_ Bearer shares are frequently acceptable.

_ Registered and bearer shares may be issued with or without par

value, unnumbered, and issued in any currency.

_ Names of shareholders and directors are not public record; or

if so, nominee shareholders and nominee directors can be

substituted.

_ No filing of annual statements or financial returns is required.

_ No taxes are levied on corporate income, and in most cases, no

other taxes, either, on any business derived outside the host

country.

_ Sometimes the tax haven will provide a written guarantee of no

taxes for a fixed period, such as 20 years or 50 years.

_ No ultra versa rule—the corporation may be established for

any purpose.

_ The corporation may transfer its domicile, or an existing company

from another country may transfer in as an IBC.

_ The corporation may transfer its assets to a trust.

_ It may be owned by a trust, such as an Asset Protection Trust

(APT).

_ Government regulations and fees are low.

_ The corporation is an ideal structure for offshore e-commerce

business.

_ Third-party obligations may be guaranteed.

_ Shares are not subject to seizure by a foreign government

under nationalization schemes or to satisfy claims based on tax

legislation.

_ The corporation is not subject to exchange controls, if there are

any in the country of incorporation.

_ The Memorandum of Association and Articles of Association

can be altered by the company without restriction. These documents

are the Articles and Bylaws of the company.

_ There are no limitations on nationality, citizenship, or residency

of shareholders and directors.

_ Nominee shareholders and directors are permissible.

_ Company books may be maintained in another jurisdiction.

Also, a trustee of an APT, for example, could be the sole director

of an IBC owned by the trust.

As with domestic corporations, there are many uses and advantages

to the IBC. The ability to redomicile quickly to another favorable

jurisdiction and with minimal formalities gives the IBC tremendous

mobility and f lexibility for the beneficiaries and can help you avert unexpected

problems due to changes in a jurisdiction or legal matters developing

elsewhere.

International business companies and other types of offshore

companies are commonly used for doing business worldwide: for trading

purposes, such as the import-export business, drop shipping of

merchandise, offshore sales distributor, offshore purchasing agent;

for holding companies, investment companies, mutual funds, avoidance

of probate, personal privacy reasons; for hotel operations, professional

service companies, shipping companies, as a flag of

convenience; for intellectual property companies for holding copyrights,

patents, and trademarks; for receipt of royalties; for licensing

arrangements, banking and trust companies, insurance, captive and

reinsurance companies, income saving through invoicing (aka reinvoicing),

international contracting and consulting, marketing, leasing,

administration, and management of other companies; for

personal investment purposes and e-commerce business; in short, for

almost any type of business that can be legally established anywhere.

In the case of finance-related enterprises, such as banking or insurance,

special licensing requirements within the venue will have to be

satisfied by the beneficial owners.

As with almost everything, there are usually a few pitfalls. Since

U.S. citizens and resident aliens are taxed on their worldwide income,

Congress has passed measures to control its more far-reaching subjects.

There are complex regulations for imputing income to U.S.

shareholders. These statutory provisions include the Foreign Controlled

Corporation (FCC), the Foreign Personal Holding Company

(FPHC), the Passive Foreign Investment Company (PFIC), the foreign

investment company, and other provisions addressed by thousands of

pages in the Internal Revenue Code (IRC). Avoidance of these measures

requires professional advice and assistance, and the cost and

trouble may not be worth it. However, if there is much to gain, it is

worth seeking professional advice. Unless you can legally circumvent

these tax rules, expect, as a shareholder, to pay tax on income generated

by the offshore corporation currently or eventually.

Your IBC will have a local registered office and registered agent who

are required in the event of service of legal process, to provide a legal

address within the incorporating jurisdiction, and to keep statutory

records. This function will usually be performed by a local attorney or

bank, and is typically included in the cost of incorporation. In most tax

havens, expect to pay between $2,000 and $3,000 in incorporation costs,

and more for any additional services your offshore company may require.

On an annual basis, there will be the registered office/registered

agent service in the range of a few hundred dollars, and the nominal annual

government fees to maintain the corporation, so you can typically

expect your total annual costs to be in the neighborhood of $1,000.

In addition to incorporating your company, the incorporator can

provide other services and functions on a prearranged basis. These

may include appointing nominee shareholders and directors for your

offshore company, usually under a confidential written agreement;

providing a base of communications for the company, including telephone,

mail receiving and forwarding, fax, telex, and cable services;

conducting the organization meeting, special meetings, and annual

meetings as required; consulting with you on tax and legal matters if

the incorporator is a legal or accounting professional; giving advice

on international tax planning if qualified; acting on the company’s

behalf as a director, professional, or attorney-in-fact under a power of

attorney granted by the shareholders or directors as so engaged; opening

bank and securities accounts as directed; and finally, arranging

for bookkeeping services, secretarial services, investment advice, and

other services relevant to operating your company. These services will

vary by the offshore service provider.

When you receive your initial corporate documents for your new

IBC, the local attorney or bank will likely retain copies, but you will also

receive documents depending on what you paid for and where you were

incorporating. In general, you can expect to receive the Memorandum

of Association, commonly called Articles of Incorporation in the United

States; the Articles of Association or the bylaws of the company; the original

share certificates (aka stock certificates), which will either be registered

or bearer, if available, and per your instructions, and representing

100 percent of the outstanding stock; the organization minutes, minutes

appointing the respective directors and/or nominees, and any other relevant

corporate records; a general power of attorney from the board for

the beneficial owner to transact business on behalf of the company (this

would usually have to be requested, would likely be an additional expense,

and its benefits and drawbacks would need to be weighed). A

Certificate of Good Standing may or may not be included, but can be

obtained, a full certified English translation of the Memorandum and

Association in the event of a Latin corporation or other non-Englishdominated

jurisdiction, such as a Panama corporation. A corporate

seal, and a minute book might also be thrown in.

As a result of pressure from outside, many tax havens, in their

effort to comply, have passed local anti-money-laundering legislation

and require greater transparency in financial matters. Some

have eliminated bearer shares, or they do not permit nominee shareholders

and directors. Many offshore service providers, including

offshore advisors, attorneys, or banks are now required to “know

your customer” under regulations commonly called “KYC” regulations.

They generally will want to know whom they are dealing with,

which may require the provision of identification, the source of any

funds being transferred to an account, and the type of business activity

you are involved in or your proposed business plans. This information

is maintained in strict confidence and is subject to the

secrecy or confidentiality laws of a given jurisdiction. In the offshore

world, aside from the letter of the law, confidentiality has

been the cornerstone and general practice.

For specific benefits of an individual tax haven, Part Three:

“Today’s Tax Havens” provides detailed profiles on over 40 offshore

havens. For the author’s favorite offshore havens, refer to the T-7 tax

havens discussed in Chapter 15.

OTHER TYPES OF COMPANIES

The Exempt Company

This is a company given an exemption on the basis that all business

will be conducted outside the tax haven of incorporation; in return,

the government provides a guarantee not to tax the company for a

given number of years—20, 30, 50, and so on, typically on income, inheritance,

estate, or capital gains.

The Nonresident Company

A company incorporated outside a tax haven where it has a presence is

a nonresident company. An example is Monaco, where an offshore

company can create a base for legal, accounting, banking, and communication

purposes without registering, but cannot conduct business

within Monaco, and whose shareholders are all nonresidents of

Monaco.

The Hybrid Company

This type of company can be found in the Isle of Man, Gibraltar, and

the British Virgin Islands and is commonly used as a charitable organization.

This company is limited by guarantee and is also referred to

as a quasi-trust or incorporated trust. It may consist of shareholding

and nonshareholding members. Control is stipulated in Articles and

either or both groups of members can retain control. The annual return

does not disclose the identity of any member. The hybrid company

provides greater flexibility and fewer restrictions for rich

investors than a regular trust. Owners can rest assured that their estate

will be properly dispersed according their wishes. A good contact

in the Isle of Man is Charles Cain (see the contact listing in the Isle of

Man profile in Part Three).

The Liechtenstein Anstalt (Establishment)

This entity is unique to English common law, and because it cannot

be accurately characterized as either a company or a trust, it could be

a problem for U.S. tax purposes. There are no withholding taxes on

distribution until such time as shares are issued, and until then, the

founder retains control of the Anstalt. A Liechtenstein attorney or a

trust company often acts as the founder. The shares may be transferred

at any time by the founder. All rights are transferred to a successor

through a deed of transfer, and if the successor is left

unnamed, the document is essentially in bearer form. The successor is

usually the offshore investor, the real beneficial owner. Further, the

deed of transfer can be held in a Swiss or Austrian safe-deposit box,

providing another level of security. This structure provides excellent

confidentiality.

Limited Liability Company (LLC)

This is a nice combination of advantages of the corporate form, having

limited liability and the f lexibility of a partnership where tax advantages

pass through to the owners in the same way as in a U.S.

incorporated S corporation or partnership. Management is conducted

by members/owners and a manager as opposed to directors and officers.

Members and owners can be individuals or other legal entities. A

definite advantage of the LLC over the IBC is that there is no U.S. reporting

requirement for U.S. residents under Subpart F of the Internal

Revenue Code, and it is a tax-neutral entity like the limited

partnership.

Offshore Partnerships

Offshore jurisdictions have a variety of partnerships, each with their

own advantages, but this book does not cover partnerships. Part Three

indicates by country profile if partnerships are encouraged. Refer to an

offshore professional for further information on offshore partnerships.

Other company forms are offered in the different tax havens and

other countries. The hybrid company and the Anstalt have distinctive

personalities, and others like the exempt company, the nonresident

company, or limited liability company are frequently found in tax

havens. Other types of companies used for international purposes are

mentioned Part Three. Specific interest in a certain type of company

should be addressed to a local professional for a full description and

review of the benefits and uses.

THE OFFSHORE BANK

Many people have liked the idea of owning their own offshore bank,

and have done so. And, many of these people subsequently found

themselves in trouble with the law, basically for two reasons. Either

these folks were using the bank fraudulently, or were suspected of

doing so, or they were just not qualified to run a bank. Easy qualification

requirements in the past made it simple to get a banking license.

That has since changed drastically as there has been much pressure

from law enforcement worldwide to stop this practice. Today, few jurisdictions

want to attract this type of business, but it is still possible

to secure a banking license. The imposed requirements are typically

much tighter on capitalization, qualification of management and

owners, the bank’s operations, and annual disclosures.

A Class A banking license permits the bank to conduct both local

(onshore) business and international business. A Class B banking license

limits the bank’s operations to outside the host country where

the bank was chartered, commonly known as an “offshore bank.” Another

license, sometimes called a restricted license, will limit the bank

from operating with anyone not named on the bank’s license.

There are certain potential U.S. tax benefits to owning an offshore

licensed bank. Income derived from owning your own foreign

bank is not considered subpart F income. Normally in an offshore corporation,

this income would pass through to the shareholders in the

same way as with an S corporation or a partnership. The bank would

have to be really operating as a bank to qualify on this point, but if it

does, you can defer paying income tax, can accumulate profits, have

money to invest or operate the bank with, and receive tax-free compounded

interest.

Tax havens granting bank licenses today are included in Part

Three under the individual country profiles. Local tax haven professionals

can advise you on their country’s licensing practices and attitude.

A U.S. tax advisor can give you full particulars on the tax

benefits for U.S. citizens considering such a move.

SHIP AND YACHT REGISTRATION: FLAGS

OF CONVENIENCE

Numerous tax havens have legislation addressing the registration of

ships and yachts. Usually an offshore corporation is established to

own the vessel and then it is registered in the name of the company.

The company would be managed and owned the same as any offshore

company and would have the same attractive company benefits. The

ship or yacht will then f ly the f lag of the country of which it is a subject.

That is why these countries are referred to as a f lags of convenience.

They are registered in these countries because of their

advantageous maritime laws and f lexibility for the owners. Of course,

the tax benefits are an important reason, too. When it comes time to

sell the boat, the owner merely transfers the outstanding stock in the

company to the buyer, and the vessel remains registered to the company.

Naturally, any other assets or liabilities would go with it unless

agreed otherwise, but generally speaking, there shouldn’t be any, or

they would have been kept minimal. The company would buy an insurance

policy to cover the vessel in the event of loss.

Panama is an attractive f lag of convenience and has an exchangeof-

note agreement with the United States. This arrangement permits

Panamanian-registered vessels to enter U.S. ports. The Panama corporation

that owns the vessel can also establish a representative office in

New York or Los Angeles without being subject to U.S. taxes. And,

Panama is a T-7 tax haven.

OTHER OFFSHORE VEHICLES—INVESTMENT FUNDS,

INSURANCE COMPANIES, OFFSHORE INTERNET

CASINOS, AND MORE

There are many specialty companies, some of which require special licensing.

Each tax haven tends to favor certain types of activities,

which is why you will find ships registered in Panama, asset protection

trusts in the Cook Islands, and insurance companies in Bermuda. A

few of the many types of companies and their areas of specialized activity

are investment funds, mutual funds, insurance companies, and

Internet casinos. By reviewing the individual country profiles in Part

Three, you will quickly deduce which tax havens attract the various

activities and issue licenses for specific activities where required.

Also, countries promoting e-commerce are identified, like Belize and

Nevis, two of the T-7 countries. A local tax haven professional can provide

more details on the advantages of their country for specific company

activities.