Clients wishing to trade internationally and looking for a ‘respectable’ jurisdiction with relatively low tax rates, we recommend Hong Kong, Singapore or the U.K. which can be used throughout the world.
It is becoming progressively more difficult to use Classic IBCs for ‘open trading’ e.g. selling goods online, obtaining merchant accounts etc. We recommend using IBCs (International Business Companies) for asset holding, including intellectual property or offshore consultancy services.
Almost anything, but with reservations. We would not recommend high profile trading with an IBC directly into the EU, USA, Australasia, and other high tax areas - however RAK can be an exceptions to this as it generally not considered to be a tax haven.
The reasons are: 1. Such trading would attract unwelcome attention from the local Revenue Authorities. 2. In several countries, particularly the core EU, (France, Germany, Spain, Italy etc.) this would provoke withholding taxes e.g. your customer, if a medium or large company, might be forced to pay part of your invoice directly to the local tax office (on the specious grounds that somehow the local revenue is being deprived).
We therefore recommend IBCs to be used for e-commerce, discreet trading e.g. consultancy fees etc., for asset holding, and the holding of Intellectual property (I.P.). IBCs can also be used to own the shares in low tax companies e.g. a Cyprus company may be formed with an IBC acting as shareholder. In such a case the dividends earned by the Cyprus company would be paid to the IBC’s bank account rather then to the beneficial owner.
Clients intending to trade within the EEA should consider a company registered in Europe. VAT registration is often a requirement e.g. for digital downloads, and is possible in any of the following jurisdictions: Cyprus, Ireland and UK.
No tax sounds good, but it does not always work, especially where the company is actively trading in high tax areas. Zero tax companies (often IBC's) are better utilised as a discreet asset holding vehicles or for private consultancy services. By contrast, low tax jurisdictions can often be zero tax with a little bit of extra work, whilst at the same time providing respectability needed for the business.
Zero tax jurisdictions
Commonly referred to as IBC's ( International Business Companies) and best used for asset holding and offshore consultancy. This category includes Seychelles as well as RAK in the UAE. They are all broadly similar & therefore, the choice of jurisdiction is one of perception & price. Wyoming LLC, USA is slightly different in that it is liable to tax in theory, however, if the company does not have US members and does not trade in the USA it will be effectively tax free with minimal bureaucracy.
Common features are:
• zero taxation and no audit;
• no accounts filing;
• minimal information on the public register;
• corporate directors are allowed although this can make bank account opening problematic.
IBCs are generally NOT able to take advantage of DTA* (Tax Treaties). Some EU countries apply withholding taxes against sometimes arbitrary list zero (and even low tax jurisdictions).
* DTA Tax treaties
There are many advantages to utilising and benefiting from double tax treaties (DTA's). This is a complex area and needs careful consideration to avoid additional work and costs.
Low tax jurisdictions
When trading internationally, particularly into Europe, it is often better to use a "low tax" rather than a zero-tax jurisdiction. Depending on the clients' precise requirements Singapore, Hong Kong, Cyprus, Ireland and even the UK are good choices.
For EU trading, and thus requiring VAT registration, Cyprus and Ireland are two jurisdictions to consider - the UK has a much higher VAT registration (£85,000 in any one year) threshold and is also more difficult to register for a VAT number.
The primary consideration is VAT, and possible withholding taxes imposed by your EU based trading partners. Where the majority of trading takes place in the EU, it is always better to set up a company in the EU. Generally, we can arrange VAT registration for clients. From our experience, Cyprus is the easiest jurisdiction in which to register for VAT.
Who will run the company?
The concept of "management & control" is the basis on which many tax authorities determine whether the company is a tax resident in their jurisdiction.