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Copyright © 2013 - 2017. Tai Pan Management Services Ltd.,  Reg. No 1942748 Registered in Hong Kong. At 65-67 Bonham Strand East, Hong Kong

TAIPAN MANAGEMENT SERVICES LIMITED TAX PLANNING, RESIDENCY & ADVISORY SERVICES
COMPANY FORMATION SERVICES

INTRODUCTION TO TAX PLANNING

Sometimes the simplest set up is the best.  For example, you wish to sell software on-line.  In such a situation, we may well recommend a RAK company as it is outside the EU (no VAT), there is zero corporate tax and minimum reporting, but please see OECD & Tax.  However a simple solution such as this leaves a problem being ‘how to repatriate the profits’. Please see our Residency & Citizenship page for solutions to this. In order to structure the operation to raise the least possible questions and obtain the maximum possible benefit a number of factors need to be taken into consideration.



STRUCTURING & TAX PLANNING SERVICES

Our ‘raison d'être’ is to assist our clients to pay the lowest possible taxes.  As part of this we offer our structuring services.



MANAGEMENT & CONTROL IN TAX EFFICIENT STRUCTURES

What is “management & control,” and why is it important?

In essence, it means where the decisions of the company are taken, and by whom, This is of crucial importance especially where the company is “visible” in the country of residence of the owners.

In a landmark case dating back to 1906: Lord Loreburn (in De Beers Consolidated Mines Ltd v Howe 5TC198) said:

" . . . the real business is carried on where the central management and control actually abides. It remains to be considered whether the present case falls within that rule. This is a pure question of fact, to be determined, not according to the construction of this or that regulation or by-law, but upon a scrutiny of the course of business and trading”.

90 years later in 1996 in the case of Untelrab Ltd v McGregor (Inspector of Taxes) ; Unigate Guernsey Ltd v McGregor (Inspector of Taxes); it was held that:

“1) The burden of proving residence lay on the Revenue. If they failed to establish that the company's residence was within their jurisdiction then the company ought not to be taxed.

(2) Although a board might do what it was told to do, it did not follow that the control and management lay with another, so long as the board exercised its discretion when coming to its decisions and would have refused to carry out an improper or unwise transaction.”

Both cases centred on whether a business connected with a high tax jurisdiction but operated from a low tax area could or should be taxed in the high tax area (in these two cases, the UK but the same would substantially apply elsewhere).  Both cases were effectively decided on the question of “management & control” i.e. where the decisions were taken.

It is not enough to set up a company in, say, Cyprus or Singapore and claim to be liable to those jurisdictions’ lower rates of tax if the decisions concerning the company are clearly taken elsewhere.

We advise clients as to where and how management & control should be structured.


MULTIPLE STRUCTURES IN TAX PLANNING

 Why is it desirable to use multiple structures in some instances?

The two most common reasons are (a) privacy and (b) enhanced tax planning:


PRIVACY

Most common-law based countries operate a registry system whereby the names and addresses of the directors and shareholders are available for inspection - increasingly on-line as in Singapore, The UK, Hong Kong, New Zealand etc.  It is therefore quite common to register an IBC to act as shareholder.  This IBC should be registered in Seychelles, BVI etc where there is no public access to the registry.  This provides a level of privacy.

Please note that the advent of CRS is likely to change both the perception and reality of privacy, we would suggest you look at OECD & Tax page of our website.


TAX PLANNING

The use of an IBC as a shareholder in a low tax company can provide a conduit for dividends to be paid not to the ultimate owner but to the zero tax company.  Additionally, there are some zero or nearly zero tax jurisdictions which have tax treaties with high tax countries to allow repatriation of profit. A number of countries offer very attractive holding company regimes, and it can be worthwhile incorporating such a jurisdiction into a structure.

We can assist in creating such structures both for reasons of privacy and tax planning.



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RE-DOMICILIATION

Ultimately, the purpose and effect of re-domiciliation is to move a company from one jurisdiction to another e.g. a company in Belize could be re-domiciled to RAK in the UAE to take advantage of the additional privacy and, in the case of an e-commerce company give a ‘better’ impression to prospective buyers. For more  information please read our detailed re-domiciliation guide.



LOW TAX VS. ZERO TAX COMPANIES

There are any number of jurisdictions offering, “Zero tax” regimes, so why are “low tax” jurisdictions often recommended?

Zero tax jurisdictions

Zero tax jurisdictions (IBC’s) are targeted by many developed countries (OECD etc.) and, among other “measures”, oblige local companies to withhold 20% or more of amounts paid to tax haven countries. This makes IBC’s impractical for direct use in international trade.

Low tax jurisdictions

Low tax jurisdictions are by comparison, generally considered to be acceptable trading partners.  

Hong Kong for example levies corporate tax at 16.5%, which is acceptable to almost all high tax countries.  However Hong Kong operates territorial taxation, meaning that transactions which do not pass through the territory may be fully tax exempt. Singapore, with a headline rate of 17%, offers 3 years of zero tax on the first S$100,000 profit.  It also offers a general concession to all companies which halves the tax rate on the first S$300,000 of profit.  Cyprus, with a 12.5% tax rate, offers generous deductions reducing the effective rate to a much lower figure with planning.  For example, reasonable salaries and dividends are not taxed in Cyprus.

We can advise and guide clients through this maze. Please contact us.