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Last updated: 16 Sept 2018

CONSULTANCY SERVICES

Management & control

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”.


And 90 years later in in 1996: - Untelrab Ltd v McGregor (Inspector of Taxes) ; Unigate Guernsey Ltd v McGregor (Inspector of Taxes) ; Unigate Overseas 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).  Both were effectively decided on the question of “management & control”.   


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








Using multiple structures

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 owners (shareholders) are available for a small inspection fee (increasingly on-line as in Singapore, The UK, Hong Kong, New Zealand etc).  It is therefore quite common to register an IBC in one of the pure tax havens (eg Seychelles, BVI etc) and this IBC becomes the shareholder of the “low tax” company ensuring privacy.  It also can provide a conduit to receive dividends etc.  


Tax Planning - A number of countries offer very attractive holding company regimes, and it is often worth while incorporating such a jurisdiction into a structure.


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

As a service to our clients we provide below some information on the most popular jurisdictions offered by our associate company TaiPan-International.com which carries out formations and company services worldwide.

More about Hong Kong

Low Tax - 12.5% corporate taxation of profits, no tax on dividend payments.  


Non-resident companies are also possible (must be managed from outside Cyprus) -  Zero Tax.


Full EU member and therefore suitable for open trading
with other EU states.  VAT registration a requirement for trading companies.  Strongly recommended to have a majority of local directors to demonstrate local management & control.


Full accounts must be prepared, audited & filed together with VAT records.  Thus, relatively expensive to maintain.

The Company registry is public although nominees are generally used to provide privacy. Corporate Directors are not permitted.

Cyprus

Low Tax - Non-HK source income is not taxed, and locally generated income is subject to tax at 16.5%. There is no tax on dividend payments.

Respectable jurisdiction without the taint of being a "tax haven".


Full accounts must be prepared, audited & filed. Thus, relatively expensive to maintain.  The company registry is public although nominees are generally used to provide privacy. Corporate directors are not permitted from 1/1/2014.


 

IBCs in the Caribbean, Central America and Indian Ocean

Belize

B.V.I.

More about Cyprus

Dominica

Europe Middle East


Often described as “tax havens”, a number of countries (mostly EU) impose withholding taxes on payments due to companies in these jurisdictions. Great care must be taken when using these companies for international trading.


These jurisdictions are broadly similar & therefore the choice of jurisdiction is one of perception & price. Technically, Belize is not in the Caribbean but it shares similar IBC legislation (based on the B.V.I.).  

Mauritius

More about RAK

Ras Al Khaimah International Company, or RAK International Company (previously RAK Offshore)  is ideal for businesses wishing to be registered in the UAE but not intending to conduct any business within the Emirates.


UAE is FREE of ALL income & corporate taxes

Complete privacy - NO public record

NO accounts filing requirements

Reputable jurisdiction

Corporate Directors and shareholders are permitted.

RAK (UAE), near Dubai

Low Tax - For the 1st 3 years of existence, the first S$100,000 (c. $80,000) is not taxed. Generally, taxation is 8.5% (up to S$300k, and 17% thereafter. Non-Singapore source income may not be subject to taxation. There is no tax on dividend payments. Respectable jurisdiction without the taint of being a "tax haven". A local director & company secretary are required and this helps demonstrate local management & control.


A local director and company secretary are legal requirements - corporate directors are not permitted. Full accounts must be prepared & filed. Thus, relatively expensive to maintain. However, no audit required for SME’s. The Company registry is public although nominees are generally used to provide privacy.


Hong Kong More about Singapore Singapore South East Asia

Seychelles

St. Vincent

More about IBCs

Low tax vs. zero tax.

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


Zero tax jurisdictions are targeted by many developed countries and, among other “measures”, find revenues due to companies of those jurisdictions subject to withholding taxes.  This makes them impractical for direct use in international trade.


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


Hong Kong for example levies corporate tax at 16.5% but operates territorial taxation meaning that transactions which do not pass through the territory may be fully tax exempt.  Singapore offers 3 years of zero tax on the first $80,000 profit and a general lower tax rate of 8.5% (up to $240,000 of profit).  Cyprus, currently with a 10% tax rate (but soon to rise to 12.5%) offers generous deductions reducing the effective rate to a much lower figure with planning.


We can advise and guide clients through this maze