New Corporate Structure Advice

[SparksyB]

Hi guys,

I have been a long-time reader of this great forum and have really enjoyed all the value I have got from reading the posts for free.

This is my first post, but quite a lengthy one, I had a couple of questions regarding a corporate structure that I'd really appreciate some advice on or pointed in the right direction for someone or a company to pay to chat to regarding the best course of action.

Basically, I have a company in Australia which has been operating for 8 years mainly selling marketing services to the Australian market.

We are currently going through a pivot and launching a software that is targeting a global audience, so we've incorporated over in Hong Kong and going to run the software sales through that for the obvious tax benefits.

Currently, the HK company is owned in our personal names, but we are going through the process of setting up companies in the BVI which will own the HK company.

The BVI companies will be owned by our trust funds which are based in Australia (open to discussion).

We're thinking we'd pay dividends to our companies in the BVI (with a Bank account setup which is still to be determined) to reduce our tax. But still pay a small wage to ourselves in Australia and pay a small amount of tax locally from the HK Company.

In terms of the Australian company our plan is to wind that up and run everything (expenses, income) through the HK company.

Now that you know a high-level plan / process my questions are:

1. Is this a good setup? Or have you see any issues with what we are doing? If so, what's a better solution.
2. I was thinking of using a service such as Paysera for the BVI companies to accept payments from HK and be able to spend globally using their prepaid cards, is that a good option for using the money? If not, what's a better option? If a bank account offshore is better, have you got any good recommendations?

Thanks in advance 🙂

 

[Sols]

It sounds like the HK company is going to end up tax resident in Australia because that's where the operations, control, and management take place so it's all pretty much for nothing.

The trust isn't going to be of much use if you remain resident in Australia. Under CRS/AEOI or FATCA or other exchange of information mechanisms, there is an ever increasing probability that the ATO will find out about your structure. And it probably won't hold, unless you can convince a court otherwise.

A trust setup typically only works if it's structured entirely outside of Australia, with distribution in line with Australian law (which might include a timed delay) and controlled by a foreign trustees.

If you don't want to pay Australian corporate tax, you need to move operations outside of Australia. Set up a genuine office with staff in some low-tax/low-cost jurisdiction, to give yourself a chance of having the company's revenue not be considered derived from within Australia. Although in a hostile situation, the ATO could still argue that a portion of the profits derive from intellectual property work or management decisions taken within Australia.

If you don't want to pay Australian personal tax, you need to move yourself outside of Australia.

Toggle signature
This is the probably the answer to your question.

 

[SparksyB]

Thanks for the reply Sols appreciate it. So let's say if we were to get residency in HK to be considered tax residents. Can you spend anytime back in the mother country (Australia)?

Or you have to be full time out of the country.

I guess where I'm going with this is, can we get away with going to HK for 6 months a year, stay in AUS for 6 months and have an argument at least that the company is in HK we're tax residents there, we just spend some time in AUS...

Appreciate the advice 🙂

 

[Sols]

SparksyB said:
Or you have to be full time out of the country.
Click to expand...

Full time and primarily. This is nuance best discussed with a local tax adviser in Australia. IIRC, there were changes recently that increased the scope for the conditions under which Australia considers a foreign company tax resident.

SparksyB said:
I guess where I'm going with this is, can we get away with going to HK for 6 months a year, stay in AUS for 6 months and have an argument at least that the company is in HK we're tax residents there, we just spend some time in AUS...
Click to expand...

That particular split is probably a no-go. Think more along the lines of living full-time in HK and visiting Australia as a tourist once in a while to see friends and family.

Toggle signature
This is the probably the answer to your question.

 

[SparksyB]

Yeah fair enough, the companies operations are going to be O/S, and we can definitely argue our case around that being taxable over in HK based on what we are doing.

In terms of us personally I have another partner who's from a tax friendly jurisdiction, if we paid profits to them as dividends and or wages and used the money from their account would that flag anything?

What's actually flagging to the ATO is it money in our accounts (that are in our names)?

I'm thinking if we just ran the company flat by paying high wages and dividends to partners in tax friendly jurisdictions would that keep us under the radar?

 

[Sols]

SparksyB said:
In terms of us personally I have another partner who's from a tax friendly jurisdiction, if we paid profits to them as dividends and or wages and used the money from their account would that flag anything?
Click to expand...

If they are the sole shareholder, then the first step is totally fine.

You'll run into other problems when that person sends money to you, though. That becomes a taxable event. It'll probably be seen as salary payments (the boss paying their employees, albeit from a personal account), and sounds like accounting fraud. It creates a personal liability nightmare for the overseas partner if things ever turn sour.

SparksyB said:
What's actually flagging to the ATO is it money in our accounts (that are in our names)?
Click to expand...

Exchange of information is automatic (look into CRS/AEOI) or by request. AUSTRAC would also pick up on the transaction pattern. I've several times heard AUSTRAC touted as one of the best in the world at what they do.

SparksyB said:
I'm thinking if we just ran the company flat by paying high wages and dividends to partners in tax friendly jurisdictions would that keep us under the radar?
Click to expand...

As long as the bookkeeping supports it and as long as overseas partners keep their parts and don't give the rest of you regularly occurring "gifts," yes.

Otherwise, very high risk that AUSTRAC would, sooner or later, detect what you're doing and send someone over to ask some uncomfortable questions (or just pass it to ATO which issues an invoice for you to come dispute in court).

The gist of it is that arrangements like the one you're aiming for aren't doable anymore. They were shaky at best a few years ago, and are extremely fragile now and going forward.

Toggle signature
This is the probably the answer to your question.