I have always believed that the approach to optimize taxes should start with the optimization of personal taxation, but I see that a lot of people, including on this forum use offshore companies and are quite satisfied with that. What are the options today to open an offshore company and avoid the effective management rule? I suppose you are living in a non CFC countries, but effective management rule exists in every country, even if it is not enforced by tax office. What are the options today to open a 0-tax company with reliable bank account while maintaining privacy and avoiding the effective management rule? Reliable bank account is needed to keep profits in a company name.
Offshore company 2019
- Thread starter GrumpyMess
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For me it is still a full setup in Cyprus with bank account in Cyprus! No one is asking question or find it strange that my setup is in Cyprus while doing business online.
I have a few customers which don't want to do business with me unless they visit the office, I can arrange for this even though I'm not there and it works for them.
My personal last year tax submission went thru without any questions from the tax office which for years back blamed me for tax evasion because of what they called illegal loans.
I have a few customers which don't want to do business with me unless they visit the office, I can arrange for this even though I'm not there and it works for them.
My personal last year tax submission went thru without any questions from the tax office which for years back blamed me for tax evasion because of what they called illegal loans.
Are you talking about resident or non-resident company? I was thinking about non-resident company with non-Cyprus nominees, but I don't think this setup works in 2019, especially for banks.
You can setup the company with non-resident Cyprus nominees which the bank will accept actually.
What country to choose nominees from? In such setup the Cyprus tax authorities can ask if the company is not resident in Cyprus, where the actually it is resident.
You can choose the nominees to be from anywhere, it is the agent that setup the company that need to do it right, no not really.
This doesn't︀ avoid management and control rules.
The truth is management and control rules aren't checked that︁ often in most jurisdictions. Source income rules even less though both are a risk if︂ you're doing things in that way.
The question is why not invest a little in︃ doing it legally instead of taking the risk?
It is inaccurate that management︌ and control rules exist in every country, they do not.
This being said yes they︍ exist in a lot of countries and the whole point is you don't "avoid it",︎ you either have a set up that doesn't draw attention so no one looks at️ it to see what's going on or you hire someone to provide the senior management services so it's legal even if they do look. This then raises the question of where to do this and on that position here's my view.
The world off offshore is changing. Increasingly there are substance requirements around the world, CFC rules being adopted, etc. So what you should be thinking about today isn't how to avoid tax on the $100k of income but rather how and where to build a real business.
When you've got a large tax bill and you're thinking big and long term about your business︀ it makes sense that you're going to have a team and the question then becomes︁ "where will you build this so it assists not only with growing the company (business︂ purpose) but also achieving tax advantages?"
The answer to those questions will depend on your︃ business, what skillsets you need, etc. but that's the best way to do it.
The truth is management and control rules aren't checked that︁ often in most jurisdictions. Source income rules even less though both are a risk if︂ you're doing things in that way.
The question is why not invest a little in︃ doing it legally instead of taking the risk?
It is inaccurate that management︌ and control rules exist in every country, they do not.
This being said yes they︍ exist in a lot of countries and the whole point is you don't "avoid it",︎ you either have a set up that doesn't draw attention so no one looks at️ it to see what's going on or you hire someone to provide the senior management services so it's legal even if they do look. This then raises the question of where to do this and on that position here's my view.
The world off offshore is changing. Increasingly there are substance requirements around the world, CFC rules being adopted, etc. So what you should be thinking about today isn't how to avoid tax on the $100k of income but rather how and where to build a real business.
When you've got a large tax bill and you're thinking big and long term about your business︀ it makes sense that you're going to have a team and the question then becomes︁ "where will you build this so it assists not only with growing the company (business︂ purpose) but also achieving tax advantages?"
The answer to those questions will depend on your︃ business, what skillsets you need, etc. but that's the best way to do it.
If we are talking about digital business in 2019 there is no such thing as "real business", since all the assets you have are movable to other jurisdiction within one day. Initially the basic usage of offshore companies came down to keeping privacy and profits offshore, and nowadays I see this as the main use also. So my question was not "how to build the business", but what option is the best︀ to avoid the management and control rule, keep privacy and spend as little money as︁ possible. May be trusts are more suitable for this, may be smth else.
I know for sure it is possible to open a Cyprus company with bank account in Cyprus as non resident and pay 0% corporate tax! It is not easy to get that setup but it is well possible.
For the Cyprus company it's also possible to open EMI's works great.
Alternatives are Hong Kong company with Cyprus banking or HK banking and finally we have Georgia with banking in Georgia, I know zero about it but read the threads on the forum for more information.
For the Cyprus company it's also possible to open EMI's works great.
Alternatives are Hong Kong company with Cyprus banking or HK banking and finally we have Georgia with banking in Georgia, I know zero about it but read the threads on the forum for more information.
Are you talking about setup with nominees? I think Cyprus non resident company with Maltese nominees would perfectly suit me.
There is︀ a thread on this forum named "Hong Kong is a trap", so I don't consider︁ HK company a good choice in 2019. Georgia is a good location for operational company︂ and quite risky for a holding one.
There is︀ a thread on this forum named "Hong Kong is a trap", so I don't consider︁ HK company a good choice in 2019. Georgia is a good location for operational company︂ and quite risky for a holding one.
There is a business though and that's the people.
A one man show isn't really︁ a business and so long as you're a one man show from a tax standpoint︂ you'll be taxable wherever you are more or less.
The thing is though most online︃ or digital businesses use contractors, etc. and the larger the business gets the more people︄ are involved especially as the complexity of these businesses grows. For example in Affiliate Marketing︅ in 2014 maybe you could do mid 7 figures as a one man operation but︆ today with tough Google and Facebook rules and all the other complexities throughout the operation︇ it's virtually impossible to run at any major volume without a team. If you look︈ at ecomm whether Amazon, Dropshipping, or actually building a brand and having a product you've︉ got similar. Most of my clients doing 7 figures have teams of 30+ people between︊ customer service, etc but they are at least near 10 people. SaaS isn't so different︋ and nor are info products so you'll be hard pressed to show me a business︌ that produces profits at a significantly meaningful level where the tax savings are substantial enough︍ to justify the added effort of operating offshore (obviously this assumes you're based in a︎ jurisdiction where doing business is fairly easy and you're not in someplace like say Andorra️ or Indonesia where the costs and time limitations of operating locally are prohibitive and you can business efficiencies that go beyond tax efficiencies for operating outside your local jurisdiction) that doesn't involve at least a small team of say around 5 people.
The question then intrinsically becomes "where do you place these 5 people?" The traditional answer has been "they are virtual, I hired them on Upwork, or Guru, or Fiverr, or somewhere similar and I don't care where they are". That's a mindset that should change going forward.
What you should be thinking much more strategically is "hey, I'm going to make an effort to hire locally somewhere where it's competitive both from a business and from a tax︀ standpoint so I can leverage offshore structuring with sustainability".
This is predominantly the view I've︁ been taking the last couple years with both my own companies and my clients. You︂ look to a place like Georgia where banks increasingly want you to have local presence︃ but you can get office space very cheap and also low skill labor extremely cheap,︄ you can have a solid tax set up and reliable banking all combined with good︅ IT infrastructure (minus payment processing so it tends to fail for ecomm solutions but works︆ pretty well for say affiliate or consulting type businesses where most of the income comes︇ via wire). You've got places like Bulgaria where wages are quite low and access to︈ talent is reasonably plentiful. If your revenues are quite low (below the threshold) you could︉ use Romania in a similar way and so on.
This is really the ultimate solution︊ because there's no tax department on the planet that can come after you when you've︋ got a manager who is making real decisions in a country with a few employees︌ actually driving business value and argue that you shouldn't have a company formed there especially︍ since you've got a business purpose achieved by much lower cost of wages than you'd︎ have in a home country like Western Europe, US, Canada, Australia, etc.
When I read️ your question is sounds like you want to take some sort of shortcut regarding management and control and the whole point of management and control is to force you not to take that shortcut. The traditional route has been to hire some directors who have real board meetings, document those meetings, give them control over the bank accounts, etc. This will usually cost you around $20k-$30k/yr maybe more depending on what all you're doing in the business and require them to do but from a business standpoint this doesn't make much sense, a lot of people aren't willing to do it (it's scary to give︀ up bank account access to someone else and) and I'd argue has long term risks.︁ The problem here is the hourly rate you're paying for those people is quite high︂ but the value add is essentially non-existent, in fact it has a negative impact on︃ your business operations because getting approvals, etc. to meet the local financial regulatory authority standards︄ slows things down vs acting directly. It then begs the question why not have real︅ operations somewhere since you're going to pay that amount anyway? The risk side is long︆ term I don't think courts are going to uphold the idea that this constitutes real︇ substance. We can see a lot of countries already implementing things like a 2 local︈ employee minimum rule and that's likely to increase enforced in part by the banks.
The other solution was to spend most of the year traveling so you can argue you︉ aren't controlling the company from your home country. This is fairly risky under review especially︊ if there's no other directors involved in high level decision making plus once again it︋ interferes with your ability to build a business.
My basic outlook is the reason for︌ essentially all international structuring is to keep more of your money in your pocket. You're︍ doing this by saving on tax, reducing your operational costs, and decreasing your liability from︎ lawsuits, etc. (Privacy for privacy's sake is mostly an ego fantasy that probably risks working️ against you in the long run so the real questions are "privacy from whom?" and "privacy for what purpose?" I think privacy is a nice addition to strengthen some other components of a structure but usually a risky proposition on its own. If anything was learned from the US breaking the Swiss banks I think it's the short sighted nature of people who put their money there thinking they could hide it behind privacy and were lazy about not having compliant structures in place then when it cracked they lost 20-50% of their assets on spec in the deals the IRS did with the banks,︀ this is increasingly going to be the case as they get better and better at︁ policing and their tool improve, so it's more like have something robust in place that︂ can withstand scrutiny if everything is disclosed then add privacy as a layer to make︃ it less likely to get scrutiny to begin with and you're off to the races).︄
But if what you have to do in order to build and maintain that structure︅ costs more than you gain then you might as well abandon it and just go︆ with a much simpler onshore solution. Travel is a good example of this mismatch because︇ yeah you can potentially avoid some tax etc. but it's so hard to be productive︈ and get things done at the same rate while traveling as staying in one place︉ that it's really questionable whether that's a viable alternative.
I think a lot of people︊ pursue offshore for vanity reasons like the person who wants to be able to say︋ "I've got a Cayman bank account" when really fees are higher, friction is higher, and︌ risks are higher, that's not the right approach. The sensible approach is to do it︍ because you're going to save yourself money.
As for trusts they don't solve management and︎ control issues, what they potentially do if structured properly and most people have no idea️ how to structure them properly are:
1. Address CFC rules
2. Address exit tax rules
3. Address inheritance tax rules
4. Provide a layer of asset protection from your personal liability to the assets (they aren't as effective against operational liabilities those are best handled via corporate veils)
5. Provide a layer of privacy that makes it less likely for someone to look at management and control issues or source income issues
Sometimes this is the magic solution for some people but again if you want to operate a trust properly it's going to be expensive same as hiring local directors, which is fine if︀ you can avoid $100k of tax by paying $20k/yr and a one time set up︁ fee of say $30k you're good to go that's an investment I'd make any day︂ but most of what people do is very sloppy and doesn't actually stand up nor︃ does it shield you from reporting.
So summary how do you get around management and︄ control:
1. Find a country where the tax treaty overrides it
2. Hire foreign directors︅ (these have to be real directors nominees don't count, people who aren't actively making decisions︆ don't count, you might need more depending on what country you're from)
3. Travel so︇ you're not managing from that country (alternatively shift your residency)
4. Build some real business︈ operations in the country where you get efficiencies as well as protect yourself from the︉ tax
5. Try to hide what you're doing and operate illegally (in which case be︊ aware it could be a ticking time bomb the longer you go the greater the︋ risks become so is it worth it to save $20k/yr? If it isn't then do︌ you have enough scale that you should really be concerned about this at all and︍ maybe should just focus on growing the company to the point where it would pay︎ off?)
A one man show isn't really︁ a business and so long as you're a one man show from a tax standpoint︂ you'll be taxable wherever you are more or less.
The thing is though most online︃ or digital businesses use contractors, etc. and the larger the business gets the more people︄ are involved especially as the complexity of these businesses grows. For example in Affiliate Marketing︅ in 2014 maybe you could do mid 7 figures as a one man operation but︆ today with tough Google and Facebook rules and all the other complexities throughout the operation︇ it's virtually impossible to run at any major volume without a team. If you look︈ at ecomm whether Amazon, Dropshipping, or actually building a brand and having a product you've︉ got similar. Most of my clients doing 7 figures have teams of 30+ people between︊ customer service, etc but they are at least near 10 people. SaaS isn't so different︋ and nor are info products so you'll be hard pressed to show me a business︌ that produces profits at a significantly meaningful level where the tax savings are substantial enough︍ to justify the added effort of operating offshore (obviously this assumes you're based in a︎ jurisdiction where doing business is fairly easy and you're not in someplace like say Andorra️ or Indonesia where the costs and time limitations of operating locally are prohibitive and you can business efficiencies that go beyond tax efficiencies for operating outside your local jurisdiction) that doesn't involve at least a small team of say around 5 people.
The question then intrinsically becomes "where do you place these 5 people?" The traditional answer has been "they are virtual, I hired them on Upwork, or Guru, or Fiverr, or somewhere similar and I don't care where they are". That's a mindset that should change going forward.
What you should be thinking much more strategically is "hey, I'm going to make an effort to hire locally somewhere where it's competitive both from a business and from a tax︀ standpoint so I can leverage offshore structuring with sustainability".
This is predominantly the view I've︁ been taking the last couple years with both my own companies and my clients. You︂ look to a place like Georgia where banks increasingly want you to have local presence︃ but you can get office space very cheap and also low skill labor extremely cheap,︄ you can have a solid tax set up and reliable banking all combined with good︅ IT infrastructure (minus payment processing so it tends to fail for ecomm solutions but works︆ pretty well for say affiliate or consulting type businesses where most of the income comes︇ via wire). You've got places like Bulgaria where wages are quite low and access to︈ talent is reasonably plentiful. If your revenues are quite low (below the threshold) you could︉ use Romania in a similar way and so on.
This is really the ultimate solution︊ because there's no tax department on the planet that can come after you when you've︋ got a manager who is making real decisions in a country with a few employees︌ actually driving business value and argue that you shouldn't have a company formed there especially︍ since you've got a business purpose achieved by much lower cost of wages than you'd︎ have in a home country like Western Europe, US, Canada, Australia, etc.
When I read️ your question is sounds like you want to take some sort of shortcut regarding management and control and the whole point of management and control is to force you not to take that shortcut. The traditional route has been to hire some directors who have real board meetings, document those meetings, give them control over the bank accounts, etc. This will usually cost you around $20k-$30k/yr maybe more depending on what all you're doing in the business and require them to do but from a business standpoint this doesn't make much sense, a lot of people aren't willing to do it (it's scary to give︀ up bank account access to someone else and) and I'd argue has long term risks.︁ The problem here is the hourly rate you're paying for those people is quite high︂ but the value add is essentially non-existent, in fact it has a negative impact on︃ your business operations because getting approvals, etc. to meet the local financial regulatory authority standards︄ slows things down vs acting directly. It then begs the question why not have real︅ operations somewhere since you're going to pay that amount anyway? The risk side is long︆ term I don't think courts are going to uphold the idea that this constitutes real︇ substance. We can see a lot of countries already implementing things like a 2 local︈ employee minimum rule and that's likely to increase enforced in part by the banks.
The other solution was to spend most of the year traveling so you can argue you︉ aren't controlling the company from your home country. This is fairly risky under review especially︊ if there's no other directors involved in high level decision making plus once again it︋ interferes with your ability to build a business.
My basic outlook is the reason for︌ essentially all international structuring is to keep more of your money in your pocket. You're︍ doing this by saving on tax, reducing your operational costs, and decreasing your liability from︎ lawsuits, etc. (Privacy for privacy's sake is mostly an ego fantasy that probably risks working️ against you in the long run so the real questions are "privacy from whom?" and "privacy for what purpose?" I think privacy is a nice addition to strengthen some other components of a structure but usually a risky proposition on its own. If anything was learned from the US breaking the Swiss banks I think it's the short sighted nature of people who put their money there thinking they could hide it behind privacy and were lazy about not having compliant structures in place then when it cracked they lost 20-50% of their assets on spec in the deals the IRS did with the banks,︀ this is increasingly going to be the case as they get better and better at︁ policing and their tool improve, so it's more like have something robust in place that︂ can withstand scrutiny if everything is disclosed then add privacy as a layer to make︃ it less likely to get scrutiny to begin with and you're off to the races).︄
But if what you have to do in order to build and maintain that structure︅ costs more than you gain then you might as well abandon it and just go︆ with a much simpler onshore solution. Travel is a good example of this mismatch because︇ yeah you can potentially avoid some tax etc. but it's so hard to be productive︈ and get things done at the same rate while traveling as staying in one place︉ that it's really questionable whether that's a viable alternative.
I think a lot of people︊ pursue offshore for vanity reasons like the person who wants to be able to say︋ "I've got a Cayman bank account" when really fees are higher, friction is higher, and︌ risks are higher, that's not the right approach. The sensible approach is to do it︍ because you're going to save yourself money.
As for trusts they don't solve management and︎ control issues, what they potentially do if structured properly and most people have no idea️ how to structure them properly are:
1. Address CFC rules
2. Address exit tax rules
3. Address inheritance tax rules
4. Provide a layer of asset protection from your personal liability to the assets (they aren't as effective against operational liabilities those are best handled via corporate veils)
5. Provide a layer of privacy that makes it less likely for someone to look at management and control issues or source income issues
Sometimes this is the magic solution for some people but again if you want to operate a trust properly it's going to be expensive same as hiring local directors, which is fine if︀ you can avoid $100k of tax by paying $20k/yr and a one time set up︁ fee of say $30k you're good to go that's an investment I'd make any day︂ but most of what people do is very sloppy and doesn't actually stand up nor︃ does it shield you from reporting.
So summary how do you get around management and︄ control:
1. Find a country where the tax treaty overrides it
2. Hire foreign directors︅ (these have to be real directors nominees don't count, people who aren't actively making decisions︆ don't count, you might need more depending on what country you're from)
3. Travel so︇ you're not managing from that country (alternatively shift your residency)
4. Build some real business︈ operations in the country where you get efficiencies as well as protect yourself from the︉ tax
5. Try to hide what you're doing and operate illegally (in which case be︊ aware it could be a ticking time bomb the longer you go the greater the︋ risks become so is it worth it to save $20k/yr? If it isn't then do︌ you have enough scale that you should really be concerned about this at all and︍ maybe should just focus on growing the company to the point where it would pay︎ off?)
Don't confuse zero Cyprus tax or zero HK tax for zero tax in your home︀ country. That's always been and continues to be the big problem. If you live in︁ most developed countries avoiding their tax isn't achieved just by forming a company in a︂ low or zero tax country or everyone would do it and you'd see no local︃ company formations. If you want to be compliant (and given the penalities for tax evasion︄ and growing risks you probably should be) you need to have real substance outside of︅ your home country not just a company and bank account.
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