• Tax Optimization & Planning: Most Offshore Companies are not subject to any taxes in the country they have been incorporated. Most of the time they will have to pay annually a franchise tax and the registered agent & office fees.
• Privacy & Confidentiality: Those two elements are essential for many reasons like security or asset protection. Running a business or buying a house or a yacht using a company and not your personal name can keep the identity of the owner anonymous since he will not appear on any official document or register.
• Cost: Incorporation fees as well as annual renewal fees to maintain an offshore company can be very low.
• Cost of operation: Maintaining and running a business through an offshore company can save a lot of money since there are no accounting requirements, Registered office are not expensive (a few hundred dollars per annum), you can hire people worldwide.
• Legal & Asset protection: Privacy rules grants Offshore company with a better capacity to protect its owners and itself from lawsuits and other legal risks. Laws applicable to the offshore company are those the one of its place of incorporation, and not the country where it carries on business.

Setting up and running your business through an Offshore company is legal let you do business in any place in the world. Costs to register an offshore company might be a bit high but the benefits you get far outweigh the cost of incorporation.

Offshore corporations are not subject to sales tax or income tax. The absence of taxation keep you free from accounting requirements as well as from any auditing from any local tax office. This means you save the costs of a CPA whilst at the same time gain the highest level of privacy protection. Your company may be dormant or it may generate millions in profit you will still not be required to forward information.

IBC (International Business Company)

The International Business Company is a product of special legislation in many jurisdictions such as Seychelles, Belize, Panama, Bahamas and the British Virgin Islands (BVI), to name a few. IBC entities are characterized by the following:

* no taxation on foreign earned income
* limited liability of its members
* exemption from local taxes and stamp duty
* privacy and confidentiality
* simple company formation
* limited or no ongoing filing requirements
* inability to trade within the country in which it is domiciled

Whether or not actually called an IBC, this type of company is the prevailing entity used by those setting up an offshore company.

The IBC is popular for holding offshore investments, international real estate and as a personal services company for expatriates working abroad. Most of the time these companies do not qualify as a tax resident for the purpose of accessing double taxation avoidance treaties.

LLP (Limited Liability Partnership) or LLC (Limited Liability Company)

The offshore LLC is very similar to the popular offshore IBC as both are limited liability companies. This company formation is popular in Nevis and the USA where the Delaware LLC is especially popular as an offshore company. Offshore LLCs are similar in some ways to IBCs in that they are tax transparent, provide the owners and managing parties limited liability and more.

“Onshore”/Offshore Companies

With tax competition ever increasing around the world, many traditionally “onshore” jurisdictions have enacted laws and tax codes that allow certain structures to be utilised in a similar fashion to the traditional offshore company. Many countries only tax on domestic sourced income allowing certain structures to be utilised within an overall structure to reduce or eliminated taxation. Utilising these “onshore” structures in conjunction with one or more offshore entities is an increasingly popular way of structuring for international trade and investment purposes.

Panama’s ‘white listing’ came as a result of Panama signing a tax information exchange agreement (TIEA) with France. The deal brings Panama’s total of agreements to the critical twelve that meets the international standard.

These twelve TIEAs have been inked over the last sixteen months, and are with Italy, the Netherlands, Spain, Qatar, Luxembourg, Korea, Singapore, Mexico, Barbados, Portugal, the US and now France.

Commenting on the decision, OECD Secretary General Angel Gurria said: “Panama has worked hard to achieve this milestone and has made remarkable strides toward complying with the international standards in a very short time. This is very welcome and shows the Global Forum is achieving its aims.”

However, Gurria cautioned that the Global Forum must still evaluate whether Panama’s domestic laws will allow for effective availability, access to and exchange of information. He said: “The government has introduced domestic changes so that the agreements can be effective. The Global Forum will follow up to make sure they work as intended. It is important that Panama continues to work to fully implement the standards.”

At Panama’s request, the OECD’s Global Forum will soon undertake a further review of whether Panama’s domestic laws, including recent changes, will allow for effective exchange of information in practice

LLC operating agreements allow the owners of a business to configure the running of their business in a way that best suits their needs.  Normally, an operating agreement for an LLC will lay out various key points, such as each co-owner’s percentage ownership share of the business.  In addition, LLC operating agreements lay out the share of profits – or losses – that each owner will receive, the rights and responsibilities of the owners, and typically also detail what will happen to the business if one of the owners leaves.

• Necessity of LLC Operating Agreements
• Limited Liability
• Laying out the Ownership and Management
• Avoid State Default Rules
• Elements to Include in LLC Operating Agreements
• Ownership Percentage
• Shares of Profits and Losses
• Profits and Losses Special Considerations
• Meetings and Voting Rights
• Transitions of Ownership
• Creating an Operating Agreement

Necessity of LLC Operating Agreements

Depending upon the state that you are running your business in, you may or may not be required by law to write out an operating agreement for your limited liability company.  However, even if you state does not require it, it is still a good idea to make an operating agreement for your LLC.

By having an operating agreement for your LLC in place, you have a line of protection that guards the status of your limited personal liability for your business’ dealings, and can also avoid or alleviate misunderstandings between owners of the LLC.  Lastly, each state has default laws you may want to avoid that will govern the running of your LLC if you choose not to make an operating agreement.

Limited Liability

One of the primary reasons for organizing your business as a limited liability company is to gain the limited liability status that comes with this business structure.  Having an operating agreement in place can protect this status when and if courts begin looking at your assets to satisfy an obligation of your business.  It may be hard to protect this limited liability status, especially if you are the only owner of the business, without some kind of documentation to back it up.  A court may look more favorably on your limited liability status if you have an LLC operating agreement in place for your business.

Laying out the Ownership and Management

If you are a part owner of an LLC that has multiple owners, you will want to ensure that the operating agreement for your LLC lays out the profit- (and loss-) sharing breakdown between all of the owners.  In addition, the operating agreement should also clearly define the managerial structures, laying out procedures for decision making about the business as well as what will happen in the event that one of the owners decides to leave the business.  If your LLC does not have an operating agreement in place that takes care of these two issues, you may run into problems when your business makes record profits for a year, or when your long-term business partner decides to leave.

Avoid State Default Rules

As mentioned above, each state has default rules that will govern the running of your LLC unless you have an operating agreement that says differently.  For example, many states have default rules that say that losses and profits should be divided equally among all the owners of the LLC, regardless of their respective ownership interests.  If you create an LLC operating agreement, however, you can avoid this default rule by agreeing that the share of losses and profits will be split according to the percentage ownership of each member.

By writing your own operating agreement for your LLC, you will ensure that your business is run in the way that you choose, not the way the default rules are set up.

Elements to Include in LLC Operating Agreements

Although each LLC operating agreement will probably be a little different, depending upon the needs of each business, there are few essential terms that are contained in a majority of operating agreements.  These terms include:

• A breakdown of the ownership percentage of each member
• The rights and responsibilities of the members
• A detailed plan showing how losses and profits will be distributed
• The voting rights of members
• A management plan for the business
• Rules for meetings and voting, and
• Buyout or buy-sell rules that govern when a member’s sale of an interest, or a member’s death or disability.

Ownership Percentage

Generally speaking, owners (members) of LLCs are determined by who gave money, property or services to the business when it started.  Owners are rewarded for their contributions in the form of a percentage ownership in the business.  Most of the time, the ownership percentage is determined by the amount a member gave at the start of the business compared to the total amount given by all members.  If you choose to do so, however, you do not have to follow this ownership percentage scheme and can allocate the ownership of the LLC in any way you wish so long as you include the scheme in your operating agreement.

Shares of Profits and Losses

This is often called the distributive share.  Under most LLC operating agreements, a member’s distributive share is often just a simple calculation under their ownership percentage.  Perhaps an example is the easiest way to make this clear.  If Dave owns 25% of ABC LLC, and the operating agreement of ABC LLC dictates that a member’s distributive share is equal to his or her ownership share, Dave would take 25% of ABC LLC’s losses or profits.  If ABC LLC made $100,000 in profits for the year, Dave would be entitled to $25,000.

If you would like your members to all receive and equal distributive share without regard to ownership percentage, you can make this arrangement within your LLC operating agreement.

Profits and Losses Special Considerations

In addition to determining the distributive share within the operating agreement, you may also want to make some special arrangements within the operating agreement that deal with unique situations.

For example, the operating agreement should dictate how much of the distributive share a member is allowed to take each year.  If, for example, the business is new, you may want to consider limiting each member to only taking half of his or her distributive share each year.  So, to follow the above example, Dave would only be allowed to take $12,500 of his distributive share, leaving the remainder in the business to help with growth.

In addition, if an operating agreement limits the amount of a distributive share that a member can take out of the business each year, consider whether you want to ensure that this amount is enough to cover the income taxes that the member is required to pay.  A member of an LLC is required to pay income taxes on his or her entire distributive share, not just the part of the share that the owner takes out of the business.

Lastly, are members allowed to withdraw their distributive share at any time, or will the operating agreement set up one, or a few, certain days throughout the year where members are allowed to withdraw some, or all, of their distributive share?  If all of the members are struggling financially, it may make sense for the business to allow withdrawals from the business only once a year so that the members do not bleed the business dry.

Meetings and Voting Rights

The LLC operating agreement for your business should lay out details about meetings and voting rights.  For example, the operating agreement could dictate that a meeting can only be held whenever there is a quorum present.  A quorum could be defined as at least 50% of the ownership base, or at least 50% of the members.

Voting rights should be laid out as well.  In general, there are two voting rights schemes that LLCs commonly use.  The first is where each member votes his or her membership percentage.  Under this scheme, a person with a 40% ownership share has a much larger voting power than a person that only has a 1% ownership share.  The other option is where each member gets one vote, no matter the size of their ownership shares.  Your operating agreement could also specify that a vote can only be taken when a quorum is present.

Transitions of Ownership

Your LLC’s operating agreement should also lay out the procedures required for transitions of ownership.  Often, operating agreements have different procedures for this depending upon the circumstances (such as death, selling, disablement…etc).  Most often, operating agreements include simple buyout schemes that allow continuing owners to buy out the ownership share of a member that is leaving the company.

Creating an Operating Agreement

Hopefully this article has helped you see some of the more important points to consider when creating an operating agreement for your LLC.  You still need to sit down and create the actually document, however.  You may need professional help for this step.  You can download our “fill-in the blank” operating agreements that LLCs commonly use.

If your LLC’s operating agreement is going to exceed the basics, you can hire us to draft an an Operating Agreement that suits your business needs.

Customizable Multiple Member (Multiple Owners) LLC Operating Agreement for $24:

Customizable Single Member (One Owner) Limited Liability Company Operating Agreement $24:

Customized Limited Liability Company Operating Agreement by one of our Attorneys, contact us at info@weisz-offshore.com for more details.

Typical uses of offshore companies:

Trading Company
Investment Holding
Royalties/Patents/Copyright Holding Companies
Professional Services Company (PSC)
Asset Protection
Inheritance Tax Avoidance/Probate
Privacy
Accessing Tax Treaties
Overseas Property Holding
Ship management and yacht owning
Personal and corporate tax planning

Trading Company

An offshore company may accept orders directly from a purchaser and instruct the manufacturer or other seller to deliver the goods directly to the customer. The resulting profit may be accumulated offshore by the third party offshore company. This generally is useful when the manufacturer (seller), purchaser, and businessman orchestrating the transaction are all located in different countries. The supplier invoices the third party offshore company who then re-invoices the purchaser at the sale price retaining the profit.

Investment Holding

Offshore companies are often used to hold shares in other companies, international real estate, equities, bonds, commodities or for the trading of forex, options, or any other type of investment. Funds may be accumulated and reinvested throughout the world with the offshore corporation providing maximum anonymity and tax savings. The investments may be taxed in the jurisdictions where they are located; however, some countries offer tax free bonds and allow interest and investments in the form of bank deposits to be accumulated in gross over several years. Additionally, many countries do not tax capital gains on investments. Lastly, a properly structured investment company in an offshore jurisdiction having a tax treaty with the desired investment country may allow for a lower tax rate on dividends, interest and royalties generated from these investments.

Royalties/Patents/Copyright Holding Companies

The purchase or assignment of the right to use a patent, trademark, copyright or other “know how” to offshore companies often allows the royalties to be paid to the offshore company at a lower tax rate than could otherwise be enjoyed. These royalties are often subject to tax withholding at the source country; however these taxes may be lowered through offshore company formation in a second country. This type of offshore corporation is often established utilizing a tax resident entity that is able to access double taxation avoidance treaties such as the Seychelles CSL.

Professional Services Companies (PSC)

Expatriates working abroad often utilize personal services offshore companies to minimize tax burdens in their home countries. The contracting company may pay a salary direct to the expatriate capped at a certain sum as to minimize the tax burden with the remainder being paid to the PSC; or alternatively they may pay the full amount into the PSC with the expatriate taking a lesser salary allowing the offshore company to accumulate and invest the remaining funds.

Asset Protection

An offshore company is often used as part of an asset protection structure involving an offshore trust, offshore foundation or two or more offshore companies domiciled in separate jurisdictions. The intention is to make it difficult for prospective adversaries to locate assets and consequently win judgments against these assets. These structures typically employ at least two separate entities domiciled in separate jurisdictions with nominee services including both nominee directors and nominee shareholders.

Inheritance Tax Protection/Probate

A high net-worth individual with international assets and looking to ease matters of probate for his/her heirs may benefit from the establishment of an offshore personal holding company. Where international assets such as real estate or other offshore investments are owned by an offshore company, the assets may be shielded from inheritance taxes and higher taxation rates in the home country of the offshore corporation owner. Probate can become an expensive nightmare requiring matters to be settled in each country where the assets are held. An offshore company domiciled in a third country can mitigate this problem and provide a clear and simple transfer to the intended heir of all international assets by specifying a transfer of shares upon the passing of the shareholder.

Privacy

Many high net-worth individuals merely want to shield their assets from the public. The late John D. Rockefeller Sr. once stated “I don’t want to own anything, but I want to control everything.” Indeed this is good advice; especially considering the increasingly litigious society we face today. None of the jurisdictions offered by Australia-Offshore require the filing of the names of directors, shareholders or beneficial owners. A higher level of privacy may be achieved through the use of an offshore company. We can also offer additional guidance concerning how to arrange ones affairs to achieve maximum privacy.

Accessing Tax Treaties

Certain offshore companies may achieve tax resident status allowing for offshore investing in other countries with a lower withholding rate than could be achieved in their home country. The Seychelles Special License Company (CSL) is one such offshore company being utilized to access the growing list of tax treaties signed by Seychelles, chief amongst which includes China. Cyprus and New Zealand also offer many options to reduce taxes through their network of Double Taxation Avoidance treaties.

Overseas Property Holding

Many of the costs associated with purchasing overseas property can be minimized through the use of an offshore company. Real estate, such as vacation villas, may be purchased through an offshore corporation and the shares sold to the next owner allowing for a quick and easy transfer and avoidance of many taxes associated with the sale of property.

The Liechtenstein Government, having already developed and advancement strategy in 2008 in order to safeguard the future of the financial market place emphasized with the “Liechtenstein Declaration” its stance regarding the protection of privacy and defense of bank secrecy.

In addition, Liechtenstein affirmed its readiness to accelerate negotiations on agreements regarding tax information exchange in order to have a network of agreements at its disposal as soon as possible. Within the framework of this process Liechtenstein reconfirmed its responsibility not only towards tax claims of other states nut also to the trust of its international clientele. Since March the success of this strategy has been crowned when the OECD recognized Liechtenstein’s compliance with the international tax cooperation standards and removed the Principality from the grey list of noncooperation countries.

Legitimate Protection of Secrecy

In front of a backdrop of efforts to stabilize global economy and international financial systems, Liechtenstein decided on a pro-active strategy and presented itself to the world through the “Liechtenstein Declaration” as a fully responsible and reliable partner. The ratification of and interest tax agreement with the European Union and the completion of a tax agreement with the USA, based on OECD standards, paved the way.

Bank secrecy protection continues contrary to the general misconception that it has been abolished, but, in future, judicial assistance will be afforded not only in the case of tax fraud but also, under certain circumstances, in the case of tax evasion. Previous misconception compared bank secrecy, which was never absolute, with a bank safe.Liechtenstein had, in the past, always given judicial assistance in the case of criminal action.

Model Agreement with the USA

Prior to the “Liechtenstein Declaration” Liechtenstein had, on 8th December 2008, signed an agreement with the USA on cooperation and information exchange on tax matters (TIEA).

The Government declared that this change of paradigm from a restrictive, defensive to a cooperative attitude showed its desire to safeguardLiechtenstein’s Financial Market Place and its economic position in the long term.

From September 2009 the Tax Information Exchange Agreement (TIEA) with the USA served as a guideline to the cooperation agreements which were finalized with a number of other countries. In signing the TIEA agreement, Liechtenstein Banks fulfilled the requirements for the extensions of QI-Status (Qualified Intermediary) which was extended by the USA from 1st January 2010 for a further six years. The judicial assistance law based on the TIEA found the approval of the Liechtenstein Bankers’ Association as it contained clear and, the same time strict regulations guaranteeing legal assistance. The Liechtenstein Bankers’ Association praised as a positive step that, within the framework of the judicial assistance law, and foreseen exchange of information would be based solely on a precise request. Through this law, as before, no sensitive tax data will be given abroad without a targeted and individual request. Consent also came from the export industry which described the legal assistance law as an important building block for constructive cooperation and continuing good relations with the USA.

In a radio interview on Thursday Tony Abbot, Leader of the Opposition, said: “The Prime Minister gave a solemn pledge before the last election that there would be no carbon tax. Now she says without any intervening election there will be a carbon tax and to the public it looks like a simple lie. She said there wouldn’t be one before the election, now she says it won’t hurt you. I mean, the one certainty is a) that Labor lies and b) that people pay and I just think that’s not on”.

In her statement the Prime Minister outlined the plan to cut pollution, tackle climate change and deliver the economic reform she said Australia needs to move to a clean energy future, stressing: “This is an essential economic reform, and it is the right thing to do”.

The two-stage plan for a carbon price mechanism will start with a fixed price period for three to five years before transitioning to an emissions trading scheme. The government will propose that the carbon price commences on July 1, 2012, subject to the ability to negotiate agreement with a majority in both houses of Parliament and pass legislation this year.

Gillard said: “A carbon price is a price on pollution. It is the cheapest and fairest way to cut pollution and build a clean energy economy. The best way to stop businesses polluting and get them to invest in clean energy is to charge them when they pollute. The businesses with the highest levels of pollution will have a very strong incentive to reduce their pollution.

“The government will then use every cent raised to assist families with household bills, help businesses make the transition to a clean energy economy and tackle climate change. The government will not shy away from this difficult but vital economic reform to move Australia to a clean energy nation.”

“The global economy is shifting. Right now, Australia is at risk of falling behind the rest of the world. The longer we wait, the greater the cost to the economy, and the greater the cost to Australian jobs.”

”An initial fixed carbon price will provide businesses with a stable and predictable platform to transition to a ‘cap and trade’ emissions trading scheme that will be linked to international carbon markets. This will give businesses time to understand their carbon liability and begin the transformation in a steady and purposeful way.”

Gillard has not said how much carbon will cost and has not confirmed whether petrol would be included in the tax.

Opposition environment spokesman Greg Hunt has estimated that the scheme would add $300 AUD ($300 USD) a year to power bills and six cents a litre to petrol, and a statement from the Liberals said: “On top of paying more for electricity, gas and food, now we learn that households will be hit by the carbon tax at the bowser. It’s about time Ms Gillard was upfront with motorists and told them that she will make them pay every time they fill up their car.”

“The Prime Minister should rule out a petrol tax and have the courage to say that her carbon tax is a carbon tax and that it will drive up electricity prices. Ultimately the government has no mandate for this sneaky new tax, and there is a better way to tackle climate change than through a new tax”.

This was clarified by the Italian Revenue Agency, in a tax resolution issued on January 3, 2011. The Agency stated that all of the income from winnings realised on an online website that does not have an establishment in Italy, and which, therefore, does not withhold Italian tax at source, should be declared on a taxpayer’s return. Such income is subject to personal income taxation on the entire amount, without any allowable deduction for expenses incurred.

The Agency also explained that, if the taxpayer operates his gaming online by way of a non-interest bearing foreign bank account (with an example quoted of winnings made on an online casino by way of an account held by a financial intermediary in the Isle of Man), running the account could be classified as an external financial activity, subject to monitoring.

In that case, if the foreign account has a balance of more than EUR10,000 (USD13,450), and if movements across the account in any one year also reach over that amount, it will need to be declared as a financial asset that could produce foreign income liable to be subject to Italian taxation.

The taxpayer will need to indicate the balance of the external account as at December 31, and that he receives no interest (with proof of such from the foreign bank holding the account). Furthermore, in the tax return, all transfers made from Italy to the foreign account should be declared, as well as transfers from that account to the taxpayer’s Italian account.