5. JURISDICTIONS

5.1. Making the right choice

When choosing a jurisdiction in which to register an offshore company, the client should very carefully consider the various parameters of different jurisdic¬tions. One could of course collect over time volumes of materials and publications on the subject, yet likely the most effective and reliable way to make this decision is to consult with professionals dealing with this information on a day-to-day basis. PPB INC experts will be glad to assist you with this decision.

Some of the basic factors that potential clients should consider prior to the choice of the offshore jurisdiction of their company include the following:

• Suitability for present purpose and function of the company
• Respectability
• Double tax treaty network
• Legalization of documents with respective embassy and apostilled documents
• Tax regime of the offshore jurisdiction
• Set up and annual operating costs
• Disclosure requirements as per offshore jurisdiction

Suitability for present purpose and function of the company

Will a company registered in a particular jurisdiction fulfill the requirements of its future use? For example:

• A client trading with European multinationals, will probably choose a company from a prestigious jurisdiction, such as England or Cyprus.
• A client wanting to use a company bank account for his savings, without any further operations whatsoever will choose one company from the easy and cheap jurisdictions (Bahamas, USA, Gibraltar).
• A client planning to conduct work for and on behalf of his offshore company on the territory of his own country or others, will choose a jurisdiction with the most favorable Double tax treaty.
• A client planning to reinvest part of his working capital in his local market will choose a jurisdiction with the most favorable Double tax treaty (Cyprus).
• A client planning to use the company for re-invoicing between two European countries and should choose a European offshore jurisdiction facilitating the registration of its companies for VAT applicable for the European Union (England, Isle of Man, Cyprus).

In other words, the client should make the jurisdiction match the way the company will be used, and not the other way around.

We have had in our experience cases of clients of other firms coming to us with their Cyprus companies, which were only used as receptacles of funds for further transfers to personal accounts, without any commercial arms length transactions, or documen¬tation. Notwithstanding this simple working scheme they had to carry out annual audits, which entails an additional cost. An American or Bahamas company would have been more suitable to such clients, having no reporting requirements.

On the other side of the spectrum were businessmen who had purchased somewhere a Bahamas company ("good price!"), yet were completely unable to use it in their work as broker agents of negotiable instruments on the territory of an eastern European country. Without professional advice, it is easy to mismatch the advantages of a jurisdiction with the way the company will be used. We always help our clients to avoid this mistake.

Respectability

The higher the profile of the offshore company will be the more important the respectability issue is. In the opinion of many professionals, jurisdictions are split into three categories, or groups.

5.1.1. Tax havens

The cheapest, and easiest to define, are jurisdictions which have no taxes at all, and no accounting requirements. Because they have no accounting requirements, in other words, they do not expect companies registered there to account in any way for their activities, they are considered as not having any supervision over the affairs of their companies.

5.1.2. Respectability without accounts

The second category is considered more respectable, due to its location. Locations such as Gibraltar (part of England), USA, Delaware, or the Isle of Man (Great Britain) are themselves respectable, or are situated in Europe, and as such are considered as more reputable than the first group.

Yet, they also do not require accounts, or levy taxes. As such, they are quite easy and cost effective to operate, although they also usually do not give the advantage of a treaty network.

5.1.3. Respectability and full accounting

5.1.4. Prices

An important, and at the same time least important factor in choosing a jurisdiction. We know of many examples where businessmen registered companies based on cost considerations alone, buying in effect a financial instrument of limited use, and were then forced to purchase a company from a respectable jurisdiction with universal capabilities.

If the reader compares the additional profits he plans to receive with the help of the new company, and its cost, he will see that they are in a different league.

The company should be a trustworthy, universal and respectable financial instrument with many capabilities. And, if you agree with us, in that case there is no need to even consider dubious offers of companies for "USD399". It is easy to buy or sell such a company, but who needs a useless pack of documents of questionable origin?

5.2. Double Tax Treaty Network

If one of the functions of the offshore company is to invest in Russia or other Eastern European countries or any other country or to render services to companies in these markets the double tax treaty network which the offshore jurisdiction maintains is of utmost importance.

What are the double tax treaties all about?

The main purpose of a double tax treaty between two countries is the avoidance of double taxation of income received accordingly in one of those countries by a company registered in another country.

The treaties in most cases follow the model treaty of the Organization for Economic Co-operation and Development (OECD), modified where appropriate to take into consideration the particular characteristics of each contracting state. They deal with the issues of residency, permanent establishment, and relief from double taxation; dividends, interest, royalties, non-discrimination and all other issues dealt with in modern tax treaties.

The existence of these treaties combined with the low tax paid by offshore companies can offer tremendous possibilities for international tax planning. Cyprus is in a unique position when compared with other offshore financial centres because of its wide and increas¬ing list of countries with which it has concluded double tax treaties. The treaties Cyprus has with Russia and a number of Eastern European countries are of particularly favorable terms.

5.3. JURISDICTIONS

5.3.1. CYPRUS

General Information
Cyprus is an island in the south¬eastern part of the Mediterranean sea with a population of 700,000. The main language of the island is Greek with English being the pre¬dominant business language. The capital of Cyprus is Nicosia, which is located in the centre of the island.

Corporate Legislation Source
Company Law 1948, Cap 113, amended

Tax Regime
The Cypriot companies which are the property of foreign and get the profit only from the sources which are out of Cyprus, and realizing the management and control outside of Cyprus (for example: the presence of directors who are non residents of Cyprus) pay the tax – 0% on the taxable profits.
It is necessary to note that in accordance with the changes of legislation, IBC incorporated until the 1 of January 2002 (as per Central Bank Of Cyprus annousment ) will be taxed with the rate 4.25% until the 1 of January 2006, if no changes of shareholders will take place. After the 31 of December 2005, all the companies will be taxed at the rate 10%. IBC incorporated after the 1 of January 2002 (as per Central Bank Of Cyprus annousment ) will be taxed with the rate 4.25% until the 31 of December 2005, after that - 10%. IBC realizing the management and control of the company in Cyprus pay the taxes with a rate 10% on the profit less the all expenses in connection with the activity of the company.

Double Tax Treaty Network
Cyprus has concluded double tax treaties with the following countries:
Austria, Bulgaria, Canada, China, Czech Republic, Denmark, Egypt, France, Germany, Greece, Hungary, India, Ireland, Italy, Kuwait, Malta, Norway, Poland, Romania, Russia, Slovakia, Sweden, Syria, United Kingdom, United States and Yugoslavia.

Reporting and Statutory Requirements
All Cyprus offshore companies have to:

• File annual returns to the Registrar of Companies
• Prepare, audit and file annual financial statements
• Prepare and file provisional and final tax declaration
• To send a notice to the Department of Internal Revenue, confirming the non-resident status of the company.

Special Considerations

• Bank Reference for the Central Bank of Cyprus. The Central Bank of Cyprus requires bankers' references for the beneficial owners of the Cyprus offshore companies. A bank reference provided by fax to PPB INC as shown below is adequate:
  "To whom it may concern, We hereby confirm that (give the names of the beneficial owners) are well known to us and in our opinion of good financial standing and trustworthy persons. The above information is given without any responsibility on the bank or any of its officers"
• Working residence Permit Cyprus is that entitles the owners and management of its offshore companies and branches to apply and obtain the permit to live and work from Cyprus with their families and dependants, subject to certain criteria and with the condition that they derive all their income from their activi¬ties overseas. The applicant must be over 25 years of age and be a director of the company.
  The company must have purchased or rented office in Cyprus, and the individual must have accommodation.

5.3.2. ENGLAND

General Information
Independent monarchy constitutes the United Kingdom together with Wales, Scotland and Northern Ireland. Population is 47 million people, with English as the official language.

Corporate Legislation Source
Section 249, Financial Act 1994

Tax Regime
Where established that the English company has its place of residence in a country with which the UK has an appropriate double tax treaty ( e.g. Cyprus) the English company will have no tax liability in the UK but instead will pay taxes on its place of residency

Double Tax Treaties
A branch of the English company is established in Cyprus which can utilize the wide and favorable tax treaty network of Cyprus with Austria, Bulgaria, Canada, China, Czech Republic, Denmark, Egypt, France, Germany, Greece, Hungary, India, Ireland, Italy, Kuwait, Malta, Norway, Poland, Romania, Russia, Slovakia, Sweden, Syria, United Kingdom, United States and Yugoslavia.

Reporting and Statutory Requirements in England
All UK non-resident companies have to:

• File annual returns to the Registrar of Companies
• Prepare, audit and file annual financial statements
• Send a notice to the Inland Revenue establishing its non residency

Reporting and Statutory Requirements in Cyprus

• File annual returns, tax declaration and financial statements

Special Considerations

• Bank Reference for the Central Bank of Cyprus. The Central Bank of Cyprus requires bankers' references for the beneficial owners of Cyprus offshore branches, with the same content as for Cypriot companies.
• Respectability England is not an offshore jurisdiction. The no tax liability in the UK is achieved through the application of the double tax treaty it maintains with Cyprus. This facilitates the client to utilize a non-offshore European company but at the same time pay taxes at nominal offshore rates. This structure is very suitable for high profile activities that require utmost respectability.
• Nominee company The English company can also function as a nominee company in conjunction with a pure offshore structure. The English company conducts business for the benefit of the counterparty, on the basis of an agency nominee agreement. In this case the English company performs this function for a certain amount of profit, expressed in the agree¬ment as a certain percentage of the turnover. English tax of 21 % to 33 % depending on the amount is paid by the English company. The remaining profit is transferred to the counterparty, and the client pays tax, if any, in accordance with its jurisdiction.

5.3.3. UNITED STATES OF AMERICA

General Information
The latest developments in US corporate legislation have created a unique opportunity in the field of international tax planning for non-US taxpayers to use an American entity as a company totally exempt from taxation.
An LLC, or Limited Liability Company, differs from all other US corporate entities. It is neither a corporation nor a partnership, yet it has benefits drawn from both of these. It combines the advantage of limited liability of corporations with the pass-through principle of taxation associated with partnerships. The owners can be any foreign physical person or corporate entity.

Tax Regime
According to the new IRS regula¬tions, as from the first of January 1997 LLCs automatically receive pass-through taxation treatment. Pass-through taxation means that all profits and losses are passed on to the partners or members. In this way, the company is not subject to taxation, because the taxes are imposed on the owners or members.
This can prove especially advan¬tageous for an LLC that meets the following criteria:

• it pursues no trade or business in the US
• its members are non- resident aliens or foreign companies
• it has no fixed place of business within the USA

If the LLC meets these require¬ments, then neither the company, nor the members of the company are subject to taxation in the USA on their profits.

Double Tax Treaties
Although the US has a wide ranging network of Double Tax Agreements, non-resident companies which do not pay tax in the US, and do not have a tax i.d. number, do not qualify for these treaties.

Reporting and Statutory Requirements
Generally, an LLC is subject to the bare minimum of reporting, namely a legal return and the payment of a nominal govern¬ment fee once a year.

Special Considerations
An American LLC is an excellent vehicle for tax planning since it attracts no negative reaction associated with pure offshore centers. However, it can not be used for business transactions with American entities without attracting American tax.
Below we give an example of Delaware, one of the most popular states for company formation.

5.3.4. DELAWARE, USA

General Information
The state of Delaware is located on the Eastern Coast of the USA 100 km from New York. The state of Delaware implemented a zero State Tax rate in order to encour¬age American and Foreign companies to relocate or locate their offices and activities from other American states to Delaware and thus increases employment in their state.

Corporate Legislation Source
General Corporation Law of Delaware

Tax Regime
There are two main types of income tax collection in the US. One is at the federal level, and all companies without exception are liable to this tax, and the other is at the state level. The State has the power to set the level of this state tax. Delaware has set it as zero, thus creating significant tax advantages for American companies registered there. Companies belonging to non-residents, and not having any activities on US territory, also do not pay the Delaware State tax, and by virtue of being non-resident, fall outside the scope of federal tax legislation. As such, they are not taxpayers in the US and pay no tax.

Double Tax Treaties
Although the States have a wide treaty network, non-resident companies do not qualify.

Reporting and Statutory Requirements
Delaware companies have to file an Annual Franchise Tax report and pay the Franchise tax

Special Considerations
The above description of a US company with limited liability with 0% state tax is very attrac¬tive to clients planning specifically to do business in or with the USA. It is precisely this zero state tax which has attracted over 60% of the 500 largest American corpo¬rations to relocate to this state. An LLC however is perfectly suit¬able for clients interested primari¬ly in a completely no tax US corporate vehicle, without activi¬ties in the USA. Thus, Delaware may be said to be ideal for both US and non-US activities. It is one of the cheapest and easiest jurisdictions to operate in. Delaware companies cannot open up accounts in American banks or have trade relations with other American companies.

5.3.5. BAHAMAS

General Information
Bahamas is an independent state within the British Commonwealth with a population of 262,000 and is situated southeast of Florida (US). The government is committed to continue to provide a no-tax regime with simplified incorporation rules. The official language of Bahamas is English. A modern Registrar building has recently been completed, at a cost of USD 1.25 million.

Corporate Legislation Source
International Business Companies Act of 1989.

Tax Regime
$US250 p.a.. State Tax. The tax is paid for each calendar year, and must be paid by 30 April in order not to incur penalties.

Double Tax Treaties
No double tax treaty network.

Reporting and Statutory Requirements
Bahamas companies have to file annual returns to the Registrar of Companies.

Special Considerations
Bahamas companies allow the provision of bearer shares. Even if the company issued bearer shares, the state authorities demand that a real registered company's agent, usually an advocate, must be present on the island. He must be aware at any moment who holds the shares of the company. In this respect, the registered agent fulfills a function similar to that of the nominee shareholder. He is aware of the identity of the beneficiary, although the beneficiary's identity is not shown in public documents. The transfer of ownership of such a company is effected by physical transfer of the bearer shares, and the notification of the registered agent regarding the change. Certain banks avoid dealing with bearer share companies, since the ownership cannot be ascertained with ease at any given time.
Bahamas is a region with a very small population, a relatively small local economy and a well-known offshore centre. Therefore a Bahamas company may not be suitable for third party transactions and re-invoicing especially in consideration of its distance from the European market.

5.3.6. ISLE OF MAN

General information
The Isle of Man is a self-governing island within the British Commonwealth located between England and Ireland. The local government began promotion of the island in the 1970's, and it is now estimated that over 35% of the national income are from the finan¬cial services sector of the economy. The legal system is based on the English common law type, and as such the main principles of compa¬ny legislation are fully applicable.

Corporate Legislation Source
Common Law - Companies Acts 1931 to 1986

Tax Regime
Isle of Man non-resident compa¬nies (its directors being located overseas) pay an annual fixed charge of STG 750. Isle of Man resident companies (its directors being located on the island) pay an annual fixed tax charge of STG 300.

Double Tax Treaties
Isle of Man has no network of double tax treaties.

Reporting and Statutory Requirements:
Isle of Man exempt and non-resident companies have to file annual returns to the Companies House.

Special Considerations
Isle of Man is an island with a population of around 70,000, a relatively small local economy and a well-known offshore centre. Therefore an Isle of Man company may not be suitable for third party transactions and re-invoicing.
At the time of going to print, certain changes in the Isle of Man legislation are being anticipated. Non-resident companies, as described above, may no longer be delivered. Instead, exempt companies with local directors still exempt from progressive tax, but a slightly lower fixed tax, will be allowed.

5.3.7. GIBRALTAR

General Information
Gibraltar has retained the Status of a British Crown Colony. it has an area of 6,5 square km, a population of 28,000 and is situated between Spain and Morocco. The official language is English, and it has English Common Law legislation mirror¬ing the English Companies Act of 1929.

Corporate Legislation Source
UK Common Law 1929 Act, introduced locally as "The Companies Ordinance"

Tax Regime
Gibraltar tax exempt companies pay no tax, but pay a small fixed duty.

Double Tax Treaties
Gibraltar has no double tax treaty network.

Reporting and Statutory Requirements
All Gibraltar companies have to file annual returns to the Registrar of Companies

Special Considerations

• Although Gibraltar is a part of the European Union it is excluded from the EU VAT legislation.
• Gibraltar is a region with a very small population, a relatively small local economy and is a well-known offshore centre. Therefore a Gibraltar company may not be suitable for third party transactions and re-invoicing.
• Gibraltar is currently undergoing slight adjustments in its approach to offshore business. Namely, the Gibraltar Financial Services Commission has issued a number of circulars regarding registration rules for companies with certain sensitive names, or clauses in their Memorandum.

5.3.8. BRITISH VIRGIN ISLANDS

British Virgin Island – are considered as British territory, of more than 50 islands , 95 Km east of Puerto-Rico. Total size of the islands – 155 km x 60 km and population 21000 people. The main island is Tortola, with a population of 13500 people. The capital is Rod-Tauna on Tortola. Traveling to islands is easy both by air or sea. Main entrance points are Puerto-Rico and American Virgin Islands. The territory is politically stable with a high level of internal administration.

Corporate legislation source
International Business Companies law of 1984

Type of registered companies – LLC

Share capital terms – no minimum limitations for IBC

Tax regime – no taxation. Payment of annual sums of 300 USD for IBC with share capital up to 50000 USD and 1000 USD for IBC with share capital more than 50000.

Company registration Procedure – formation of the subscriber in the presence of witness, performance of the signed memorandum and association agreement to the registrar and signing of the documents by a registered agent.

Potential shareholders – the registered agent

Registered office and agent - is a must in BVI – For IBC a copy of the shareholder certificates must be kept in the registered agents office.

Director & secretary – a minimum of I person as a director. Secretary is not obligatory. The director and the secretary can be non-residents. Nominees could be used in both cases.

Auditing & Accounting – not obligatory

Exchange control - no exchange controls

Recommendations – needed. 2 recommendation letters from professionals such as lowers or auditors.

5.3.9. SEYCHELLES

Seychelles are the “Tax Heaven” for the Europeans, Americans and Asians. They are an independent state with a stable administration. The main languages are English and French. There is no Exchange control and tax treaties with other countries.

Corporate legislation source
International Companies Low - 1994

Type of registered companies – IBC

Share capital terms – 5000 USD – minimum share capital issued 1 USD

Tax regime – no taxation. Payment of annual license 100 USD.

Registered office and agent - is a must .

Director & secretary – a minimum of 1 director and 1 secretary. The director must be a non-resident. Nominees could be used in both cases.

Auditing & Accounting – not obligatory

Exchange control - no exchange controls

Recommendations – not needed.

5.3.10. NETHERLANDS

Type of registered companies – Private or Public Liability Companies

Registrar - Ministry of Justice

Tax regime – Holdings are “free” of Corporation Tax

Auditing & Accounting – Annual reports and accounts is a must. Audit is a must for companies with assets more than 5000000 NLG or with turnover more than 10000000 NLG. Tax treaties with Russia, Ukraine, Bulgaria and Rumania

Company structure - minimum of 1 director. The directors can be non-residents . Nominees could be used. Minimum of 1 shareholder. Secretary / agent is a must.

Registered office and agent - is a must .

Recommendations – is a must

5.3.11. China/ Hong Kong

Hong Kong SAR is a well-known international, industrial and financial centre. It ranks as the world's third largest financial centre after New York and London. It has the world's largest container port and it is a major gateway for investment and finance into China and the rest of Asia. English and Chinese are the official languages.

Legal system

With British legal system as background, which is well adopted, each company limited is a separated legal entity and is well protected by laws and regulations. Companies incorporated in Hong Kong are governed by the Companies Ordinance (Chapter 32 of the Laws of Hong Kong).

Taxation

Hong Kong is one of the few countries in the world that tax on a territorial basis. No taxes are levied on income earned outside Hong Kong. Consequently, this means that a company that carries on a business in Hong Kong but derives profits from another place, is not required to pay tax in Hong Kong on those profits.
In addition, the location of bank accounts is insignificant. For instance, the HK companies with bank accounts in HK will not be subject to HK taxes.

In fact, Hong Kong is a low taxation city. Its tax laws are simple and straight forward. Even if income of a business is sourced in Hong Kong, the profit derived is subject to 17.5% tax rate only. Therefore, Hong Kong, as an international financial centre, is considered an extremely cost-effective tax-planning vehicle for business.

Formation requirements:

• At least 1 director who can be an individual of any nationality or a corporate entity
• At least 1 shareholder who can be an individual of any nationality or a corporate entity
• At least 1 company secretary who must be a HK company or a HK resident
• Registered address in Hong Kong is required.
• Director and shareholder can be the same person or the same corporate entity.
• Company names must end with "Limited".

Features of Hong Kong corporations:

• Authorized capital/shares - Usually the authorized share capital of companies we register is HK$10,000 with 10,000 shares of HK$1 per share. The minimum subscribed share capital is HK$1 only. "No par value" or "bearer" shares are not permitted.
• The memorandum and articles are the legal documents of a company. They must be filed to Companies Registry at the time of incorporation.
• The directors may grant special or general powers of attorney.
• Shareholders and directors may hold their meetings in any country.
• Annual filing of Annual Returns is mandatory.
• Annual filing of Annual Profit Tax Return is mandatory.
• Keeping accounting records is mandatory.
• Corporate seal is mandatory.
• Register of directors is optional.

Incorporation Time for All Jurisdictions
PPB INC maintains a stock of newly registered companies that are available for the client upon request. Alternatively PPB INC will form a custom made company for the client in two to three weeks. Clients can take delivery of the statutory documents, bank account and stamps of the company on the same day. Legalized documents, if applicable, take from 2 to 5 working days to dispatch.