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- 14 Aspects of Offshore Investment
14 Aspects of Offshore Investment
Personal Holding Co. - PHC
PHC is one of the most important tools in overseas investment, and has the following benefits:
Nominee Function:
A PHC provides excellent confidentiality; only the bank knows who is the beneficiary owner.
Limited Liability:
PHC is incorporated as a limited liability company. If any foreign business/tax/law issue occurred, the liability of a PHC is limited. In contrast, a natural person bears unlimited liabilities worldwide.
Double Tier Structure
Offshore Company should adapt complex double tier structures to prevent leaking of ownership information. Assets held by a two tier offshore companis structure, can be transferred through changing company shareholder(s) with more flexibility.
Overseas IPO
International businesses can derive a real advantage from their holding company being incorporated in a tax neutral jurisdiction such as Cayman and Bermuda. An IPO allows a company to quickly raise large amounts of capital from the marketplace. Holding companies incorporated in Cayman or Bermuda are easily listed in HK, USA (Nasdaq), UK, S’pore exchange markets.
Rep./Branch/Subsidiary/Factory
Foreign same name company (SNC) acts as parent company of the following types for overseas investment. The priority ranking for establishment is recommended as following:
1. Representative office
2. Branch
3. Subsidiary
4. Factory
Same Name Company - SNC
There are three parties act as SNC in foreign investment and multi-party trading:
1. Domestic parent company
2. Offshore same name company
3. Foreign same name company
Offshore SNC pays and receives money on parent company’s behalf. SNC is formed for external transaction with clients. The three parties of SNCs (domestic, offshore, foreign) should never trade directly with one another.
Different Name Company - DNC
DNCs are to do business with SNCs to keep flexible transactions. Each DNC operates as stand-alone trading company and can be liquidated anytime.
Offshore DNCs may trade with SNCs, suppliers, and buyers. DNC is an indispensible tool for int'l trading operation.
Correspondent Invoice Add. - CIA
In multi-party trading, the three types of offshore companies (PHC, SNC and DNC) should be supported by CIA which can be any place in the world. The best CIA should be in the same city as where the bank account is opened. Therefore, in order to ensure overseas multi-party trading is smooth and complete, it is important to assign a secretarial company offer CIA service- mail forwarding and virtual office.
A Seychelles offshore company with HK CIA has no actual operation in HK would be exempted from local taxes. In contrast, a HK company with bank account in HK is likely to be taxed even profits are not sourced in HK.
50% & 3 Million USD
In multi-party trading operation, SNCs only trade with external parties (e.g. clients, suppliers), while DNCs trade with inter-group companies, domestic and offshore SNCs. Most importantly, the three types of companies (domestic, offshore, foreign) must avoid:
| 1. |
Annual transaction with single company exceeding 50% |
| 2. |
Annual transaction amount with single company over US$ 3 million |
The rules adopted vary by countries and territories. However, differentiates external parties and inter-companies, and follow the transaction amount with single company not over 50% /US$3 million will avoid tax problems in transfer pricing and related party transaction issues.
Director of Onshore/Offshore Co.
The three types of SNCs (domestic, offshore, foreign) all can be formed under the same shareholders/directors. On the other hand, DNCs act as trading companies which can be liquidated anytime. The DNCs should never use the same director and shareholder as SNCs. These arrangements are mainly to protect the three SNCs from related party transaction and potential legal & tax issue.
Common Report Standard - CRS
CRS is developed by the OECD to stop individuals and Entities evading tax by hiding assets and income in foreign financial accounts. The CRS regulates the identification requirements and reporting obligations of financial institutions to collect and report information of foreign tax-residents to tax authorities.
Over 120 countries committed to exchange information include: Australia, Canada, China, Hong Kong, Singapore…etc. Currently Cambodia, Philippines, Taiwan, USA, Vietnam…are not participant countries.
By filling the CRS Entity self-certification form, you need to certify where your Entity is resident for tax purposes and how you would classify it under the CRS. Does your entity defined as Active NFE or Passive NFE? How to report the Controlling Person? Does your entity have TIN? Entity classification is critical for future filing Alternative Minimum Tax.
Controlled Foreign Company – CFC
Controlled Foreign Corporation (CFC) rules target tax avoidance by taxing profits of foreign subsidiaries controlled by residents of the parent country, even without repatriation. These measures address income in low-tax jurisdictions to prevent evasion of domestic taxes. Currently, countries such as Malaysia, Thailand, India, and Taiwan enforce CFC regulations. However, some countries like Hong Kong, Singapore, and Vietnam have not implemented such rules.
Tax Identification Number of Offshore Company (TIN)
Tax Identification Number (TIN) refers to the identification code used by the taxation authority of the country (region) where the individual or legal person is located to identify the taxpayer.
An offshore company holds a TIN which means the company is an international tax resident in compliance with regulations. At present, the countries (regions) of offshore company registration that can apply for a TIN are: Belize, Seychelles, Labuan, and Hong Kong.
The purposes of TIN application for offshore companies include:
| 1. |
When exporting goods from China, the TIN of the offshore consignee is required. |
| 2. |
When opening a bank account or conducting an annual review by the bank, a TIN is required to be filled out in the CRS Entity Self-Certification Form. |
| 3. |
TIN can be a proof as the tax resident of offshore company. |
| 4. |
Belize Company with TIN can purchase real estate locally and there is no tax to be paid if the operation is not in Belize. |
International Secretarial Services
PPM as your global secretarial company, in order to cooperate with clients to open bank accounts in Hong Kong, Singapore and Malaysia for offshore companies incorporated in other countries such as Seychelles, Belize, Anguilla and British Virgin Islands...etc., PPM have 3 addresses in Hong Kong and 2 addresses in Singapore as your Correspondent Invoice Address (CIA), and provide the mail forwarding and virtual office services. The CIA can be used as your contacts with global customers/shipping companies/banks/accountants etc. to make your int’l trading operation as if a business entity in Hong Kong or Singapore.
Personal Wealth Management
To hold overseas real estate by an offshore company, you can sell the property by changing the shareholder of the offshore company. This can save time and cost for property transfer without paying stamp duty and tax of property gain as well as protect your privacy.
An offshore company can also own overseas stocks/funds/bonds with confidentiality. Personal data will not be disclosed.