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Offshore Incorporations - Economic Substance Regulations (10)

10-07-2019 11:43 AM #1 nickpeplow (AMC Alumnus)
Offshore Incorporations - Economic Substance Regulations

This year there has been a huge wave of changes made by the typical "offshore" holding locations, in part pushed by EU sanctions. "Economic Substance Regulations" require a meaningful presence in the incorporated country in order to benefit from 0% tax. The impact is absolutely devistating but I've barely seen any news about it. Even mainstay choices like HK cant be run remotely any more without paying local taxes in full. Fines for non compliance in our primary BVI incorp are 20k+ USD. Ouch.

Places we considered, but disregarded

UAE - must conduct the relevant “core income generating activities” in the UAE; Be “directed and managed” in the UAE
Labuan - must have an adequate number of full time employees in Labuan; an adequate amount of annual operating expenditure in Labuan.

If anyone else is running into these issues, I'd be interested in connecting to discuss fallback options. Hit me up with a PM

Singapore (17%) or Bulgaria seem like reasonable options so far

10-07-2019 01:33 PM #2 Mr Green (Administrator)

I'm currently looking into building HK substance.

I've had advice from some pretty large firms recommending different options:

All said to get a real office.

- One mentioned to hire two directors (not nominee).
- Another mentioned I could get a nomiee director if I additionally hired a local CEO or COO.

I'll PM with more info.

10-07-2019 07:11 PM #3 clubdrock (Member)

Read about this briefly a couple months ago. But I didn't see any mention of HK companies. Just the Caribbean tax havens that have been under scrutiny for a while now. Do you have a link to anything credible that mentions HK?

10-08-2019 05:59 AM #4 ted_tikoun (Member)

We are incorporated in UAE for 4 years now and it's still a solid place to get zero taxes. Freezone companies with a physical office is still a clean setup.

10-08-2019 10:21 AM #5 nickpeplow (AMC Alumnus)

I believe UAE came off the EU blacklist last week, after they issued their revised substance guidance in June. From what I understand, just having a rented office is no longer enough - you need local employees making "management" decisions

https://home.kpmg/ae/en/home/insight...substance.html

What are the economic substance requirements?

Where an entity is undertaking Relevant Activities the following requirements apply:
— The entity must undertake its key business activities in relation to relevant activities (“core income-generating activities” (CIGA) in the UAE. Details on what constitutes CIGA for each relevant activity are set out in the regulations.
— The entity must be directed and managed in the UAE in relation to CIGA.
— The entity’s activities must be carried out with adequate local “economic substance” with regard to the level of relevant activity in the UAE. Economic substance consists of:
- Full-time employees
- Expenditure
- Premises

10-08-2019 10:50 AM #6 kokofai ()

Hmm that's interesting. Not getting anything yet from my comp sec in HK. Will confirm and see if HK is also affected.

10-08-2019 03:19 PM #7 taormina (Member)

I'm going to throw this out there: Why not just pay tax? Seems like a lot of work to avoid it to be honest.

We do 8 figures annually in the US and we pay tax, but you have to remember that a great accounting team will make sure that you pay a very low amount compared to your actual income.

Don't assume that US based affiliates are paying 37% (max personal tax bracket). Many are paying a tiny fraction of that or nothing at all and still remaining tax compliant.

10-08-2019 07:25 PM #8 stickupkid (Senior Moderator)

Quote Originally Posted by taormina View Post
I'm going to throw this out there: Why not just pay tax? Seems like a lot of work to avoid it to be honest.

We do 8 figures annually in the US and we pay tax, but you have to remember that a great accounting team will make sure that you pay a very low amount compared to your actual income.

Don't assume that US based affiliates are paying 37% (max personal tax bracket). Many are paying a tiny fraction of that or nothing at all and still remaining tax compliant.
In addition, here in the Netherlands you have certain "innovation boxes". They will go through your business, if they find it innovative in some way, you get quite a discount on your taxes. I even know one affiliate network having this, so I assume others might have this too.

10-08-2019 09:18 PM #9 ted_tikoun (Member)

Quote Originally Posted by nickpeplow View Post
I believe UAE came off the EU blacklist last week, after they issued their revised substance guidance in June. From what I understand, just having a rented office is no longer enough - you need local employees making "management" decisions

https://home.kpmg/ae/en/home/insight...substance.html

What are the economic substance requirements?

Where an entity is undertaking Relevant Activities the following requirements apply:
— The entity must undertake its key business activities in relation to relevant activities (“core income-generating activities” (CIGA) in the UAE. Details on what constitutes CIGA for each relevant activity are set out in the regulations.
— The entity must be directed and managed in the UAE in relation to CIGA.
— The entity’s activities must be carried out with adequate local “economic substance” with regard to the level of relevant activity in the UAE. Economic substance consists of:
- Full-time employees
- Expenditure
- Premises
Interesting thank you for the share, I didn't know... I live in Dubai and manage my biz there, also I have registered for VAT to be fully compliant and I try to work with some local agencies here to show substance and justify my setup here.

12-30-2019 08:05 PM #10 Digitas (Moderator)

Hi guys, hope you're having a good festive break. Just thought I'd follow up on this thread and provide my two cents too which might be useful. I specialise in optimising tax solutions for affiliates and happy to answer any questions you might have about this. We can also provide a free no-obligation consultation for you on what the benefits might be and how much you'd save in tax. Each case is different and will depend on a lot of factors such as the current tax bills, your nationality, etc so get in touch and I'll guide you.

Not sure if you've followed my posts on other topics but I've summarised two very popular options below

Enjoy the benefits of TAX FREE profits by operating via an offshore entity.

If you are looking for a tax free structure for your business, you can always consider incorporating business in some of the regulated offshore jurisdictions. Below are some key insights into two famous offshore jurisdictions, UAE and Hong Kong.

UAE:

A famous offshore jurisdiction. Setup a free zone entity in UAE.

Benefits:





Drawbacks:




*Other personal factors affecting your tax status needs to be taken into account as well

Hong Kong

Another commonly used offshore jurisdiction in Digital Marketing Industry.

Benefits:


  • Tax free profits *
  • No VAT or any other taxes to worry about as long as you don’t hold any employees in Hong Kong and don’t have any source of income from Hong Kong. However you have to file annual corporation tax returns even if they are NIL.
  • Low setup cost compared to most of the other offshore jurisdictions.



Drawbacks:


  • More annual regulatory filings including annual returns, tax returns, audited financial statements.
  • Annual corporation tax return reviewed by tax authorities and may subject to an inspection for companies claiming tax free profits.
  • Some of the records are public.


*Tax free profits as long as you don’t have a Hong Kong sourced income, Hong Kong resident shareholder/director/key employee.

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