Before buying an offshore, potential buyers usually compare the conditions of various vendors - so to speak, “ask the price”. At this stage, many people have the same questions: why are the prices for classic offshore companies so different? In fact, the cost of registration of such a company on the sites of competitors may be 5-10 times different. A tempting low price for an offshore company did not forebode good before, and the situation had worsened over the past year and a half to such an extent that at present, such a purchase might result in criminal prosecution. In this blog, we’ll figure out what forms the price of the offshore, how the sellers manage to reduce it and how relevant is the proverb about “cheap fish” and “bad broth”.

What is included in the cost of an offshore company?

The real offshore price consists of three important components, such as:

  • Required minimum (cost price). This includes the registration of the company in the state register, payment of state duty, a basic package of documents, registration of the registration address, opening of an account in a local bank, international sending of documents and other mandatory procedures.
  • Additional conveniences. In addition to the aforementioned minimum, the customer may need other services - for example, site creation, virtual office, nominal service, etc.
  • Work of specialists. Competent individual approach of the company involves the selection of jurisdiction taking into account your needs, preparation of documents, consulting with foreign registrars and banks. All this requires time and material costs, and therefore, appropriate payment. At the same time, the higher the quality of service and the level of security, the more justified is the high cost of the company’s services.

Miser pays twice: why can you overpay with a cheap offshore?

If a small discount (up to 30%) can be explained by special arrangements between agents or the absence of a nominal service, then obvious cheapness should cause fear. As we have explained above, the formation of the price is quite reasonable and obvious. If you neglect any of the components, you will acquire a non-working tool, and serious problems with the law. Let’s take a closer look at how the sellers manage to reduce the price of a real firm. There are several “classic” situations associated with the purchase of a cheap offshore.

  1. One offshore - several owners. The low cost of an offshore company can be explained by its simultaneous sale to several customers. The last ones do not know about each other and use the offshore calmly, until one of them has problems or issues with the tax authorities. Today, such frauds are quickly revealed and therefore they are extremely rare. However, outspoken scammers, who do not care about their reputation, do it nowadays.
  2. Incomplete package of documents or services. As indicated above, the preparation of documentation is included in the cost of the offshore. However, after payment, it often turns out that some important documents are not included in the declared low price. For example, a bank may require a Good Standing certificate, which the offshore seller will notify the customer about post factum, asking for an additional fee for processing the document. The registrar can also neglect the confidentiality of the customer, for the sake of economy, and, instead of registering a company for a nominal shareholder, issue shares directly in the name of the owner.
  3. Unprofessionalism of agents. The registrar can significantly reduce the costs by recruiting a novice or an inexperienced specialist working according to a “template”. At the same time, neither your wishes nor changes in the legislation, nor the new requirements of the selected jurisdiction and bank will be taken into account. For example, you can buy an offshore company in Panama without being informed that a reporting requirement has been introduced in the country recently. In the absence of an individual approach, the tasks arising in the process, namely, the appearance of a request for additional documents, interaction with government agencies, changes in life circumstances, etc., are not solved or are ineffective.
  4. Poor nominal service. In order to make an impression of offshore as a real company, the nominal employees should be in touch, respond promptly and efficiently to requests, sign documents, etc. If this is not the case, the enterprise causes suspicion. Today, the widespread use of the same nominal employees in many companies is quite common. If desired, it is easy to verify, especially if there is an online service that allows you to find all the companies in which he holds the position of director (as in the United Kingdom). In order to maximize the price of a service, the fraudulent companies may resort to using the following instead of a professional value:
    • documents of dead or non-existent persons;
    • persons without a fixed place of residence;
    • unauthorized persons without their knowledge.

    It goes without saying that in such cases the documents are falsified. The first official request to the company will entail problems with law enforcement agencies.

  5. Fraud on reporting. This turn of events is the most dangerous for the client. Most jurisdictions have certain reporting requirements now. Most often, the machinations are carried out in the states where there is a complete (active) and so-called “simplified” (passive) reporting system. The latest option is much cheaper, but it is suitable for a certain list of companies. What pitfalls can a buyer expect? First, the client may simply not be notified of the need to report or even assure in the absence of such a requirement. The consultant can also include full reporting in the cost, and, in fact, submit passive one, although the company is quite active. Such “skeletons in the closet” are discovered sooner or later, and on one “fine” day, the owner of the offshore will receive a notification from the tax service or other inspection service.

How to protect yourself and your business when buying offshore?

Even if you do not take into account scammers, too cheap jurisdictions are dangerous because of their bad reputation. One of the first problems that you will face is the inability to open a bank account. In addition, underdeveloped countries do not provide proper IT protection, so hacking their vulnerable systems and sites for experienced fraudsters is a simple matter. If you care about your reputation, do not neglect the authority of the jurisdiction when buying offshore. Over the past few years, the trends in the offshore market have changed: legislation has become tightened, many countries have begun the automatic exchange of financial and tax information and have introduced open registers of beneficial owners. Compliance with the new standards has allowed the states to maintain an international reputation, but they are forced to raise the requirements for the registration of companies, conduct due diligence, request additional documents, introduce new registers and so on. All this is associated with higher costs, and, ultimately, with an increase of the cost of opening a company. In view of the above, the client must soberly assess the situation on the market and do not expect that he will receive “all inclusive” for $ 500 without a bunch of problems with the law in addition.

The European Union excluded 8 countries and territories from the “black list” of offshore zones, as it was reported on the official website of the Council of the European Union on January 23. The following countries were removed from the list: Barbados, Grenada, the Republic of Korea, Macau, Mongolia, Panama, Tunisia and the United Arab Emirates. As it was noted in the message, the exсlusion was justified taking into account the expert assessment of the obligations undertaken by these jurisdictions to eliminate the shortcomings identified by the European Union. In each case, the commitments were backed up by the letters signed at a high political level. At the same time, the above countries and territories belong to a separate category now, subject to close monitoring.
We remind that on December 5, 2017 the EU announced its intention to exclude 17 jurisdictions from the “black list” of offshore zones that do not take appropriate measures to ensure financial transparency and combat tax crimes. Thus, 9 of the planned 17 countries and territories remained on the list, namely American Samoa, Bahrain, Guam, Marshall Islands, Namibia, Palau, Saint Lucia, Samoa and Trinidad and Tobago. This list also contains recommendations on the steps that must be taken to be excluded from it.

Panama bay

Panama in October became the 105th country to sign the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.

The OECD, which sets global standards for the exchange of tax information and tax transparency, said that the signing shows that Panama is currently implementing its cooperation with the international community to ensure transparency.

"Panama's decision to sign a multilateral Convention, is a confirmation of its commitment to take the necessary measures to comply with international expectations in the fight against tax evasion," said OECD Secretary-General Angel Gurría, during the signing ceremony with the Ambassador of Panama in France. "It also sends a clear signal that the international community is united we will continue our efforts for as long as there is nowhere to hide in their efforts to eradicate tax evasion on the shelf.."

Global Forum on transparency and exchange of information for tax purposes is expected to publish in early November estimate of peer review, as the legal framework and practices in Panama coincide with existing international standards of transparency and exchange of information on request during the last three years.

"Future reports will reflect the previous record of Panama on transparency. This signing, combined with the latest legislative changes, opens the door to broad international cooperation, illustrates the good location and Panama's commitment to move forward in the area of ​​tax transparency," said Gurria.

For all forms of administrative assistance in tax matters Convention provides: information exchange on request, spontaneous exchanges, facilitating tax examinations abroad, simultaneous tax audits and assistance in collection of taxes. This provides greater safeguards for the protection of taxpayers' rights. It also allows the automatic exchange of information by choice.

OECD says global convention is seen as an essential tool for the rapid implementation of the new standard for automatic exchange of financial information in tax matters developed by OECD and the G20, which is scheduled to come into force in 2017.

Author: Olena Kutova

senior lawyer of the Finance Business Service company

The European Parliament and Panama

The European Parliament began its investigation following the hearing Panamanian documents.

Committee of the European Parliament to investigate money laundering, tax evasion (Panama) held its first full meeting on 27 September. It consists of 70 members, including the chairman and four deputies. It will investigate the allegations of wrongdoing and improper administration in the application of European legislation on money laundering, tax evasion and tax avoidance by the European Commission or Member States.

Its creation was due to a leakage of 11.5 million documents relating to Panamanian law firm Mossack Fonseca. Data relating to the ownership of bank accounts and offshore companies in 21 jurisdictions, and cover a period of almost 40 years, until the end of 2015.

Parliament said that the journalist Frederic Obermayer suggested that Panama's documents represent only the tip of the iceberg, and argued that EU banks are actively helping their clients evade taxes.

Parliament added that the Swiss journalist Oliver Zilmen described the use of the system, including intermediaries, such as, for example, Swiss lawyers who actually run companies, Russian money and banks in Cyprus and offshore companies with fake directors in Panama, "which simply all signed."

Author: Olena Kutova

senior lawyer of the Finance Business Service company

Tax transparency in Panama

Cabinet of Panama On September 6, 2016, approved the legislation providing for the corresponding nation latest international tax transparency initiatives.

The legislation would improve fiscal transparency in both the private and public sector, and ensure that the information provided by financial institutions area.

In addition, the legislation will allow the Ministry of Economy and Finance, in order to better gather the information necessary to share with other countries and make him improve the supervision of financial statements.

The bill will be considered by the National Assembly before the end of the year.

September 8, 2016, the World Bank Board of Executive Directors approved a USD300m loan to support Panama's efforts to improve financial management and maintaining international standards of tax transparency.

Author: Sergey Panov

managing partner Finance Business Service

Flags of Australia and Panama

In response to the analysis of documents Panama appear serious financial crime task force Australia (SFCT) held a "week of action" against persons suspected of tax evasion.

SFCT made 15 unannounced visits to the states of Victoria and Queensland, and executed three search warrants.

SFCT was launched in July 2015 and is headed by Australian Federal Police and a representative of the tax office, the Australian Commission on Crime Australian transaction reports, Securities and Investment Commission of Australia.

Minister revenues O'Dvayer Kelly said: "Our government built a profile on the basis of more than 1000 Australians found in the leak, and review the information provided to us by other tax jurisdictions, we found taxpayers and advisers related to tax evasion, illegal drugs and corruption."

She said at a press conference: "Some of these Australian taxpayers include dignitaries also include professional intermediaries, which include people who work as accountants and lawyers. The information shown significant tax avoidance arrangements that promoters have to their customers. Some of them are very complex and have several levels of offshore companies, fake shareholders, and other methods to hide the beneficial owners of these accounts and funds."

"Where offshore used for tax evasion, avoidance of corporate responsibility, camouflage and concealment of unexplained income, promotion of criminal activities and the laundering of proceeds of crime. The Australian Tax Office will work with international partner’s law enforcement agencies to investigate and improve tax evaluation and make sure they ar held accountable."

Also determined that the amount of cash turnover associated with the Australian organization referred to in the documents of Panama more than AUD2.5 billion (USD1.9 billion).

According to documents Panama was mixed with domestic and international banks to build a picture of offshore services providers, if they belong to Australian individuals and businesses.

Author: Olena Kutova

senior lawyer of the Finance Business Service company

Panama and the European Parliament

The European Parliament's Committee of Inquiry into Money Laundering, Tax Avoidance, and Tax Evasion (PANA) has announced the appointment of its chair and four vice chairs.

The constitutive meeting of PANA took place on July 12, 2016. Wenrer Langen was elected chair, with Ana Gomes, Pirkko Ruohonen-Lerner, Fabio de Masi, and Eva Joly to serve as first to fourth vice chairs, respectively.

The Committee consists of 65 members, excluding the chair and vice chairs. It will investigate alleged contraventions and maladministration in the application of European Union law with respect to money laundering, tax avoidance, and tax evasion by the European Commission or member states.

Its establishment was prompted by the leak of the so-called Panama Papers, the leak of more than 11.5m documents belonging to law firm Mossack Fonseca. The data leaked relates to the ownership of bank accounts and companies in 21 offshore jurisdictions, and covers a nearly 40-year period, through to the end of 2015.

The Committee is required to submit its final report by June 8, 2017, when its mandate from the European Parliament will expire.

Author: Olena Kutova

senior lawyer of the Finance Business Service company

Japan-Panama

Japan and Panama have agreed to conclude an agreement on the exchange of tax information.

Negotiations for this agreement were launched after the Japan-Panama summit meeting which took place on April 20 this year between Prime Minister Shinzo Abe and President of Panama Juan Carlos Varela.

The two leaders shared the view that Japan and Panama must immediately begin formal negotiations on an agreement on the exchange of tax information.

Currently it is likely that Japan will become the first country to sign an agreement on the exchange of tax information with Panama after the leak "Panama Papers" earlier this year.

The agreement will include the rules in accordance with the general standard of the automatic exchange of tax information between countries created by the Organization for Economic Cooperation and Development.

Author: Sergey Panov

managing partner Finance Business Service

Tax reporting Panama

After the European powers threatened to make a raid on tax havens, Panama agreed to join the global standards of tax reporting.

Secretary of the Organization for Economic Cooperation and Development, Angel Gurria, said that Panama agrees to comply with international standards, in spite of the differences which have arisen in the press, which emphasized Panama's refusal to cooperate in international efforts to curb tax evasion.

"We have just received information that a few minutes ago Panama gave publicity that they will join the common accounting standards," he said at a press conference during the spring meetings of the International Monetary Fund and the World Bank in Washington Gurria.

"If this is so, then it's really good news, and we welcome this step. It is the silver lining of this incident" said Gurria.

Adherence to the common accounting standards will come into force next year.

"Panama's path to financial transparency is irreversible," said the Vice-President and Minister of Foreign Affairs of Panama Isabel de Saint Malo. "To this end we willingly and actively support the diplomatic dialogue and internal reforms to address this global problem."

Author: Olena Kutova

senior lawyer of the Finance Business Service company

Corporate tax in 2016

UK - The Corporation Tax main rate for 1 April 2016 is set at 20%. This rate will fall to 19% for the year beginning 1 April 2017, and to 18% for the year beginning 1 April 2020.

Hong Kong - Profits tax levied at rate of 16,5% for companies carrying on business in Hong Kong (and 15% for unincorporated businesses) on relevant income earned in or derived from Hong Kong.

Ireland - Standard corporation tax rate on trading income is 12,5% and 25% on non-trading income.

Cyprus - Corporate tax rate is 12,5%. Certain types of income subject to Special Contribution for Defense at rates of 17%(dividends), 30%(interest) and 3%(rents).

Latvia – Rate is 15%.

Belize - All non-CARICOM residents, who have any taxable receipts originating from Belize, or in respect of any service provided in Belize, are required to pay business taxes as follows: Dividends - 15%, Insurance Premiums - 25%, Interest on Loans - 15%, Management fees - 25%, Rental of plant and equipment - 25%, Technical Services - 25%.

British Virgin Islands - No income tax.

United Arab Emirates - Income tax decrees currently enforced on oil and gas companies and branches of foreign banks. Oil and gas companies subject to rates of 50%55%, depending on Emirate.

Panama - Standard rate is 25% of net income, alternative minimum tax is 1,17% of gross taxable income.

Seychelles - Taxable income up to Seychelles revenue commission (SCR) 1 million taxed at 25%, income above SCR 1 million taxed at 33%. Businesses with turnover below SCR 1 million taxed at 1,5% on turnover, unless they opt for normal regime. Special rates apply to certain businesses.

Czech Republic - Rate is 5% for basic investment funds and 0% for pension funds (with certain exemptions).

Estonia - rate is 20%.

Author: Sergey Panov

managing partner Finance Business Service