Best offshore structure saves you millions of tax dollars

Author: STEPHEN LAI

Hong Kong is an international city overall the global world. It has the features that make Hong Kong a well known international city and so many investors from the world would prefer choosing Hong Kong as an offshore company for their international business. There are indeed some benefits:

1. The economic system is market oriented, with a little involvement of government interventions. Many investors can choose what businesses they do, the government are more encourage them to make investments and do businesses.
2. The capital flows of money between Hong Kong and other countries are free and without control and restrictions. All currencies such as US$, etc … can be used in Hong Kong, with free wire between Hong Kong and other countries, only exception that no money laundering is involved nor criminal activities.
3. Offshore business activities are 100% tax free. The Hong Kong tax law has ruled out that only local business is subject to profits tax, overseas business registered in Hong Kong is offshore busines and is not subject to profits tax.
4. Low tax rate. Even the business is done in Hong Kong, the tax rate is only 16.5% of net profits. The tax rate is absolutely low, with no VAT, business tax, no capital gains tax, etc.
5. Formation requirement is very simple. As an international city, a person, overseas person or local person, can be appointed as the shareholder and director of a Hong Kong company, with the requirement that there must have an appointed local secretary and registered office address for correspondings. The shareholder and the director can be the same person. In fact, it is the common way that the overseas businessman can act as a shareholder and director for Hong Kong company, and even he does not require to visit Hong Kong and sign documents. He doesn’t require to get working visa. He only appoints local secretary to do the paper works for him, and even arrange to open an offshore bank account.
6. No capital investment is required. The shareholder is only required to sign up the agreement to declare that he will contribute capital to the company, and no actual capital investment is required.
7. Free use of company name. In other countries, some names are not free to use such as holdings, group,international …., etc. However, in Hong Kong, the name is freely used, provided that they are not registered in Hong Kong, subject to other restrictive rules such as defensive words are not allowed to use.
8. It is easy to open an offshore bank account with using Hong Kong company. Hong Kong as an international city, offshore bank account is rather easy to open with using Hong Kong company, the investor is required to provice his address proof documents, and passsport copy, Hong Kong company formation documents and a general description of his business. HSBC, as in international bank, can accept the above documents and open an offshore bank account with multi-currencies and internet banking facilities. If the investor needs to open an offshore bank account in other countries, overseas banks accept to open offshore bank accounts with Hong Kong company.
9. According to global statistics, Hong Kong is still No. 1 economy freedom.
10. Legal systesm remains using common law systems and equity rules as that applied in UK and Commonwealth countries.
11. The company is private in nature and is limited in liability. That means the sharesholers who subsribe the shares are only liable up to the shares they pick up. For example, if the shareholder who pick up only US$1.00, his liability is only limited up to US$1.00.
12. Corporate shareholders and directors are allowed. In corporate structuring, for business reasons, the director(s) and/or shareholder(s) of Hong Kong company will be appointed by corporate company, even an offshore company. Hong Kong Company Law allows to do it.
13. Trust law is applicable in Hong Kong. For some reasons, if the businessman doesn’t want his name be found in the Public Search, through trust arrangement, the trustee holds the shares for him (as a trustee), and the businessman (as a beneficiary). Trustee will sign up the Power of Attorney to the businessman so that the businessman can sign up the contracts, agreements for his business. It is valid, enforceable and effective in Hong Kong. Remember, in other countries, such as China, there is no such trust arrangement, even it is better done and structured, it is invalid.

Living Tax Free

BY TTD International

Since the 1920’s personal income tax has been steadily rising in most western countries, as their citizens slowly yet surely move further down the road to serfdom.

Based on OECD statistics (2006) the average income tax paid throughout OECD countries by a worker on the average wage is about 37% of gross salary.

When you realize these figures do not include indirect taxes such as local council rates, goods and service tax, stamp duty on property, customs etc., it is conservatively estimated workers on the average wage throughout OECD countries are losing some 40% of their LIFETIME earnings in tax.

Given most of the countries in the Middle East are tax-free, it is an irony that those working in the Middle East under monarchy, have greater financial freedom that those working in most of the western countries of the world under democracy.

A professional woman working in a typical western country recently completed her 12 page tax return, with the help of 3 instruction booklets totaling about 300 pages. It resulted in a tax bill of some US$70,000 in direct tax alone.

She is 50 years old, married without children and visits the doctor at most once a month. Because of the dubious state of the public hospital system, she additionally pays for medical insurance to cover private hospital care.

Thanks to rising property prices over the last 4 years, she will make some US$200,000 in capital gains on an investment property she owns. Of the US$200,000 she will lose some US$50,000 in capital gains tax.

Because her net worth will disqualify her for a government pension in retirement, it all amounts to some US$120,000 in tax for a trip to the doctor once a month!

If she took out international medical coverage with a reputable health insurer, she would pay about US$2000 per year in premiums for comprehensive health care in private hospitals. This leaves her with about US$118,000 to do as she pleases, be that a donation to her favorite charity, or whatever.

Realize the US$120,000 does not include stamp duty on the sale of her investment property, goods and services taxes, local council rates, petrol tax etc. The US$120,000 therefore, is direct tax alone.

Some individuals are definitely not getting value for their tax dollars in high tax countries, and it is usually the productive that bear the burden of income redistribution schemes. The higher your income, the higher your tax burden, without any additional benefits over those paying no tax at all.

In stark contrast to drowning in a stormy see of tax, anyone aspiring to a tax free lifestyle will find it is well worth the effort.

In general terms the strategy is as follows:

1. Accumulate sufficient funds to be able to live off the income derived from capital.

2. Invest the funds in income producing investments via a tax haven, where not only income tax but also capital gains, inheritance tax etc. are zero.

3. Arrange your affairs such that you are not resident in any country long enough to be liable for tax. Alternatively, arrange residence in a tax haven where income from offshore investments is tax free.

Even if the tax-free lifestyle is not for you, at a minimum you can consider locating your funds offshore, such that they are potentially free of taxes at a later date. If not for yourself, then at least consider this option for the sake of your heirs.

Given the rising trend in taxes thus far in most western countries, it is highly likely tax will be more rather than less in the future. It is bad enough now; do you really want to be around when it gets worse?

In fact why not leave now and make this year’s tax return your last?

Work, invest, retire or live in the world’s best tax havens

Article originally published 02/10/2009 by TTD International