Websites or E commerce business case study

Mr. Rusu is a Romanian citizen, student in IT field, who owns several websites. He also launched a free online game that has lately become increasingly popular. The growing number of users and visitors, both on websites and the online game, made the opportunity to profit from the sale of advertising and fees for users.

THE PROBLEM:

Achieving efficient structure in terms of taxation for commercial purpose for the websites Mr. Rusu owns as an individual.

THE SOLUTION:

Oneworld MidEast Ltd (Dubai branch) proposes setting up a company in the residency country of Mr. Rusu and another two offshore companies in Dubai and Cyprus, in order to optimize income taxation. Therefore Mr. Rusu will be the shareholder only for the Romanian company and Dubai one. The Cypriot offshore company will have as shareholder the Dubai offshore company and a Cypriot director and will operate the websites business (sell and collect) and pay royalties to Dubai offshore company.

All the websites will be owned by the Dubai Offshore company, while the Romanian SRL will provide maintenance as subcontractor to Cyprus Offshore Company.

In this situation we have to deal with the EU "E-Business Directive" (Council Directive 2002/38/EC) which came into effect on 1st July 2003. The effect of this directive is to implement the imposition of VAT in on Internet delivered information or services within the EU. This amounts to a tariff of between 13 and 25 percent on items such as software or music downloads any transactions as part of online auctions and subscriptions to internet service providers, sold over the internet anywhere within the European Union.

The directive applies to non-EU companies and providing Internet delivered information or services within the EU. In this case the company is liable to criminal prosecution for tax evasion, money laundering, false accounting or similar offences.

Non-EU vendors must register for VAT in one of the European Union Members States. The VAT authorities of the Member State in which the Non-EU vendor has registered will remit VAT collected to the states in which sales have been made. The rate of VAT and rules relating to VAT vary from state to state. The home address of every customer will need to be obtained, the rate of Vat applied will be dependent on that information and records would to be maintained for the VAT authorities. But establishing all customers' location could be an administrative nightmare.

 

Therefore establish a subsidiary in a Member State where VAT is low or there are other fiscal or operational advantages is the best option for a Non-EU vendor. This will circumvent the need to clarify the location of each customer as local VAT regulations would apply and the subsidiary would be regarded as a normal EU enterprise.

In the first year of activity Cyprus offshore Company made 100,000 euros revenues. Of this amount the offshore company must pay to Romanian SRL 10,000Euro management services for the websites and 80,000Euro for royalties to the Dubai offshore Company. In the Cyprus offshore company there will be a 10,000 euro profit left, on which a 10% tax will be applied. Of the remaining 80,000Euro the Dubai offshore company will pay no tax.

NOTE

If Mr. Rusu would be establishing only the Romanian company, then paid tax structure would have been the following:

90,000Euro x 16% income tax = 14,400 Euro

(90,000Euro-14,400Euro) x 16% tax on dividends = 12,096 Euro

----------------------------------

Total tax paid = 26,496 Euro

Therefore our proposed business structure has streamlined Mr. Rusu business with 25,496 Euro.

Regards

 

Winston

TAX MINIMISATION STRATEGIES FOR OFFSHORE COMPANIES CASE STUDY

 

 

There are many traditions that offshore companies can be used as part of a plan to minimise tax on International Trade and Investing.

 

Here are a few practical examples:-

 

1.      Advertising and marketing service based businesses

 

Some of the more popular activities conducted from offshore include service based activities such as advertising and marketing, as well as the sale and distribution of information-based products. Take Facebook for example. Australia is one of Facebook’s most successful markets with 11 million users, or about 68 per cent of the internet population

 

The media buying consortium Group M estimates this year Facebook will earn $55 million in advertising revenue from Australian users. But the vast majority of that will be billed via Facebook Ireland, where the commercial tax rate is less than half that of the 30 per cent levied in Australia.

 

Google also bills Australian users of its advertising system via its Irish subsidiary. That has allowed it lawfully to pay $74,176 in tax on revenue of $201 million – a figure industry sources say might be as little as a tenth of its real revenue.

 

Once the revenue from selling merchandise and currency for gaming apps such as FarmVille is taken into account, marketing industry sources say the true figure of Facebook’s Australian business could be closer to $100 million.

 

Because Facebook does not file its accounts in Australia no one but the company knows how much, if any, tax it should pay to the Treasury.*

 

The key to the successful use of Offshore Companies for such activities centres on the service being seen to be provided from Offshore (+ the service must be billed at a commercially realistic rate). This requires particular attention to be paid to the wording of sales and other commercial agreements.

 

Additionally, it is vitally important to ensure that the Offshore Company is not seen to be operating from onshore. For example it would not be advisable for the Offshore Company in this instance to have a permanent physical office in any of the countries where its customers are based.

 

Regards

 

Winston Wambua

 

 

OFFSHORE COMPANY CASE STUDY

SITUATION:

 

Mr. Sergei is a Russian citizen with residency in UAE and is a highly paid technical independent consultant in petroleum industry who works with companies from Russia and Middle East.

 

THE PROBLEM:

 

Mr. Serge is interested to invest his incomes on the UK real estate market and in the same time to find an efficient invoice solution for the clients in the Middle East.

 

THE SOLUTION:

 

Oneworld Mid East ltd incorporates an offshore company in the BVI for Mr. Sergei and organizes banking facilities with a prominent world bank in London. The BVI has an established financial industry. Mr. Sergei is appointed as the sole Director and Shareholder of the Offshore company and arranges finance with our assistance, through the bank for the properties purchase. Thru this offshore company he will purchase the two real estate properties in London, one worth 500,000 £ and other 1 million £.

 

Therefore the BVI Offshore company is the registered owner of the properties and registered itself under the Non Resident Landlord Scheme as the property is to be rented out to cover the finance payments. The BVI company can also claim UK tax relief on the loan interest to set against any possible rental income profit.

 

In the same time Mr. Sergei is able to invoice through his offshore company to Middle East clients, and have the fund remitted directly to his London based bank account without attracting taxation. Related to this, Mr. Sergei is also benefiting from the Limited Liability that a BVI Offshore Company affords him, so any threat of damaging litigation is greatly reduced. A BVI offshore company presumes low startup cost and low maintenance, excellent reputation and credibility, British style on legal system and working with world class financial institution in a political stable market. All of those helped Mr. Sergei solve his issue and produce wealth and reducing cost.

 

Mr. Sergei is able to utilize his accumulated funds anywhere in the world as he is able to access his bank account over the internet and utilize a globally accepted bank cards on the account.

 

NOTE:

 

After 3 years Mr. Sergei decides that he would like to sell one property as the UK real estate market has shown good growth. The second property is sold for £ 1,500,000 and has made a capital gain of £ 500,000. No UK tax is levied on this gain as the property is owned by a BVI Offshore Company and the monies are able to be held with the bank in London for further use or reinvestment. Mr. Sergei has been able to realize the Capital Gain on the property and remove any possible tax burden on the UK rental income. He has also been able to utilize a world renowned bank in London to finance the properties purchase.

 

              

Regards

Winston Wambua.

 

 

Offshore Company Case Study

CASE STUDY:

Mr. Gillian Luciano is the owner of two companies in the UK, which is his country of residency. He also owns two real estate properties which consist of; Real property in the UK, worth £2.5 Million and Real property in Italy, worth £ 2.0 Million.

Mr. Luciano has several personal loans obtained a few years ago. Lately, due to economic crisis and market upheavals, the operational results of this two business entities were worse than expected and for this reason he has not been able to meet his loan obligations and is currently in default risk. Also, due to the property market downturn, selling one of the properties doesn’t seem a solution for the moment.

Mr. Luciano, owing to these loan defaults and business losses is currently risk entering in enforcement procedure. Consequently it is likely that he loses all his property and this may also have an effect on the activities of his businesses.

THE PROBLEM:

Mr. Luciano needs to protect his assets and his business from the enforcement procedure. When the property market revives he will be able to sell one of the properties at the correct market price to cover all his financing obligations.

THE SOLUTION:

In this situation, the structure illustrated blow could be recommended to Mr. Luciano as an efficient offshore structure (with minimum risk and costs) to protect his wealth against litigation and claims.

Under this structure the properties currently owned in the name of Mr. Luciano is transferred to individual offshore companies.  An offshore company will be set up for the two local companies, in order reduce or eliminate the tax and protect it from any possible litigation. An individual offshore company for each of his properties will be set up in order to protect assets and to optimise tax when selling one of the properties when the market conditions turn around.

On the top of these offshore companies, this recommended structure we will have a Offshore Foundation. Offshore Foundations are key tax exempt asset protection structures. Offshore foundation has its own legal personality and no legal owner over a trust. Foundation can be well mixed with offshore companies to maximize privacy, business confidentiality and to protect assets, accumulate and manage wealth.

When the real estate market recovers and Mr. Luciano could sell one of the properties at a correct market price. Under this proposed structure, he will be selling one of the offshore companies owning the property optimizing all transaction tax costs and cover all his debt.

Also having a foundation as owner of an offshore Company enables the profits of the Company regularly transferred to the foundation but should a bankruptcy of the corporation occur, it would not affect the foundation at all.

This structure will provide Mr. Luciano the following benefits:

This structure will give Mr. Luciano he will not be the direct owner of the offshore companies and thus it provided him with an extra layer of protection and make him less vulnerable to liabilities.

Mr. Luciano will be the Protector of the Foundation but not the founder. The Foundation constitutes a separate legal estate from that of the Founder and its assets are protected from future claims against him.

Also Mr. Luciano will be the sole beneficial owner of the Foundation and thus can legally transfer all assets to his family or another third party, appointing them as secondary beneficiaries.

Regards

Winston Wambua

Email: winstonk@live.com

Skype: winston.wambua