4. ADVANTAGES OF OFFSHORE COMPANIES

4.1. Anonymity and confidentiality

The vast majority of the owners of offshore companies utilize nominee directors and nominee shareholders in order to maintain anonymity and confidentiality. There are many reasons for doing so, including:

• In most of the cases the offshore company is utilized as a third independent party having "arm length" transactions with the client's local market. In this case the two companies should not have the same director(s), since the same person cannot sign an agreement between the two companies in his capacity of director in both companies!
• Most countries maintain the tax doctrine that liability for tax is determined according to the location of the management and control of the company. If it is evidenced that the registered directors and registered shareholders of a foreign company are located in the local market the income of the foreign company will be considered as the income of the local owners, for which they will be liable for tax.
• The clients want to maintain a low profile / anonymity for their commercial activities / accumulated profits / investments.

As described above, all of the elements of a company's legal structure, such as shareholders, directors, secretary and legal address are clearly visible in the documents filed in the Registrar of Companies. The Registrar is a government Department respon¬sible for the registration and maintenance of companies in the jurisdiction. It is usually under the control of the Ministry of Commerce. Files with all statutory documentation, such as certificate of shareholders, direc¬tors, and so on are kept at the Registrar for all companies. The public has a right to view these documents without providing any reasons whatsoev¬er, for a minimal fee. The law gives this right to the public so that people may make informed decisions as to whether to invest in any given company or lend it money. The reasoning is that since the shareholders have limited liability, the public should at least be able to examine the legal structure of the company prior to making an investment decision.

However, and fortunately for those of our clients who wish to conduct their business in anonymity, the legislature of most offshore jurisdictions also allows for nominee shareholders and directors to be used. In essence, this means that it is the nominees' names that are on public display, and not the names of the real owners. It should be taken into account that absolute anonymity is impossible in cases where there are criminal proceedings pending against the company. The names of the beneficial owners will be revealed only upon a court order from the Supreme Court. Some of the reasons for such proceedings may be dealing in narcotics, weapons, radioactive materials or other criminal activities. As a rule, inquiries from foreign tax or customs inspections have no jurisdiction over such companies and as such no information is revealed.

4.1.1. Nominee shareholders

are able to hold shares on behalf of the real owners thanks to the concept of trusts, which was origi¬nally elaborated by English Common Law and goes back to medieval times. A trust is an arrangement whereby a person (physical or legal) called a trustee is the disclosed owner of property, but holds it on behalf of and for the benefit of another, called a beneficiary. A written instrument called a Declaration of Trust or a Trust Deed usually creates trusts. Any third party, which wants to find out the identity of the owners, will only see the names of the trustees.

For secure ownership the following documents are provided by the nominee shareholders to the beneficial owners of the company:

1. The Declaration of Trust.

This document signed by the nom¬inee shareholders certifies that they hold the shares on behalf of the beneficial owners and lists their responsibilities in doing so; they can not vote with the shares, they can not pay dividends, they can not transfer or mortgage the shares, they can not increase the share capital etc., except with the written instruction of the beneficial owners.

2. A pre-signed Instrument of Transfer is a document by which the trustees in effect transfer the shares back to the beneficiary. This document is pre-signed by the trustees but not dated. All the owner has to do to remove the trustees from the legal structure of the company is to sign the Instrument as the acceptor of the shares and inform the Registrar of Companies of the change.

3. The original share certifi¬cates that also belong to the beneficial shareholder.

Extracts from the Declaration of Trust:

" We undertake and agree not to transfer, deal with or dispose of the said shares or any of them except as the owners from time to time direct. And further to give full effect to the trust hereby declared we hereby deposit with the owners the certificate for the said shares together with a transfer there of executed by us in blank and we hereby expressly authorize and empower the owners at any time to complete such transfer by inserting the name or names of any transferee or transferees and the date of the transfer and to complete the same in any other particular.

And we declare that this authority is irrevocable by us.... And we further undertake and agree to exercise our voting power as holders of the said shares in such a manner and for such purposes as the owner(s) may from time to time direct or determine.

Extracts from the pre signed instrument of Transfer:

"... and we (PPB INC trustee companies) hereinafter called the transferors as per declaration of trust dated (date) do hereby transfer to (names of client) here¬inafter called the transferee, the shares shown in the schedule hereto held by us in the undertak¬ing called (name of offshore company) to hold unto the said transferee(s) his / their executors, administrators and assignees..."

4.1.2. Nominee directors and secretary

Similar to the trustee (nominee) shareholders, nominee directors and secretary may also be used, in order to achieve full anonymity. These are individuals, or legal persons, who undertake the functions of these positions, in order to provide anonymity for the client. It is understood of course that these persons can not possibly be as familiar with the business of each individual client as the client himself is, and as such act only, and strictly, in accordance with the wishes and instructions of the client.

It should be pointed out that there is no such term as nominee in the eyes of the law. As such, directors even if acting as nominee, never¬theless are legally responsible for the activities of the company. Therefore, directors should approach their posts with full awareness of the responsibilities and obligations that go with them.

For total control of the company by the client upon their appointment, the directors and secretary should give to the real owner resignation letters, signed but undated. Also the nominee directors and secretary must confirm that they are prepared to cease rendering their services upon a request from the owners. In this way, the owner may remove them from these positions at any time he sees fit. Thus, as we look at the nominee structure as a whole, the client is simultane¬ously provided with total anonymity on one hand, and full freedom to effect changes in the legal structure of the company on the other. All the documents prov¬ing ownership and anonymity, yet enabling him to alter the structure, are in his possession.

Extract from the undated and pre signed resignation letters:

" ... I hereby give you notice that I wish to render my resignation as a director of your company as from today, due to other commit¬ments.... "

We have therefore considered the two issues that any client should normally consider;

• the secure ownership of the company for the client in relation to the nominee shareholders
• the ultimate control of the company by the client in relation to the nominee directors

It is also important that those making use of offshore companies with nominee directors and nominee shareholders retain an established and reputable management company like PPB INC to provide these services.

There are two additional agreements that govern the relationship between the management company, nominee directors and nominee shareholders on the one side and the beneficial owner and client on the other.

1. The first document is the engagement letter that lists all the work that the management company will carry out for the company, like accounting, auditing and filing the relevant tax applications if necessary, and sets out the responsibilities of the nominee directors and nominee shareholders to act in accordance with the clients' instructions.

Extracts from the engagement letter:

" ... in the provision of services referred to the above, we shall not be liable for any loss to the company however we shall be responsible if those losses arise because of any willful and individual fraud or wrong doing by our side"

2. In the same manner that the above documents protect the client, the indemnity letter signed by the owners of the company will protect the nominee directors and nominee shareholders, in the event that the beneficial owners of the company engage in illegal, criminal and fraudulent activities that will in any way endanger the nominee officials of the company. It is quite logical for the nominee directors not to be responsible for matters beyond their control.

All client information is securely kept at the PPB INC head offices in Nicosia, Cyprus. All service and administration of the clients take place from the head office, in this way guaranteeing confi¬dentiality and total discretion. No information regarding clients is kept at any office other than the central office in Limassol.

PPB INC POLICY

• We maintain confidentiality –We recognize confidentiality as a privilege and even within the firm we only divulge sensitive information on a need to know basis.

4.2. Low or no taxation

The offshore jurisdictions offered by us allow our clients to run their business in an atmosphere of very low taxation, or no taxation at all. There are many types of taxes imposed upon businesses in high tax jurisdictions, such as income tax, VAT, tax on turnover, tax on salaries, tax on dividends, municipal taxes, defense taxes, road taxes, fire-fighter taxes, real estate taxes, and so on.

When we speak about no tax, we mean it. Our no tax jurisdictions, such as Bahamas or Gibraltar do not impose any of the above taxes. A company registered in such a jurisdiction pays no tax whatsoever of any kind.

If we look at jurisdictions with low tax, we are talking always about a tax on the actual net income of the company. A jurisdiction with such a tax is Cyprus, where the tax is 10% on net income. Net income is calculated by subtracting from revenue all expenses incurred by the company in connection with the running of the business. This includes cost of goods sold, salaries, travel and hotel expenses, and entertainment of clients, professional fees, commissions and so on. There are no limits, other than reasonableness, for these expenses. Further, salaries themselves are not taxed at all if the company's personnel is located outside Cyprus.

Yet other jurisdictions, the Isle of Man for example, impose a fixed tax (STG750, or USD 1,275) on a company, regardless of its profits, or losses for that matter.

It should be added that the company as a legal person is a legal subject of the country in which it is registered. As such, it is subject only to the laws of that country, notwithstanding the citizenship of its owners, its field of activity or other factors. Moreover, it is not obliged to register with the Tax Inspection of any country other than the one where it is registered.

No wonder that thousands of businessmen and companies utilize offshore companies for international tax planning, including world renowned multinationals such as Pepsi Cola, Tetra Pak, Barclays, RJR Nabisco and others.

4.3. Exchange control

In all of our jurisdictions without exception, offshore companies are not subject to any exchange controls whatsoever. Say, if a company holds an account in a Cyprus bank, it can receive funds in cash or non-cash, in any currency, and also make payments to any person in any country, or make cash withdrawals, without any explanations or documentation whatsoever required by the bank. Thus, the company operates in a completely unrestricted banking environment.

4.4. Secure political and banking systems

after the emergence of newly independent countries on the territory of the former COMECON bloc there has been quite a number of bank failures, and outright pyramid schemes, which has cost the public an immeasurable amount of lost savings and earnings. Unfortunately the described processes have not ceased up to the time of the present publication. In summer - autumn 1998 Russia's economy was shattered by severe economic crisis. This depreciated rouble capitals and led to multiple losses and bankruptcies. The clients of PPB INC in their majority do not rely only upon their rouble accounts or state securities. It is the offshore structures' activity that allows a company to overcome the hardships of the crisis and stand against its consequences with greater success than its short-sighted competitors.

Yet it is not only shaken Eastern European economies which are suggestive to businessmen regarding the achievement of safe haven status for their capital. Banking systems in most developed countries invariably are on the side of the tax inspector when it comes to the information access to client records. As such, securitization of one's business interests and assets has for years attracted businessmen and wealthy individuals long before Eastern Europe became a free market.

Jurisdiction categories: Cyprus, England, Delaware – USA, Bahamas, Isle of Man, Gibraltar.