If someone wants to achieve maximum secrecy of ownership, for this there are certain legal ways, although they do not guarantee 100% reliability

As you know, owning a business abroad — both in an offshore jurisdiction (also called a “tax haven” or “tax haven”) and in a country with normal taxes — is not a crime. This is the freedom of enterprise, the freedom of business. Anyone should have the right to create a business and open bank accounts where he sees fit.

What is an offshore company (aka “tax haven”)? This is a place where you can not pay taxes and where the rules regarding the confidentiality of the owner of the business. 

Panama or the Cayman Islands is considered offshore, but the Netherlands, for example, no. The Republic of Cyprus was once a tax haven, and now, after joining the EU, does not belong to this category of countries. But “in everyday life” very many in Ukraine call all foreign jurisdictions as offshores.

In normal countries, a citizen has the right to create companies anywhere. Both in ordinary and in offshore countries. The main thing is that the income received from these companies is taxed.

So far, there are inadequate rules in Ukraine that restrict citizens from the right to invest abroad, but these rules are fairly easy to circumvent and create a foreign company, including an offshore one. At the same time, without violating the law: 

Ukrainian legislation restricts citizens in the right to invest abroad, but at the same time, if you create a company without investing – for example, getting business as a gift – the permission of the NBU is not necessary. And many citizens of Ukraine use this.

What are foreign companies used for?

Many foreign companies are created to secure asset ownership, counteract raiding and unfriendly takeovers, corporate wars. As long as the company does not violate the law, there is nothing wrong in that. Another question is if such a business is used with violations of the law. This is not necessarily money laundering, corruption schemes, or illegal proceeds (for example, bribes). Most often it is tax evasion.

Wherever the company is registered, no one cancels the need to pay taxes. The business owner must declare all his income from a foreign company – of course, provided that these incomes exist. And if he does not declare income received from his overseas business, this is already a violation of the law – including in Ukraine. If a non-resident company is used to sell a business, if a foreign offshore company receives income from the sale, there will be no problems if there are no CFC rules (controlled by foreign companies) in the country of the owner.

And only after the proceeds from the sale of the business are transferred from an offshore company directly to its owner, will the tax consequences arise for the latter. 

And if this physical person is a resident of Ukraine, he (she) will have to indicate the full amount of dividends received in the tax return next year and pay the tax in Ukraine.

Any operation of a foreign company can lead to taxes, and in various countries. But if a company from an offshore jurisdiction is involved in active international trade, there is a risk that, in countries that trade with this offshore, its counterparties may have, for example, problems in respect of transfer pricing compliance. That is, you need to analyze specific transactions. And only then you need to decide whether there is a failure to pay taxes in a particular country or not.

Non-offshore

Every day the world is becoming less offshore. Many countries retain “zero” taxes, but already disclose information about business owners. All over the world, there is a struggle for maximum transparency in owning a business and disclosing the beneficiaries.

There are fewer and fewer jurisdictions remaining to hide the real owners of companies. 

Until last year, such jurisdiction was, for example, Panama, in which bearer shares were allowed – who owns the shares, owns the company. But since 2016, all owners of such companies have been obliged to re-register shares into ordinary ones – thus, the names of the owners are now in the register.

Standard rules and principles are now all over the world: the registries of company owners are being created (in particular, in the European Union according to the 4th EU directive on the fight against money laundering, such registries must be created before June 26, 2017). Information about the owners of such registers will be available to financial intelligence services of EU countries, bankers, and in some situations – to journalists upon special request. A similar procedure has already been introduced in its legislation by the UK, where it is necessary to disclose the persons controlling the business.

In addition, in countries such as Ukraine, there are also obligations to disclose the beneficial owners of companies, and in particular, it is forbidden to disclose nominee shareholders – real ones are required. Therefore, if the Ukrainian company owns an offshore company, and this offshore company has “shareholders” provided by the fiduciary services provider, we have no right to disclose them, but must indicate the real business owners.

Sometimes Ukraine even “goes too far” in matters of confidentiality – for example, we all can get information on the residential address of the business owner. In civilized countries, this is not.

1. You can transfer assets to a discretionary trust.and in this case, the trust manager will be the official “owner” of all the assets on perfectly legal grounds. True, this is not an absolute defense, since any country can adopt a law on disclosure of information on beneficiaries of a trust, even if they (the beneficiaries) have no rights regarding management and control. You can transfer the property to a trust that does not have a beneficiary or the beneficiary is a charitable foundation, and you can manage this business yourself, for example, remaining the general director of a company that is “under” a trust, or the so-called “protector” of trust. it’s time to buy my own company from a trust again and become the legal owner of the business, but not now, but, for example, in 10 -20 years.

However, all this works only on the basis of the law – and not in cases where the law is ignored, as was done by the NBU in relation to the disclosure of bank owners.

2. In addition, as an alternative to trust, there may be the so-called Foundation, which is being created in civil law countries (Liechtenstein, Luxembourg, Switzerland, Austria).

3. Also, a real owner can “hide” through agent schemes – by entering into a profit-sharing agreement with an agent company that belongs to a completely independent person and gives its principal under the contract, say, 99% of the profits. The company principal is “not visible” in terms of corporate ownership.

But in any case, you need to understand that such legal ways to preserve anonymity are now less and less, and they entail certain risks. In particular, those who register their companies for nominees are not professional trusts and nominal shareholders, namely friends, acquaintances, etc. – risk losing all your business in the fight for confidentiality. They have no defense mechanisms against company seizure and deception.

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