I. IN GENERAL
An International Business Company, or IBC as it is commonly known, as an entity created and designed for the main purpose of providing a vehicle for persons or a group of persons to utilise in order to carry out any legal purpose or activity such as:
- Investment vehicle to handle investments offshore;
- Open an international bank account;
- Transact foreign exchange business without exchange controls or restrictions;
- Guarantee a liability or obligation of any person and to secure any of its obligations by mortgage, pledge, or other liability of any of its assets;
- Protect the assets of the company for the benefit of the company, its creditors, its members, and of any person with a direct or indirect interest in the company;
- Purchase, redeem or otherwise acquire and hold its shares and the shares of other business corporations, and many other activities.
Depending on where the IBC is domiciled (its jurisdiction) there are some restrictions on what an IBC can do. Usually they include:
- Carry on business with people residing in the jurisdiction where it is established;
- Carry on banking, trust, or insurance business;
- Provide a registered office for companies, among others.
In most jurisdictions where an IBC is established, it may be exempt from local taxes or duties, provided that it does not employ residents or, in some cases, income earned by the IBC is from a source outside of the domicile country (e.g., a Bahamian IBC whose income is solely earned from outside of the Bahamas). This encourages non-residents to structure their international interests in that country and invest their capital accordingly. Oftentimes the only taxes payable are the annual renewal fee, which is payable to the Companies Registry Office or similarly named office of the local jurisdiction. Many such jurisdictions that are commonly known as "tax havens" do not have any tax treaties with the US government, thereby avoiding issues of potential double taxation. Generally such countries do not have any direct imposition of tax, those respective governments obtain revenues through custom duties and imports or tourism.
In many jurisdictions, shareholders of IBC's are generally exempt from all income, capital gains and corporate taxes. Further, there is also an exemption from inheritance, succession and gift taxes, stamp duties in reference to transfers, and foreign exchange control regulations.
An IBC can do business in the USA and generate income through efforts in the US. However, the general rule is that the IBC will be required to file tax returns of the income earned in the US to the Department of Treasury (Internal Revenue Services). It may also have to pay state and local taxes, and meet other regulatory requirements.
II INCORPORATION OF AN IBC
Bahamas Capital Management Ltd. can handle all of your incorporation needs as well as provide for its clients business entities from a number of jurisdictions, including The Bahamas. They will handle all necessary filings, governmental contacts, stock certificates, seals, etc., necessary to run the entity legally and efficiently. They will handle amending of the Memorandum and / or Articles of Association that shall be filed in the Registry if necessary, as well as keep the minutes and resolutions current in order to meet Bahamian law, including changes to the types of shares that may be issued or increases in the authorised capital.
III CAPITAL AND MEMBERS
The type of shares that an IBC can issue are as follows: registered, bearer, voting and non-voting, unnumbered, common, preferred, or redeemable shares, including non par value shares, subject to any limitations indicated in the Memorandum or in the Articles of the corporation. It is further possible for an IBC to also issue options, warrants, rights, or similar instruments as well as issue convertible securities.
The normal and usually accepted method of US citizens maintaining a shareholder relationship with an IBC is through the issuance of "bearer shares", i.e., whomever is in possession of the share certificate (the bearer) is considered the shareholder, since the certificates have only the word "bearer" printed in the name space. However, US persons can hold registered shares due to the confidentiality provisions in most jurisdictions (see below). Furthermore, if ultimate security and absolute confidentiality is paramount, the US person can have "nominees" serve as the custodians of the bearer shares in the domicile of the corporation, e.g., officers of Bahamas Capital Management Ltd. can serve as the nominee shareholder(s) for a client's IBC and will take instruction from the client to carry out certain corporate activities. Thus, upon an inquiry by U.S. government authorities or other inquisitors, the U.S. person could state with honesty that he/she have no ownership interests in an offshore corporation.
For most 'tax haven' countries, information regarding shareholders is confidential. The shareholder register need not be registered with the Registrar. Therefore, the identity of a shareholder is not a matter of public domain, except when the Shares Register Book is filed at the Registry, or by the request of a Court. A copy of the Share Register Book may, if warranted by the client, be kept at the Registered Office of the company, indicating the name and address of the shareholders. (In the event of issued bearer shares the identification number of the share certificate, number of each class or series of issued shares and the issuance date).
DIRECTORS AND OFFICERS
In many jurisdictions, the Board of Directors can consist of one or more natural or legal persons. Often, there is no minimum number of officers, unless otherwise indicated in the Memorandum or Articles of Association. However, a Company should appoint both a Secretary and a President. A single director should not occupy both offices.
The incorporates in the Articles of Association appoint the first directors of the company. After that, the shareholders or the existing directors appoint directors for such term as determined by the shareholders or the directors. The directors generally elect the officers.
There are no specific qualifications needed to be a director or officer, except for the age of majority. In many jurisdictions, corporate directors are allowed, and there are no restrictions on Shareholders being directors of the corporation. Furthermore, in all of the tax haven jurisdictions, information regarding the directors and officers is never revealed, since this information is confidential and is not a matter of public record. Neither is the information filed in the Public Registry. However, it is required that the names and general information of Officers and Directors be kept in the Registered Office of the Company.
In many jurisdictions, it is not required to have an annual meeting of the Shareholders or Directors. However, it is suggested for clients whose IBC's do or will do business in the US to conduct an annual meeting of the directors and shareholders and maintain minutes and resolutions passed in that meeting in the corporate record book. Special meetings may be held when the need arises and when it is necessary for the corporation to take a certain action or do a certain activity. Remember that corporations, although given the legal status of a person, are not really people and have no ability to speak for itself other than through its officers and directors. A person can say, for example, "I'm going to open a bank account", and actually go to a bank and do the same. However, a corporation must "speak" through the passing of resolutions that indicate in writing the intentions of corporations. This is why in order for a corporation to open a bank account, the bank requires a resolution from the corporation stating that it has been approved and authorises the opening of a bank account. In other words, the corporation is "speaking" through its written resolutions.
Special meetings are called and held for the sole purpose of passing resolutions such as the need for opening banking accounts, loans, entering into contracts, purchase of high-value assets, etc. In fact, in emergency situations, the Articles and/or Memorandum (Bylaws) can allow for resolutions by consent, without the need for a Special Meeting of either the directors or shareholders.
BOOKS AND REGISTERS
The corporation must keep the following in the record book of the IBC;
- Minutes of each meeting, both Annual & Special
- Resolutions passed at each meeting, both Annual & Special
- Stock Register
- Corporate Seal
As mentioned previously, the record book should be kept in the office of the Registered Agent or at the Registered Office. Needless to say, this creates a certain amount of uncomfortability among US clients who feel that they must have control over their IBC, thereby creating a need to maintain the IBC record book at the office or residence of the US client. Note that although there is nothing wrong with the arrangement, it may create scenarios that pose a regulatory danger to the US citizen as well as create suspicion as to the clients' necessity to maintain the records of a company that he/she could claim they have no interest nor ownership in. In order to avoid these conflicting dilemmas, it is recommended that the record book be maintained in the Registered Office of the IBC; or in the case of the Bahamian IBC, at the office of Bahamas Capital Management Ltd. where, as well as maintenance, the minutes and resolutions can be prepared at your Direction.
From a Bahamian standpoint, the IBC pays no income taxes, corporation taxes, capital gains taxes or other types of confiscatory impoundment's. Therefore, it is not necessary to file annual tax returns in the Bahamas. The only requisite is to fill out and pay the annual license fee that expires on July 31st of each year.
From a US position, the taxing rules are well known and are summarized as follows:
- A foreign corporation (IBC) is taxable on any income made that is effectively connected to a trade or business in the U.S. IRC Sect. 882. Under this provision, the IBC is taxed in the same manner as a domestic corporation, i.e., same tax brackets for US corporations.
- A foreign corporation (IBC) is taxable on income that is not effectively connected to a trade or business in the US (e.g., passive income, investment income, account receivables or any type of periodic income) but sourced in US. IRC Sect. 881. Under this provision, the IBC is taxed at a flat 30% rate which, in some circumstances, may be withheld at the source of payment
- A foreign corporation owning an investment account, whose principal business is not trading of securities is not considered having a trade or business in the US. Therefore, capital gain transactions are not taxed to the IBC under the safe harbor provisions of IRC Sect. 864 (c)(4)(B)(ii). Dividend earnings, however, are taxable to the IBC.
- Foreign corporation having income as illustrated above with offices in the US must file a tax return on it's income on Form 1120 (U.S. Corporation Tax Return) by March 15th (or in the case of a fiscal year basis corporation, filed by the third month of the end of the corporation's tax year).
- Foreign corporations having income as illustrated above not having an officein the US must file a tax return on it's income on Form 1120-S (Tax Return of a Foreign Corporation) by March 15th (or in the case of a fiscal year basis corporation, filed by the third month of the end of the corporation's tax year).
Under the Bank and Trust Company Regulatory Act there are penal sanctions on those involved in banks and trust companies who wrongfully disclose information. It should also be noted that there is a reporting requirement on bank deposits of more than US$100,000. It is possible for foreign law enforcement agencies to obtain a court order demanding production of documents in criminal matters, although a very high standard of proof is required.
Tax Avoidance or Reduction
In tax planning, there may be no Beneficiaries named in the Trust Deed, but for the proposed Beneficiaries to be specified in a Letter of Wishes. In this way the Trustees have absolute discretion as to whom the Beneficiaries are, how much is appointed to each or any of them, and when any distribution may take place. Such a trust is usually described as a "Wholly Discretionary Trust". The major advantage of such a trust is that for tax purposes no individual can be said to own or have any interest in the trust, since it is entirely under the control of the Trustees.
At this stage, it is worth pointing out that the tax authorities in many countries determine the residence of a foreign company on the basis of where that company is "managed and controlled". The basic premise is that management and control rests with the directors of the company. If however the directors are obvious nominees, the tax authority will endeavor to discover the identity of the beneficial owner, who indirectly controls the company. If the beneficial owner is resident within their jurisdiction there is a prima facie case for contending that the company is also resident. This applies irrespective of where trading is carried on. In order to avoid any compromise in this regard an offshore trust or settlement may be established which owns the shares of the company in question. In this way ownership itself is offshore. Other options which are available in this regard are:
- ownership of the shares in the company in question may lie with a person resident in a suitable offshore jurisdiction
- the shares of the company may be issued in bearer form in certain jurisdictions and not held within the jurisdiction of the tax authority in question
Since assets are held in the Trustees' name, Settlors' enjoy privacy regarding the nature of their investments and to whom they are giving benefits. The trust document is not a public document. All documents are handled with absolute confidentiality.
The Letter of Wishes
A letter of wishes - a memorandum setting out the settlor's wishes concerning the way in which the trust should be administered and/or distributed - may be handed to the trustee of a discretionary trust at the time a trust is made, or at any time thereafter. This letter of wishes can be replaced at any time to meet changing circumstances. It may also indicate the person or persons whose wishes should be considered after the death of the settlor. Although letters of wishes are not legally binding they will normally be followed by the trustees.
There are numerous categories of trust, the most common types being: Fixed (non discretionary), Discretionary, Protective, Accumulation, Asset Protection and Maintenance. The most appropriate form can be applied to the settlor's specific criteria. Money movements/payments for example, may be made immediately through designated bank accounts. Suitable banking documentation could be produced to provide hard-copy documentation in an acceptable banking format e.g; deposits, loans or other security and related transactions. These may be recorded in multi currency computerized books of account in The Bahamas, which may be accessed by the client through his modem link with an agreed password. At any time information may be downloaded onto accounts and locally printed. Management accounts will be produced and filed by ourselves on behalf of clients.
Charges for administrative services are generally arrived at by negotiation and will depend upon the volume and level of business. Typically there would be a retainer fee plus an agreed charge for accounting transactions. Mailing and dedicated telephone / fax services are available on request. An application form is available herein for completion and return to us.
In all cases the following will be required:
- Completion of our standard application form
- Full details of all beneficial owners, directors and officers together with suitable references on them from acceptable banks and full details of the auditor.
- Includes Legal fees, capital duties, registration fees and incorporation charges.
- Includes provision of secretary, maintenance of statutory records, provision of registered office and filing annual returns.
- Annual audited accounts are required to be filed, the cost of which will depend upon the number of transactions. In the event of a cancellation by a client of an application that has already been made to a licensing authority there will be no refund of fees Prices are effective from January 2000 and are subject to change without notice
Schedule of fees and Services
The fees paid to an offshore service provider consist of both government and professional fees.
Our fees are competitive not only with other service providers in the Bahamas but the majority of jurisdictions in the Caribbean. We quote our fees on an up-front basis on the services required. Unlike a large number of other service providers and jurisdictions there are no hidden charges. Our fee structure is based on the range of services required and typically discounts are offered for the provision of one or more services.
All of our services are conducted in complete privacy.
For a confidential, private consultation or for greater clarification about any of these matters please contact us and our staff would be pleased to assist you.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Specific Questions relating to this article should be addressed directly to the author.