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If you are planning to set up a limited liability company (in particular an Offshore Company), have a quick run through our checklist to ensure you got everything covered. Many investors in the United Arab Emirates are using Offshore Companies (sometimes referred to as SPV – Special Purpose Vehicles) for buying property since they have real advantages when considering Sharia, Transfer and Taxation issues. For more info on considerations before buying an offshore company,
First, think about the purpose of the company.
• Invoicing - if you provide a specialist service, using a company rather than acting as a sole trader could have tax advantages.
• Property holding - using a company to hold property such as buildings, boats and even classic cars can be cheaper and provide savings on tax and property transfer costs. It can also be helpful with probate and executor administration.
• Investment holding - the many beneficial investments available for expats can be held in the name of a company. Having investments in one place at the one address is especially useful if you move frequently with your work.
• Trading - even with small scale trading, having a company may be necessary or desirable for entering into contracts.
• EU Savings Directive – to avoid complications with your offshore banking arrangements in light of this new legislation, a company can alleviate this.
A company could be used for any combination of the above or for all of the above and more - the more you use it the more cost effective it becomes. However, check with your advisor to ensure that any activity you plan to undertake does not jeopardise the tax situation of the company.
Next you need to consider the location or jurisdiction of the company.
• Your circumstances - it generally costs more for you to use an 'Offshore Company' so make sure you stand to benefit from such a set up. If not, consider a local company instead.
• Political stability - riots, wars, coups etc are always possible but very unlikely. Look out for jurisdictions that perhaps you have no idea where they could be in the world. A Tier #1 jurisdiction albeit well known is perhaps too expensive for the activity you require. There again, Tier #3 ones may not provide the same level of investor protection.
• Economic stability - this is connected with political stability. Is the jurisdiction susceptible to economic pressure to change its ways (meaning it should stop offering what might be seen as unfair tax advantages)?
• Company law - ensure that your company is subject to reputable company law. As a rule of thumb and depending on your chosen geographical area, look for English or US law models.
• Investor protection - if buying through a financial intermediary you need to check that the investment you are buying is regulated. Many modern offshore centres have excellent protection schemes in place.
• Good banking - ensure that the jurisdiction has reputable banking. Banks with a world-wide reputation and infrastructure can generally be taken as an endorsement of the jurisdiction.
• Professional services - if the jurisdiction has well-known accountancy firms, legal practitioners, insurance companies and fund managers who employ professionally qualified people, then its likely you are dealing with a reputable jurisdiction.
• Good communications - if you are in one part of the world and your company and its assets are in another, you need to be able to keep in touch easily. Therefore, ensure that phone, fax and email facilities are well developed.
• Language - it is advantageous if your native tongue and the language of the jurisdiction are the same.
• VAT registration - this is optional, but if you need VAT registration consider the Isle of Man. Once you have decided you need a company and chosen the jurisdiction, you need to consider the cost (cost is very often a factor in choosing a jurisdiction).
• Professional fees - get several quotations from different Service Providers (SP's). Ask for brochures, check websites and ask around. Be wary of incorporation agents who do not disclose all the costs involved but offer a headline rate alone to get you “through the door”. An advisor who can relate to all your financial planning and tax implications is worth spending a couple more $ on. Moreover, an advisor with local knowledge of your specialist requirement can also be vary valuable.
• Local Government fees - local fees paid to the jurisdiction government which include Capital Duty, filing fees, residency fees, fees in lieu of taxes etc. When comparing incorporation and other fees from SP's, check to see if government fees are included as otherwise they can come as a costly surprise. Particularly, in the United Arab Emirates many developers require attestation of documentation for property purchase.
• Domiciliary fees - fees will be payable for having the company located in the jurisdiction (usually for the provision of a registered address). There may also be fees for resident directors, a company secretary and local agents etc.
• Management fees - may cover some of the above but are more likely to include filing annual returns, holding company and board meetings/producing minutes and any other statutory duties required of your company. Other costs to be aware of include accounting, auditing, VAT returns and bank charges. (Are management services required for the type of company you are setting up? Can they be avoided using a different set-up i.e. using a tax-exempt or non-resident company?).
• Penalty fees - some local government fees can result in Penalty fees if not paid on time be aware of the penalty conditions.
• Hidden costs - if you decide to move the company to another SP you may have to pay a fee for the hand over.
• DIY - you may be able to save money by doing some things yourself. For example, keeping the account records, holding board meetings etc.
• Client Agreement/Terms of Business - once agreed, ensure you get confirmation of the fees/quote in writing and ask for it to be incorporated into any Client Agreement or Terms of Business. Doing this will ensure that disputes over costs are likely to be kept to a minimum.
Whilst there appears to be a lot to think about, some of the points on the checklist may not necessarily apply to your circumstances. However, referring to it may help you to ask the right questions which, if nothing else, will save you time, effort & and hopefully some money! For more information go to the Offshore Company Formation section of the website. Similarly, you can download our application form which details all our fees for the full service we offer. |
