International businesses may be operated in the Republic of Cyprus under different legal structures some of which are described below.

SIGNIFICANT FEATURES OF A CYPRIOT COMPANY

• A minimum of one Shareholder is required. Nominee Shareholders are allowed and widely used. A foreign corporate or individual Shareholder is permitted.
• A minimum of one Director and one Secretary is required. A corporate entity, foreign or domestic, may act as a Director. Director’s information is available in the public record.
• There is no minimum share capital. It is customary to have an authorised share capital of €5,000 and an issued share capital of €1,000.
• Different classes of shares with different rights, such as profit sharing, redeemable preference shares and voting rights may be issued.
• Shares are issued in registered form only i.e. bearer shares may not be issued.
• The company must have a Registered Office address in Cyprus. We can arrange both the Registered Office and company Secretary.
• Meetings of Shareholders may be held abroad. Written unanimous consent resolutions may be used.
• Audited annual financial statements and annual return must be submitted to the Registrar of Companies in both English and Greek. Elite Consulting can arrange for the appointment of a local auditor.
• Although Shareholder information is part of the public record, beneficial ownership information is not disclosed to any regulatory authority.
• Elite Consulting maintains shelf companies and pre-approved Cyprus company names.
  With a shelf company the time frame from the date of changes (if any) until delivery, including notarised and apostilled corporate documents is approximately two weeks.
  With a pre-approved company name, the time frame from formation until delivery,
  including notarised and apostilled corporate documents is approximately three to four weeks.

INTERNATIONAL TRUSTEE SERVICES COMPANIES (ITCS)

An overseas company, a Cyprus company or an international partnership may register with the Central Bank for the limited purpose of acting as a private or professional trustee.

INTERNATIONAL FINANCIAL SERVICES COMPANIES (IFSCS)

An overseas company, a Cyprus company or an international partnership may be licenced by the Securities and Exchange Commission to engage in the business of providing “financial services”. The term is defined as dealing in investments, managing investments, providing investment advice or establishing and operating collective investment schemes. Only branches, subsidiaries or associate companies with a good international reputation and established in countries where there is adequate financial supervision will be licenced by the Cyprus Securities and Exchange Commission to offer “financial services” to the public.

GENERAL OR LIMITED PARTNERSHIPS

International partnerships can be registered in Cyprus. Partnership profits are exempt from local taxes.

BRANCH OF AN OVERSEAS COMPANY

A foreign company may register a branch in the Republic of Cyprus. The same has no legal or tax effect but will allow the company to operate from Cyprus and commonly is adopted for commercial and marketing reasons.

Registration of a Foreign Company

A foreign company may register in Cyprus with the result of having two companies which are separate legal entities. Both will have to prepare accounts, or at least for the Cyprus entity, and the company can become resident for tax purposes in Cyprus, taking advantage of the Double Tax Treaties. Provided the alternate country of registration accepts the same and subject to certain tax laws, the company will only be liable for tax in Cyprus.

Merge of Foreign Company with a Cyprus Company

The foreign company, the non-Cyprus company, should at the end of the merge be dissolved and the assets transferred to the Cyprus company. This option is an alternative to re-domiciliation.

Re-Domiciliation to and from Cyprus

Cyprus allows for the domiciliation of a foreign company into Cyprus and for a Cyprus company to re-domicile elsewhere provided the relevant jurisdiction allows for the same. In such a case the company will be de-registered in the country of formation and registered in the Country of the new domicile. Cyprus allows for all EU jurisdiction to re-domicile to Cyprus and a number of offshore jurisdictions such as British Virgin Islands and Bahamas.

TAXATION

The following is an overview of the tax treatment of companies in Cyprus. Please contact us for a full explanation of these rules and how they may apply to a proposed structure involving the use of a Cyprus company.

Non-Resident Company

If management and control is abroad (non-resident Directors) then the Cyprus company is not taxable in Cyprus. This type of company is mainly useful for trade purposes. It cannot benefit from any Double Tax Treaties to which Cyprus is a party and cannot obtain any Tax Certificates stating that it is resident/taxable in Cyprus.

Resident Company

The use of such company is where access to one of Cyprus Double Tax Treaties is required or, in the case of a trading company, where a certificate from the Tax Office is required to confirm that the company is taxable in Cyprus. The net profits of such companies are subject to income tax at 12.5%. However there are special rules for taxation of interest and royalty income.

Dividends

• Dividends received by a Cyprus company are not taxable and are excluded from the tax computation of net- profits. The only instance where the dividends received from a non Cyprus company may be subject to 30% defence tax is if any of the following two conditions are met:
  –  The foreign company paying the dividend is engaged either directly or indirectly by more than 50% in activities which result in investment income, or
  –  The rate of the foreign taxation on the income of the company paying the dividend is substantially lower than the 12.5% rate payable by the recipient company (i.e. less than 5%)

• Payment of dividends from a Cyprus company to a non-resident corporate or individual Shareholder is not subject to any withholding taxes i.e. defence tax.

Interest

• Trading interest received by a Cyprus company is subject to 12.5% income tax on net-profits. This income however is exempt from defence tax.
• Passive interest (interest not obtained from the ordinary activities of the company or from the activities closely connected to the ordinary activities of the company) received by a Cyprus company is exempt from income tax but subject to defence tax at 30%.

Royalties

Royalties are subject to 12.5% tax on net profit and there is no withholding tax on royalties paid, if the use of the right is outside the Republic of Cyprus.

Securities

• The term “Securities” in income tax law covers shares, bonds, debentures, founders’ shares, and other securities of companies or other legal persons and options thereon.
• Profits arising from the trading or disposal of securities are not subject to income tax.
• There is also no capital gains tax unless there is a sale of shares in a company that owns immovable property. In this instance there is a flat rate capital gains tax of 20%.

The IBC is an extremely versatile and adaptable corporate entity for private portfolio holding companies, trading companies, mutual funds and property holding companies.

SIGNIFICANT FEATURES OF BAHAMIAN IBC

• A minimum of one Shareholder and one Director.
• No requirement to file annual returns or financial statements.
• Bearer shares are not permitted.
• Registered shares can be held in nominee form.
• Exemption of company and Shareholders from all Bahamian taxes and duties.
• Board meetings can be held anywhere in the world and can be conducted by telephone.
• Purchase and ownership by the company of its own shares is permitted.
• Statutory power is given to IBCs to engage in any lawful activity.
• Corporate domicile can be changed to another jurisdiction.
• The word Limited, Corporation, Incorporated, Société Anonyme, Gesellschaft mit beschrankter Haftung, Sociedad Anónima or the abbreviations “Ltd”, “Corp”, “Inc”, “GmbH” or “S.A.” can be used in a company’s name to denote limited liability.
• Amendments to the Memorandum and Articles of Association can be easily made.
• The Board of Directors can determine, by resolution, the rights attaching to classes of shares.
• IBCs can conduct business with Bahamians directly and may also own Bahamian real estate, but will in these cases be subject to local exchange controls and stamp duty.
• Details of the Directors and Officers of an IBC must be filed with the Registrar and are open to public inspection.
• Incorporation under the Act is straightforward and can normally be completed in two to three days.
• Company names can be reserved by telephone or fax.
• A company is deemed incorporated on the day incorporation papers are filed with the Registrar of Companies. The certificate of incorporation is issued shortly after the filing of incorporation papers and payment of the relevant government fee.
• Shelf companies are available for immediate delivery.

RAS AL KHAIMAH FREE TRADE ZONE INTERNATIONAL COMPANIES

Ras Al Khaimah, one of seven emirates comprising the United Arab Emirates, became a member of the Federation in 1972. As is the practice with a number of emirates, Ras Al Khaimah, maintains a Free Trade Zone in which international business can be conducted free of local taxes and regulations.

In 2006 Ras Al Khaimah, as one of its various international initiatives, enacted the Ras Al Khaimah International Company Law which is based on the model of the successful international company regime of the British Virgin Islands.

SIGNIFICANT FEATURES

• Minimum of one Shareholder, Director and Secretary.
• Only registered shares are permitted.
• Bearer shares are not permitted.
• Shareholders have the option to choose a proper law (see below) to govern important aspects of company administration.
• Company may own shares in other UAE companies or elsewhere.
• Board meetings can be held anywhere in the world.
• Accounting books, records and minutes may be kept wherever determined by the Directors.
• Can maintain bank accounts in the UAE.
• Purchase and ownership by the company of its own shares is permitted.
• Statutory power to engage in any lawful activity.
• Ability to trade in or own an interest in real property except in Dubai.
• Incorporation procedures can be completed in five working days. Corporate documents are produced in English.
• A corporation can continue as a RAKIC provided the laws of the jurisdiction of original incorporation expressly permit it to continue to another jurisdiction.
• A corporate domicile can be changed to another jurisdiction.

CHOICE OF PROPER LAW

A unique feature of the company law is that it allows the Shareholders to select their choice of proper law (e.g. BVI, Delaware) to decide matters concerning, among others, disputes between the Shareholders, the death of a Shareholder, any other matters to be specified. The choice of proper law must be cited in the Memorandum & Articles of Association.

STATUTORY FEES

The government incorporation fee is US$682, and annual licence fee is US$545.

SHARES

• The minimum capital requirement of a RAKIC is 1 of any denomination.
• The company may issue only registered shares and may create different classes of shares in one or more series having their own rights, privileges, restrictions and conditions specified.
• Bearer shares are not permitted.
• The Registered Agent must maintain the particulars of the beneficial owners of the company.

ADMINISTRATION

A Ras Al Khaimah International Company must have a Registered Agent in the UAE, and a Registered Office which must be maintained by the Registered Agent in the UAE to which all official communications and notices to the company must be addressed.

WINDING UP

The Regulations contain procedures for winding up of a company. We can assist companies to comply with the statutory liquidation requirements.

STRIKING OFF THE COMPANY FROM REGISTER

The Registrar may strike off a company from the Register under the following circumstances by giving one month notice if the Registrar has reason to believe that a company is/has:

• Not carrying on business or is not in operation.
• Acting in contravention of the Regulations.
• Conducting itself in a manner that is prejudicial to the interests of the Ras Al Khaimah authorities.
• Failed to pay any fees required under the Regulations.

Companies are incorporated under the Companies (Guernsey) Law 2008 and registration is effected through the Registrar of Companies in Guernsey. A company is either non-cellular or cellular (protected cells or incorporated cells) and in respect of the liability of its members can be limited by shares or guarantee, unlimited or mixed.

NON-CELLULAR COMPANIES

A Guernsey company must have a Registered Office and Resident Agent in Guernsey and must maintain at least a copy of its minute book, financial records and registers of Directors and members at such an office.

There is a requirement for a minimum of one Director and Shareholder but they need not be resident in Guernsey. There is no requirement for a Secretary.

Every company must hold an annual general meeting of its Shareholders every calendar year, although this requirement may be waived by a 90% majority of the Shareholders.

An annual validation must be filed with the Registrar at 31 December each year, showing the Registered Office address, details of the Directors, Resident Agent, issued share capital and whether the company is exempt from audit. This information is available for inspection by members of the public. The annual validation fee payable is dependant on the type of company. The majority of financial product companies pay £500 per annum.

The Resident Agent must maintain records of the beneficial owner but these details are not part of the company’s public record.

Guernsey companies are required to produce accounts for each financial year although these are not filed with any external bodies. Companies can obtain exemption from the requirement to have their accounts audited providing that they satisfy tests relating to net turnover, net balance sheet and the average number of employees.

Taxation of companies

All Guernsey companies are now resident for income tax at the rate of 0% (zero percent) with the exception of rental income from Guernsey properties which is taxed at the rate of 20%.

CELLULAR COMPANIES

Protected Cell (PCC) & Incorporated Cell Companies (ICC)

Guernsey is one of the first offshore jurisdictions to provide, through its corporate laws, the ability for companies to create protected cells within the capital of the company to segregate the assets within that cell from unrelated claims. Creditors who have contracted with a PCC in respect of one particular cell will only be able to make claims against the assets of that cell and against the general non-cellular assets of the company but not against the assets in other protected cells.

The PCC structure allows multiple currencies and investment strategies within the one company, and also allows for additional cells to be launched cost-effectively.

The ICC has the same benefits as the PCC, but also allows for cells to separate as limited liability companies in their own right.

Limited Partnerships

The Limited Partnerships (Guernsey) Law, 1995 provides for the establishment of limited partnerships. Partnerships will consist of one or more general partners – who will be jointly and severally liable for all partnership debts – and one or more limited partners who will not be liable for any debts beyond the amount they have contributed toward the partnership.

Companies Limited by Guarantee (LBG)

LBGs are private limited companies where the members’ liability is limited to the amount that they have under- taken to contribute to the assets of the company in the event of its being wound up while they are a member or within one year of their ceasing to be a member.

The guaranteed amount can be as little as £1.00 and will be stated in the company’s Memorandum and Articles of Association.

LBGs may also have Shareholders whose liability for the company’s debt is limited to the amount unpaid on the shares they hold. A guarantee member may or may not also be a Shareholder.

LBGs are commonly used for non-profit organisations and/or charities requiring corporate status. Its profits are not distributed to its members but are retained to be used for the purpose of the guarantee company.

DISCLOSURE OF BENEFICIAL OWNERSHIP

There is no requirement for the ultimate beneficial ownership of Guernsey companies to be disclosed to the Financial Services Commission at the time of incorporation. Instead, the corporate service provider is required to make a Declaration of Compliance stating that all the requirements of the Law have been fulfilled.

The name, usual residential address, nationality, date of birth and source of wealth of the ultimate beneficial owners must be disclosed to Elite Consulting. The information disclosed is not a matter of public record and will be maintained in strict confidence.

International anti-money laundering standards require offshore service providers to obtain an accepted level of due diligence on new and existing clients, their activity and source of funds.

DISCLOSURE OF IDENTITY

It may be necessary for Elite Consulting to release information concerning the identity of clients, to service providers such as banks, solicitors or investment managers. These institutions have obligations under anti-money laundering legislation to request such information prior to being able to provide services.

STRUCTURING

Elite Consulting will ensure that clients are able to obtain credible and effective legal and tax advice when structuring their affairs through an introduction to a network of highly reputable international legal and tax advisors.

FORMATION OF COMPANIES

Guernsey’s new online company registry permits the incorporation of companies by corporate service providers within 24 hours (or less for an additional cost). Standard Articles of Incorporation can be provided, but special Articles can be drafted to meet your client’s specific needs.

Companies incorporated or registered in Hong Kong are governed by the Companies Ordinance.

Company Name
The name of a company must be stated in its Articles of Association. The name can be in English, in Chinese or in both English and Chinese. The company name must end with the word “Limited” or its equivalent in Chinese characters. A company name may not be identical to that of an existing company. Prior to incorporation a company name search must be conducted to confirm the avail- ability of a proposed name. Ready-made companies are available.

Articles of Association
Every company must have an Articles of Association which is the only constitutional document of a company. It sets out the regulations governing the administration of the company including the procedures for Shareholders and Directors meetings and any restrictions on the issue and transfer of shares.

Founder Member Share
Each founder member is required to subscribe at least one Share in the company.

Share Capital
There is no limitation on the number of issued shares. Shares of a Hong Kong company have no par value. No capital duty is payable to the Government for the incorporation.

Shareholder
A private company must have at least one registered Shareholder, but the Shareholder may be a nominee of a third party whose name does not need to appear on official documents. There are no restrictions on the nationality or residence of the Shareholder and Shareholder meetings may be held in or outside Hong Kong. Bearer shares are not permitted.

Director
A private company must have at least one Director who is a natural person, other Director(s) may be either an individual or body corporate. Listed companies and their subsidiaries must have at least two individuals as Directors.

There are no restrictions on the nationality or residence of Directors. Meetings may be held in or outside Hong Kong.

Reserve Director
Where a company has only one Shareholder who is also the sole Director, the company can nominate in a general meeting a Reserve Director who will act in the place of the sole Director in the event of his death.

Secretary
A company Secretary must be appointed. An individual Secretary must be ordinarily resident in Hong Kong. A corporate Secretary must have its Registered Office or a place of business in Hong Kong.

A sole Director of a private company cannot serve as the Secretary of the company. A body corporate cannot serve as the Secretary if the sole Director is the only Director of that body corporate.

Registered Office
A company must maintain a Registered Office in Hong Kong. A PO box address is not permitted. The company’s Registered Office must be filed with the Companies Registry when the company is incorporated. 

Time
A company is incorporated by filing with the Registrar of Companies the prescribed form signed by the initial founder member and director. The actual incorporation takes place when the Registrar issues the certificate of incorporation and this normally takes approximately four to five working days after filing the papers.

A company can be incorporated on the same day with the service company and partner of Elite Consulting Hong Kong acting as the founder member and the first director to file the incorporation documents via e-Registration.

Business Registration
Every company is required to register with the Commissioner of Inland Revenue under the Business Registration Ordinance. The application for a business registration certificate must specify the type of business to be carried on and all places of business maintained in Hong Kong. The certificate is valid for a twelve-month period from incorporation and must be renewed annually.

Annual Meetings
A private single member company is not required to hold an annual general meeting. A private company with more than one member is allowed to dispense with holding an annual general meeting in respect of a particular financial year by passing a members’ unanimous resolution. A copy of the resolution is required to be delivered to the Companies Registry for registration.

Otherwise, a general meeting of shareholders must be held at least once every calendar year. At that time the Profit and Loss Accounts and Balance Sheet of the company are laid before the shareholders together with the Directors’ and Auditors’ reports.

Public Filings
The names and personal particulars of the Directors and Secretary must be filed with the Companies Registry when the company is incorporated. If shares are issued after a company has been incorporated, a return of allotment must be filed with the Registrar, disclosing the identities of the members and their shareholdings. However, where nominee Shareholders and Directors are used, the beneficial owners do not need to be disclosed. Registers of the company’s members, directors and secretaries, mortgages and charges (if any) together with its minutes and accounts must also be kept by the company but may only be inspected by Shareholders.

A private company is required to file an annual return each year within 42 days of the company’s anniversary date of incorporation.

Accounts & Audit
Directors are required under the Companies Ordinance to maintain proper books of accounts of the company to be kept at its Registered Office or at such other place as the Directors may think fit. Every company is required by law to appoint an auditor or firm of auditors each year at its general meeting. The first auditor may be appointed by the Directors and may hold office until the following annual general meeting. An auditor must be qualified by virtue of the Hong Kong Professional Accountants Ordinance and completely independent of the company. A directors’ report and auditors’ report must be attached to the company’s annual accounts before the same are presented at the company’s annual general meeting for consideration by its members. In case of a private company (other than a member of a group of companies which contains a public company), its audited accounts must be laid before its annual general meeting not more than nine months from its financial year-end.

Taxes
A Hong Kong company is only taxed on its profits arising in or derived from a trade or business carried on in Hong Kong. There is no tax on dividends paid by a company otherwise chargeable to profits tax. Local tax law does not discourage the accumulation of profits in a Hong Kong company. Accordingly, there is no tax on accumulated earnings and profits and no requirement that a dividend must be paid.

Apart from profits tax, there is also a personal income tax and a property tax in Hong Kong, both of which should be taken into account when establishing a company.

Deregistration

A private company which has no outstanding liabilities may apply to the Registrar of Companies to be deregistered with the unanimous consent of its Shareholders. Applications can be made to the Registrar to deregister defunct, solvent private companies. Prior to the submission of application to the Registrar, the applicant must obtain a writ- ten notice of no objection from the Commissioner of Inland Revenue. It will take approximately six to eight months to complete the above work and the deregistration process.

NON-HONG KONG COMPANIES WITH A PLACE OF BUSINESS IN HONG KONG

Any company incorporated outside Hong Kong that establishes a place of business in Hong Kong is subject to the Companies Ordinance. Within one month of establishing a place of business in Hong Kong, the Company must deliver for registration the following documents and information to the Registrar of Companies:

• A copy, certified in prescribed manner, of its Memorandum and Articles of Association or equivalent document defining the constitution of the company, and its certificate of incorporation.
• A list of the Directors and Secretary showing the full name (including former names or aliases), residential address, date of appointment, number and issuing country of passport of each.
• The address of the principal place of business and the place of incorporation (if any); the address of the Registered Office in the place of incorporation; and details of the intended address of the principal place of business in Hong Kong.
• A copy, certified in specified manner, of the company’s latest audited accounts – unless the preparation of accounts is not required by the law of a company’s place of incorporation or the company has been incorporated for less than 18 months. The accounts must be in the form required by the law of the place of its incorporation or, if no such form is specified by law, in the form in which they are submitted to the Shareholders of the Company.

Upon registration, the company is required to maintain its business registration in the same manner as a company incorporated in Hong Kong.

The company is also required to file an annual return with the Registrar of Companies within 42 days of each anniversary of the date of registration at a prescribed fee.

A Maltese company can be registered in terms of the Companies Act, 1995 (“the Act”) as a Public Company or a Private Company. A private company is a company whose Memorandum & Articles:

• Restricts the right to transfer its shares.
• Limits the number of its members to fifty.
• Prohibits any invitation to the public to subscribe for any shares or debentures of the company. A Public Company is one that does not meet the above criteria for classification as a private company.

PRINCIPAL FEATURES OF A PRIVATE COMPANY

• A minimum of two shareholders being natural or legal persons. It is possible to register a Private Company as a single member company however certain restrictions apply.
• Shareholders may be Maltese or non-Maltese resident. Nominee shareholders can also be appointed provided that they are authorised by the Malta Financial Services Authority (“MFSA”) to provide nominee services.
• Minimum of one director, being a natural or legal person, resident or non-resident in Malta.
• A company secretary must be appointed. The company secretary must be a natural person and
• this office can be held by a resident or non-resident person.
• Minimum authorised and issued share capital of EUR1,165, 20% of which must be paid up upon incorporation.
• A company can have different share classes, with differing rights attached to each share class.
• Free choice of currency of share capital, of functional currency for accounting purposes andfor the settlement of any tax payable.
• The company must have a registered office in Malta.
• Every company must hold an Annual General Meeting.
• A company must file audited financial statements (prepared under International Financial Reporting Standards as adopted by the EU) with the Registrar of Companies. Companies may qualify to file abridged audited financial statements should they fall within the size criteria for ‘small’ companies. In addition, a company is required to file an annual return with the Registrar of Companies, within 42 days of the anniversary of incorporation.
• A company must file a tax return together with its audited financial statements with the Commissioner of Inland Revenue.

THE BENEFITS OF MALTESE COMPANY

• Ease of incorporation (in most cases 24 – 48 hours).
• Low minimum capital requirements (minimum of EUR 1,165 with 20% being paid-up).
• No corporate tax on holding companies in respect of dividends and gains derived from underlying entities qualifying as participating holdings.
• A Malta tax burden of 5% (and in certain cases possibly less) through a simple tax refunds mechanism that shareholders are entitled to claim, amounting to 6/7ths of the corporate tax rate of 35% incurred at company level. Such refunds are payable to shareholders within 14 days of making a valid refund claim.
• No withholding taxes on dividends, interest and royalties paid out of the Company to non-residents.
• Capital gains on the transfers of shares in a Maltese Company by non-resident shareholders are normally exempt.
• No thin capitalisation rules.
• A very flexible transfer pricing regime.
• No CFC legislation.
• No stamp duty is payable on the issuance of shares upon incorporation. Stamp duty payable upon the issuance of further shares or share transfers in Companies held by non-residents can also be exempt subject to certain conditions being met.
• Extensive use of Malta’s double tax treaty network spanning across 57 countries.
• As an EU member, the application of provisions in the Parent-Subsidiary Directive and Interest & Royalties Directive result in further tax planning opportunities for a Malta Company.
• Low registration and low annual return fees. These vary with the authorised share capital and range from EUR245 – EUR2,250 for registration fees (non-recurring) and EUR100 – EUR1,400 for annual return fees.
• Possibility of redomiciling companies to and from Malta and no entry/exit taxes arising from these redomiciliations.
• No exchange controls.
• Tax losses can be carried forward indefinitely.
• Advance revenue rulings can be obtained from the Income Tax Department – valid for five years.
• Dedicated unit at the Income Tax Department dealing with international structures and able to issue guidance on a case by case basis.

TAXATION

The following is an overview of the tax treatment of Companies in Malta. This overview is of a generic nature and additional rules may apply depending on the specific circumstances of a proposed structure.

Corporate taxation

The standard rate of tax applicable for a Limited Liability Company’s income and chargeable gains is 35%. However, due to a tax refund system that applies at shareholder level, the effective Malta tax burden ranges from 0% to 5%1 as explained below.

Malta operates a full imputation system of taxation which means that when a Company distributes dividends out of profits on which it had paid tax, no further tax arises in the hands of the shareholders as a credit for the tax paid by the distributing Company is claimed by the shareholders. No withholding taxes therefore operate on dividends paid to shareholders.

Basis for taxation

A Company incorporated in Malta is considered to be both resident and domiciled in Malta and subject to income tax on its worldwide income and certain types of capital gains.

A Company that is not incorporated in Malta can be tax resident in Malta if management and control of the Company is carried out from Malta.

A Company that is resident but not domiciled in Malta is taxable on:

• Income arising in/certain capital gains derived from Malta whether or not received in Malta.
• Income arising outside of Malta which is received in Malta.

Capital gains arising outside Malta, whether received in Malta or not, are exempt from taxation in Malta in view of the non-Malta domicile of the Company.

A Company that is non-Malta resident and non-Malta domiciled (for example, a Malta branch of a Company registered elsewhere) would be subject to tax on income and certain types of capital gains arising in Malta only.

Capital Gains

Only certain types of capital gains are taxable under Malta’s tax regime and these include the transfer of immovable property, goodwill, patents, trademarks and securities. ‘Transfer’ includes transfer by sale, donation, sale by instalments, partition, distribution, among other forms.

A number of exclusions to the taxation of capital gains apply examples of which are included below:

• No taxation of capital gains arising from transfers of shares in Maltese companies or of an interest in a Maltese regulated collective investment scheme by non-residents
• No taxation of capital gains arising from the disposal, redemption or repayment of debt instruments, derivative instruments as well as equity instruments with no entitlement to participate in the profits of the debtor or whose return is limited to a fixed rate of return (for example, preference shares).

Tax refunds

• Distributions of profits taxed in the hands of the company qualify the recipient shareholder/s for a refund of the tax paid by the Company.
• The possibility and extent of the refund varies depending upon the type of income (Malta source, foreign source etc.) generated by the Company.
• In many cases, the Malta tax burden (after the application of the refund to shareholders) amounts to 5%.
• A company that is in receipt of foreign source income may reduce its Malta tax burden further through the application of double taxation reliefs – when applied in conjunction with the refund of company tax, the Malta tax leakage can potentially also drop to 0%.
• Tax refunds are payable by the Inland Revenue Department within 14 days from the date on which a valid tax refund claim is made.

Participation exemption

• Income or capital gains derived by a Malta Company from a non-Maltese holding qualifying as a participating holding (generally a 10% equity holding or partnership interest or alternative tests) are exempt from tax, subject to certain anti-abuse provisions being satisfied. In this instance the income or capital gains generated by the Malta Company through the participating holding has a 0% Malta tax burden.
• The flexible participating regime makes for the use of Malta as a holding company jurisdiction. When combined with the fact that no withholding taxes are applied upon distribution of dividends to shareholders, the vehicle effectively results in no tax leakages at the level of the Malta entity.

PRINCIPAL FEATURES OF A MALTESE HOLDING COMPANY

• A Maltese registered company can act as a holding company for the purpose of investing in another jurisdiction.
• Ownership of the holding company may be vested in non-resident natural or legal persons.
• Subject to certain tests being satisfied, shares held by a Maltese holding company in a non-resident company qualify as participating holdings and therefore benefit from a full exemption from any Malta tax on the income or gains derived from the non-resident company.
• No withholding taxes are applied upon distribution of dividends from a Maltese Holding Company to its shareholders. 

THE BENEFITS OF A MALTESE HOLDING COMPANY

• Ease of incorporation (in most cases between 24-48 hours).
• Low minimum capital requirements (minimum of EUR 1,165 with only 20% being paid-up).
• A 0% corporate tax on dividends and gains derived from underlying non-Maltese resident entities qualifying as participating holdings subject to certain conditions being met.

The shares held by the Maltese company in the foreign company must carry the right to any two of the following: a) right to votes b) right to dividends and c) right to surplus assets in the event of a winding up. In addition one of the following criteria must also be met:

(i) More than 10% of the equity shares are held OR

(ii)The investment in the non-resident company amounts to EUR1.2m held for at least 183 days, or

(iii) The Maltese company holds at least 1 equity share and has an option to acquire the balance of equity shares, or

(iv) The Maltese company holds at least 1 equity share and has a right of first refusal to acquire the balance of equity shares, or

(v) The Maltese company holds at least 1 equity share and has the power to appoint a director, or

(vi) The Maltese company holds shares in furtherance of its own business and not as trading stock.

• Low registration and low annual return fees. These vary with the authorised share capital and range from EUR 245 – EUR 2,250 for registration fees (non-recurring) and EUR 100 – EUR 1,400 for annual return fees.
• Lower administration costs compared to other EU jurisdictions.
• Access to Malta’s double tax treaty network spanning across 60 countries.
• As an EU member, the application of provisions in the Parent-Subsidiary Directive and Interest & Royalties Directive result in further tax planning opportunities for a Malta Company.
• No withholding taxes on dividends, interest and royalties paid out of the Company to its shareholders.
• Capital gains on the transfers of shares in a Maltese Holding Company by non-resident shareholders are normally exempt.
• No thin capitalisation rules.
• A very flexible transfer pricing regime.
• No CFC legislation.
• No stamp duty is payable on the issuance of shares upon incorporation. Stamp duty payable upon the issuance of further shares or share transfers in companies held by non-residents can also be exempt subject to certain conditions being met.
• Possibility of redomiciling companies to and from Malta and no entry/exit taxes arising from these redomiciliations.
• No exchange controls.
• Tax losses can be carried forward indefinitely.
• Free choice of currency of share capital, of functional currency for accounting purposes and for the settlement of any tax payable.

SOPARFI – SOCIÉTÉ DE PARTICIPATIONS FINANCIÈRES

Luxembourg’s Société de Participations Financières (SOPARFI) is an unregulated company vehicle which has no restrictions on its field of activity and is commonly used as a holding company.

The SOPARFI is frequently used as a holding and/or financing vehicle for a group of businesses (it can hold all type of assets: movable and immovable property, tangible and intangible assets).

As a holding company it offers users, under certain well defined conditions, the opportunity to eliminate or mitigate corporate income tax in Luxembourg and Luxembourg withholding tax on dividends paid to EU and non-EU corporate shareholders where a relevant double tax treaty (DTT) is in place.

Benefits include:

• Attractive participation exemption regime
• Luxembourg’s extensive network of Double Tax Treaties
• EU directives transposed into Luxembourg law (e.g., the EU Parent-Subsidiary Directive)

Structure of a SOPARFI

• It is usually established as a Public Limited Liability Company (SA) or a Private Limited Liability Company (SARL) even if other legal forms can be adopted (i.e., Partnership Limited by Shares (SCA), Société coopérative (SC or SOCOOP), European company (SE))
• Registered Office address must be in Luxembourg
• Board meetings must be held in Luxembourg, unanimous consent resolutions may be used
• Annual financial statements must be filed every year with the Luxembourg Trade and Companies Register
• Tax returns must be filed annually with the Luxembourg Tax authorities
• Approximately 4 to 5 days for incorporation, from the receipt of the share capital in the company bank account and the due diligence documents
• Official corporate documents furnished within approximately four weeks by the Luxembourg Trade and Companies Register 

Taxation of SOPARFIs

Corporate Income Tax

• Effective 2013, a SOPARFI will be subject to the aggregate combined tax rate of approximately 30% depending on the municipality of location.
• From 2013, the minimum corporate income tax is EUR 3,210, applicable to all SOPARFIs whose financial assets (participations, loans to affiliates, securities, cash) exceed 90% of their total balance sheet.

Debt-Equity ratio

• An 85:15 debt-equity ratio is generally acceptable by the Luxembourg tax authorities for a shareholding activity.
• Within this limit, interests paid or accrued on debt are tax deductible and interest payments do not suffer any Luxembourg withholding tax (unless EU Savings Directive applies).

Net Wealth Tax

• A SOPARFI is subject to NWT at the rate of 0.5%, assessed on its net asset value (unitary value) as at January 1st of each year.
• Certain assets are exempt from NWT, notably qualifying participations, providing that relevant conditions are met.

Dividends Received

Dividends are tax exempt subject to the following criteria:

• The SOPARFI must own a minimum of 10% of the issued share capital of the underlying subsidiary (or an investment of at least EUR 1.2 million).
• The subsidiary, whether or not non-resident, must be subject to a similar tax regime (minimum 10.5% corporate tax).
• Ownership of the interest in the subsidiary must have been held for a period of 12 months. Outgoing Dividends
• Dividends paid to corporate shareholders established in an EU, a DTT, or an EEA country should not be withheld at source if the beneficiary of such dividends is subject to the above mentioned conditions. In other cases, a 15% withholding tax should be imposed on distributions.

Liquidation Proceeds

• Liquidation proceeds received by a SOPARFI from a subsidiary are tax exempt in Luxembourg under certain conditions.
• Liquidation proceeds paid by a SOPARFI to its shareholder are tax exempt.

Interest

• Interest received is fully taxable at the corporate tax rate.
• Interest paid abroad is tax exempt subject to EU Interest and Royalty directive (Directive 2003/49/EC).
• The debt equity-ratio may not exceed 85:15.

Capital Gain Exemption

To qualify for capital gain exemption, the SOPARFI investment in the subsidiary must be 10% (or €6 million) and seller must have held the corresponding shares for a period of 12 months.

Royalties

• A total of 80% of royalty and other income (e.g., capital gains) derived from intellectual property rights (copyrights on software, patents, trademarks, designs, models and even internet domain names) is tax exempt.
• The balance (20%) is taxable at the corporate rate, giving an effective tax rate of approximately 6% depending on the municipality of location.
• Royalties paid abroad are tax exempt subject to EU Interest and Royalty directive (Directive 2003/49/EC).

VAT

• VAT applies to the transfer and exploitation of intellectual property rights by a SOPARFI.
• Current standard VAT rate: 15% (to be increased to 17% as from 2015).

Double Tax Treaties

The SOPARFI is eligible to use Luxembourg’s extensive network of Double Tax Treaties.

Liquidation – Depreciation – Recapture Rule

• Expenses such as financing costs, bank charges and fees, audit fees, management fees and surveys linked to participations are fully deductible up to the amount of the annual exempted income. Capital gains are subject to tax the calculation of which will include the sum of all related expenses that were deducted for tax purposes in the year of disposal or in previous financial years.
• Depreciation of participations is allowed.
• Liquidation losses are fully deductible.
• Losses can be carried forward indefinitely.

 

PRIVATE WEALTH MANAGEMENT COMPANY (Société de Gestion de Patrimoine Familial – SPF)

The Private Wealth Management Company (SPF) is aimed at private investors and individuals. It is fully tax exempt on income received from shares, bonds, notes, mutual funds, deposit accounts and any financial instrument.

Eligible investors 

An SPF is only open to investors managing their private wealth, in particular:

• An individual or group of closely related individuals managing his/their private wealth
• Private wealth entities acting for one or more individuals (which include trusts, foundations, anstalts, stichtings, etc.)
• Intermediaries acting for shareholders in either of the above two categories

Legal Forms of an SPF

An SPF can be established in one of four forms:

• SARL: requires capital of EUR 12,500, a minimum of one associate and one manager
• SA: requires capital of EUR 31,000 (of which at least 25% must be paid in), a minimum of one shareholder and one director, as well as a statutory auditor
• SCA: requires capital of EUR 31,000 (of which at least 25% must be paid in), a minimum of two shareholders, a general partner (actionnaire comandité) and a limited partner (actionnaire comanditaire), and one manager, as well as three statutory auditors
• COOPSA: a co-operative company that has adopted the form of a public limited liability company allowing variable capital, requiring a minimum of one shareholder and one director

Permitted Activities of an SPF

An SPF is strictly limited to the acquisition, holding, management and disposal of financial assets and can passively invest in any type of security. It cannot undertake commercial trading activities or be involved in the management of any other company and cannot hold real estate, intellectual property or grant interest-bearing loans.

Financial assets an SPF can hold include:

• Shares or equivalent in public or private companies, including SOPARFIs
• Bonds
• Warrants
• Derivatives, put/call options on securities, indexes and currencies
• Interests in securitisation and investment funds
• Deposit accounts

Taxation of an SPF

At the level of the SPF

• Exempt from corporate income tax, municipal business tax and net wealth tax
• A subscription tax of 0.25% is applicable on the paid-in share capital, including share premium with a minimum of EUR 100 and maximum of EUR 125,000 a year
  • Subscription tax also applies to that part of the debt (if any) that exceeds an equity-to-debt ratio of 1 to 8
• Not entitled to benefit from Luxembourg’s double tax treaties or the EU Directives
• Any dividend and interest payments on financial assets received by an SPF might be subject to withholding tax, if any, in the State of source in accordance with the domestic tax rules of that State

At the level of the shareholders

• No withholding tax on the distribution of profits from an SPF to its shareholders and on liquidation proceeds
• Withholding tax levied at source on the interest paid on the advances and debt of the SPF to individuals at a rate of 10% for Luxembourg residents, 35% for EU residents and 0% in all other cases

Our partner Luxembourg office can provide all services required for the establishment and ongoing representation and administration of SOPARFIs and SPFs

Companies incorporated in the United Kingdom can have either limited or unlimited liability. The most commonly used company is a private company limited by shares the main features of which are described in these Key Facts.

NAMES

• Names cannot be reserved, but can be checked for immediate availability.
• Names may be stated in any language using the Latin alphabet.
• The company name must end in the words “Limited”, “Unlimited” or “Public Limited
• Company” or their abbreviations.
• Names that are identical or considered too similar to an existing company will be rejected by Companies House.
• The inclusion of words such as “British”, “National”, “International” and “European” will require approval of the Secretary of State.

RESTRICTIONS ON ACTIVITIES

UK companies may require regulatory approval to undertake the business of banking, insurance, assurance, reinsurance, fund management, and serve as investment funds, collective investment schemes or to undertake any other activity that would suggest an association with the banking, finance or insurance business.

SHARE CAPITAL

• Companies are no longer required to have an authorised share capital. Instead, a statement of capital is required. This capital may be expressed in any convertible currency.
• The minimum issued share capital is one share.
• Non-voting shares, common shares and preferred shares are permitted.
• Bearer shares (known as warrants) and registered shares may be issued.
• There is no requirement to hold an annual general meeting unless there is an obligation to do so in the Articles of Association.

DIRECTORS

• A minimum of one natural person must be appointed.
• Additional Directors can be corporations or natural persons.
• Directors may be of any nationality.
• The minimum age for Directors is 16 years old.
• Meetings of Directors may be held anywhere in the world.
• Annual meetings of the Directors are not mandatory.

OFFICERS

• No requirement to appoint a company Secretary for a limited company, but the duties of the company Secretary remain.
• Directors of the company can also serve as Officers.

PUBLIC FILINGS

• The identity of Shareholders, secretary (if applicable) and Directors must be provided to Companies House and this information is available on public record. However, service addresses may be provided for Directors and Secretaries.
• An annual return and annual financial statements must be prepared and filed with Companies House.
• Amendments to the Articles of Association and changes to the Board of Directors and Officers are filed with Companies House.

REGISTERED OFFICE

All companies must have a Registered Office located either in England and Wales or Scotland.

CORPORATE BOOKS & RECORDS

• A company must maintain a minute book, register of Directors and members to be kept at the Registered Office address.
• The company is not required to have a corporate seal. Seals can be provided on request.

TIME TO INCORPORATE

A company with a requested name takes two – three working days to incorporate. An expedited service is available for same day incorporations.

TAXATION

Corporate Tax

• A company which is incorporated in the UK is considered a UK resident for corporation tax purposes.
• An exception applies where a company, treated as UK resident, would also be treated as resident in another jurisdiction under a double tax treaty. The company may then be treated as resident in the other jurisdiction.
• Tax is levied on the worldwide profits of a UK resident company regardless of where those profits arise.
• For the purpose of corporation tax, ‘profits’ include both income and chargeable gains arising from the disposal of assets.
• Corporation tax is assessed on the profits of a company arising in its accounting period and then is charged at the rate for that accounting period.
• Profits do not include dividends or other distributions received from UK companies.
• Companies should calculate and pay their tax liability within nine months of the end of the accounting period.

Value Added Tax (VAT)

• VAT is an indirect tax that is levied on the supply, importation and acquisition of certain goods and services.
• It is chargeable on the taxable supplies of goods and services made in the UK by a taxable person in the course of a business.
• We can assist with the registration of VAT with HM Customs and Excise, and prepare the quarterly returns for submissions to the authorities.

OTHER TYPES OF COMPANIES

Private Company Limited by Guarantee

• Members’ liability is limited to the amount guaranteed on winding up of the company.
• They are usually formed by professional, charitable, trade or research associations.
• The Articles of Association must state that dividends are not paid to members and that any profit or income is to be spent on promoting the company’s objects.

Public Limited Company

• This type of company has very similar characteristics to a private company limited by shares but the company’s shares may be offered for sale to the general public and members’ liability is limited to the amount unpaid on shares held by them.
• A public limited company, or PLC, is very similar to a private company limited by shares but certain additional rules must be followed:
  – The Articles of Association of the company must state that it is a public limited company.|
  – The authorised share capital must be at least £50,000 or equivalent value in Euros of which 25% must be paid up.
  – A general meeting of Shareholders must be held annually. Meetings need not be held in the UK.
  – Must have at least two Directors, (one must be an individual), two members and a Secretary with a professional qualification.
  – A public limited company that wishes to have its shares traded on the London Stock Exchange (LSE) must comply with the requirements of the LSE as well as those set out in the Companies Act.

Private Unlimited Company

There is no limit to the members’ liability.

Overseas Company

An overseas company can register a UK establishment. The registration must be completed within one month of the UK establishment being opened, and a certified copy of the charter documents from the home jurisdiction must be filed along with a copy of the company accounts, if applicable.

SEARCH & INFORMATION SERVICES

We conduct searches on companies registered in England and Wales and in Scotland. We provide copies of all corporate documentation lodged at Companies House including copies of annual returns and company accounts. We are also able to obtain Certificates of Good Standing for UK companies.

THE DELAWARE CORPORATION
The prestige enjoyed by Delaware as a corporate domicile is in part due to the emphasis which the state has placed in making its corporate laws, court system and infrastructure attractive to businesses. The success achieved by the state is reflected in the almost one third contribution to the income of the state government from registration and franchise taxes. Other frequently cited reasons for Delaware’s popularity as a company domicile include:

• Delaware is the only state within the US to have a separate Court of Chancery whose judges are highly experienced in company law. The decisions of that court have established a body of law relevant to corporations which are frequently followed by other courts in the US.
• The Delaware General Corporation Law is used as a standard by which the corporate laws of other states are tested; it is the corporate code that is used in most US law schools to train lawyers which results in greater familiarity with Delaware corporate law among lawyers.
• Delaware does not impose a corporate income tax on corporations that are formed in Delaware, but which do not transact business in the state. Non-resident companies only pay an annual franchise tax to the state with a minimum of US$175 payable annually.
• The large number of well-known companies with Delaware as their corporate domicile has influenced many small and medium sized companies to adopt the same strategy.

 Advantages of Delaware Corporations

• No disclosure of the names of Shareholders.
• An individual can hold all corporate offices and be the sole Director.
• The annual state franchise tax is low.
• Meetings and records can be held anywhere in the world.
• Shareholders and Directors can act by written unanimous consent.
• No minimum capital is required in order to commence business.
• No residency requirements for Shareholders, Officers and Directors.
• Corporations can be established for any lawful act or activity.
• No state income taxes for corporations which do not transact business in the state.
• Special provisions can be included in the Certificate of Incorporation and By-Laws which exculpate Officers and Directors from personal liability and provide indemnification of Officers, Directors and Shareholders.

Delaware Corporate Structure

• The Certificate of Incorporation is the public document registered with the Office of the Secretary of State of Delaware on formation of a corporation.
• By-Laws are the regulations of the corporation as adopted by the Directors which describe the procedures by which the management of the company is to operate.
• The Stockholders are the owners of the company, but they do not manage the company. Typically, they hold common stock and have the right to one vote for each share they own. Only one Stockholder is required.
• The Directors manage the company and are responsible for the affairs of the company such as the issuance of shares, election of Officers and approving transactions. Only one Director is required.
• The Officers of the company are appointed by the Directors and handle the day-to-day business of the company. The Officers carry out the Board’s decisions and implement the Board’s policies. Officers are usually the President, Vice President, Secretary and Treasurer.

Foreign Ownership of Delaware Corporations
There are important tax and corporate governance issues relating to the ownership by non-US persons of a Delaware corporation. These are:

• No restrictions on foreign ownership or management of the corporation.
• Shareholders may be individuals or business entities of any nationality or domicile.
• With the exception of a Registered Office and Registered Agent in Delaware, no physical presence in Delaware is required.
• The By-Laws of a corporation are not a matter of public record.
• No disclosure in the public record of the names of the Shareholders of the corporation.
• The corporate records may be maintained outside the US.

As a corporation incorporated within the United States the company is required to comply with US Federal Tax and Reporting requirements. A Federal Tax Identification Number must be applied for and on an annual basis the company is required to file a tax return with the US Internal Revenue Service.
Note: Elite Consulting is able to arrange for qualified professionals to prepare and file the company’s tax filings.

Government Filings
A Certificate of Incorporation is filed with the office of the Secretary of State of Delaware upon the incorporation of the company which lists:

• The name of the corporation which must end with the words “Company”, “Corporation”, “Limited” or “Incorporated” or one of the abbreviations such as “Co.”, “Corp.”, “Ltd.” or “Inc.”.
• The name and address in Delaware of the corporation’s Registered Agent and Registered Office.
• The nature of the business or purposes to be conducted or promoted.
• The total number of shares of stock which the corporation shall have the authority to issue and any designations, preferences, rights, qualifications, limitations or restrictions on the shares.

On March 1st of each year, every Delaware Corporation must file an annual Franchise Tax Report and pay an annual Franchise Tax. The tax is based on the authorised share capital of the corporation and the Tax Report must include the names and addresses of the Directors and Officers. Late filing of the report and payment of the tax will incur penalties and interest which is compounded daily.

THE LIMITED LIABILITY COMPANY
The Limited Liability Company (LLC) is a modern tax transparent legal entity which combines features of partnership and corporate law. In the international context the LLC offers advisors and their clients the opportunity to cost-effectively combine access to onshore legal systems with the confidentiality and tax neutrality that is available in the traditional no tax corporate domiciles.
LLC legislation exists in industrialised countries such as the United States, France, Switzerland, Italy and Belgium, and in jurisdictions such as the Bahamas, Barbados, Cayman Islands, Cyprus, Jersey, Isle of Man and Nevis.
At present the Delaware LLC legislation is recommended more frequently by international advisors because of the prestige that Delaware corporate law, its courts and government infrastructure enjoy.

The LLC Concept
The Limited Liability Company has special features that distinguish it from ordinary companies. Like a corporation, an LLC has a legal existence separate and distinct from its owners. Like the Shareholders and Directors of an ordinary company, the members and managers of an LLC are not personally liable for the LLC’s debts and obligations. The principal attractions of the LLC for advisors and their clients are its operation and tax treatment:

• Operationally the management of the LLC functions similarly to a partnership and is governed by a written agreement among the members of the LLC; this is different from the traditional corporate governance of companies where management is outlined in the Articles of Association (also known as Bylaws).
• A properly structured LLC will be treated by many tax regimes as a pass-through entity with tax being paid by the members and not at the LLC level.

The Delaware LLC
Each of the 50 states of the United States is constitutionally an independent legal jurisdiction with the right to enact laws in many areas of activity. Each state has enacted its own LLC statute with most states doing so after 1988 when the US Internal Revenue Service commenced issuing rulings that an LLC would qualify for partnership tax treatment. Among the states, the state of Delaware has emerged as the premiere LLC jurisdiction with approximately 25,000 LLCs being formed annually. The status of Delaware as the leading LLC domicile is linked in part to the important role played in the US by the Delaware corporate legislation and its Chancery Court in the development of American corporate jurisprudence. The influence of the Delaware corporate regime is evidenced by the fact that more than half of the companies on the Fortune 500 list and of the companies listed on the New York Stock Exchange are domiciled in Delaware. An equally important factor for Delaware’s popularity as a corporate domicile is the pro-business role of the Delaware Government – specifically the office of the Secretary of State which is responsible for corporate formation.
Delaware does not impose an income tax on companies that are formed in Delaware, but which do not transact business in the state. Non-resident companies pay an annual US$300 LLC fee to the state.

Foreign Ownership of LLC
Important tax and corporate governance advantages to the ownership by non-US persons of a Delaware LLC:

• No restrictions on foreign ownership or management of the LLC. Members may be individuals or business entities of any nationality or domicile. Single member LLCs are permitted.
• With the exception of a Registered Office and Registered Agent in Delaware, no physical presence is required. The LLC management agreement is not a matter of public record and can be in any language. No disclosure in the public record of the names of the members or managers of the LLC.
• Non-residents of the US who are members of an LLC and who are not otherwise subject to US federal income taxation pay no tax in the US if the LLC’s income is from non-US sources and the LLC carries on no business in the US.
• Foreign-owned LLCs are required to file Form 90.22.1 “FBAR” with the US Department of the Treasury to report interest in or signatory authority over a foreign financial account.
• The LLC’s corporate records may be maintained outside of the US. The ownership interests in an LLC of an individual non-resident of the US are subject to the US estate tax, but can be avoided if the ownership interest is held through a foreign company.

Government Filings

• On formation the LLC files a Certificate of Formation with the office of the Secretary of State which lists:
  – The name of the LLC which name must contain the words “Limited Liability Company” or the abbreviation “L.L.C.” or “LLC”.
  – The name and address in Delaware of the LLC’s Registered Agent and Registered Office.

• The LLC is not required to make any reports to the State of Delaware of its members, managers, Directors or income.
• If the LLC has more than one member it is required after establishment to apply for a Federal Tax Identification Number and on an annual basis to file an information return with the US Internal Revenue Service. Provided that there is no income earned from US sources that would be taxable by the US, the information return will reflect that the LLC had no taxable income for the relevant tax year. As part of our LLC management service we can apply for the LLC’s Tax Identification Number and prepare and file the LLC’s annual information return.
• If the LLC has only one member its existence as a separate entity can be disregarded for US federal income tax purposes. The single member LLC is not required to apply for a Federal Tax Identification Number nor file an annual information return.

Corporate Governance
A unique feature of the LLC legislation is that it allows members to define their business relationship in a written agreement which governs the operation and management of the entity. The policy of the drafters of the LLC legislation was to allow members of the LLC the maximum freedom of contract in the commercial context. As part of our LLC service we provide clients with a specimen LLC operating agreement for their use.
The members of the LLC may choose whether they wish to manage the entity or to appoint a member or a third party to be the manager. There is no requirement that members themselves be the managers of the LLC. A member acting as the manager or a third party acting as the manager is not liable for any debts or liabilities of the LLC solely by reason of that person being a member or acting as a manager.

The typical LLC agreement will address the following issues:

• Identifying the party responsible for managing the LLC.
• Rights and duties of the manager and any limitations or restrictions on such authority.
• The economic rights of members, including the making of contributions to the LLC, the right to receive al- locations of profits and losses, and the timing of and restrictions on distributions by the LLC to its members.
• Any special voting rights.
• Any classes or groups of members or managers with different rights, powers and duties.
• The issuance and transfer of interests in the LLC, the admission and withdrawal of members.
• Mandatory and non-mandatory purchase of interests in the LLC on the occurrence of specified events such as death, disability, resignation or expulsion of a member.

Where the operating agreement is silent on a management issue, the provisions of the LLC statute will apply.

Partnership Tax Treatment
Depending on the tax domicile of members it may be possible to provide through a written agreement of members for allocations of income and/or deductions of an LLC treated as a partnership among members on amounts which differ from the members’ economic interests in the LLC as well as the ability to provide a tax basis to members for non-recourse debt. It also is permissible for the members to elect for an LLC to be treated as a separate corporate entity.

Uses for LLC
The LLC structure is particularly attractive as an alternative to the use of general partnerships and limited partner- ships as the LLC provides all members with limited liability protection against claims of creditors. This protection benefits entrepreneurs and other start-ups.

• The pass-through tax character of the LLC means that for a single member LLC tax return preparation and reporting occurs only at the member level with resulting cost savings and administrative efficiencies for all businesses that can operate in an LLC structure.
• Venture capital, real estate and other types of joint ventures can take advantage of the ability to use the LLC operating agreement to allocate profits and losses among participants in a manner which reflects the business agreements they have reached.
• The ability to limit the life of the LLC can also be used effectively in joint ventures, start-ups and other projects with a transactional purpose that is for a specified time period.
• The LLC can be employed in the international context to achieve tax efficiencies where the income of an LLC is allocated among members from different tax regimes.
• It is not recommended to use the LLC structure to hold foreign bank and financial accounts due to the requirement to report on an annual basis with the US Department of the Treasury any interest or signatory authority over a foreign account.