Please help! Most efficient structure for offshore software company

[aisoftwareanalytics]

Hello,

I'm looking for the most effective and simplest solution for running a offshore company and minimizing tax payments.

I have a software solution that I license to another company. The revenue is roughly 100k per year.

The offshore company that I would set up would have one client based in spain that I would invoice monthly. The money that is accumulated in this company would be used for stock investments and future buy to let property purchases potentially.

I would not be looking to take any money out of the company or pay myself a salary.

I would like to pay as little corporation tax as possible. Any recommendations?

 

[Marzio]

There are important informations missing.

You'll be receiving royalties income so you are looking to incorporate the offshore company in a country with favourable royalties taxation rates but this will likely trigger CFC rules in your tax residency country so all the income generated will be taxed at personal income rates where you are tax resident.

Also, will you be investing in US stock market? If yes then you are looking to incorporate the offshore company in a country with low US withholding taxes.

Lastly are you willing to move?

 

[aisoftwareanalytics]

No not willing to move. Would it make a difference it if it was consultancy services rather than a software licensing solution?

Is it possible through multiple company structure or nominee directors.

Yes I would expect to invest in US index stocks. Not sure I understand this part? "If yes then you are looking to incorporate the offshore company in a country with low US withholding taxes."

What other important information would help you understand my situation better?

 

[DomOCT]

What other important information would help you understand my situation better?

Which country are you a tax resident of at the moment?

Would it make a difference it if it was consultancy services rather than a software licensing solution?

Potentially.

Not sure I understand this part?

The US charges 30% withholding tax on dividends paid out to non-residents. Some countries have tax treaties with the US that can be used to reduce this down to 15%, or in some cases even 10%.

 

[aisoftwareanalytics]

Tax resident of the UK.

 

[Marzio]

If i were in you i would form a UK LTD holding company and a subsdiary in Romania.

In Romania for your level of profits you'll pay 1% CIT and Romania has the advantage of having the lowest US WHT on dividends at 10% so you can invest pretty efficiently in the US market.

Romania is also featured in the CFC excluded country list so no CFC rules will apply to your offshore company.

You only need to hire a Romanian director and rent an office to pull this off.

Further optimizations will be available if you'll ever decide to move and make your UK LTD tax resident somewhere else.

 

[aisoftwareanalytics]

Thank you for the reply @Marzio that is very helpful.

 

[mehgbr]

hey, I have some questions about this strategy, could you please PM.

 

[aisoftwareanalytics]

@Marzio Hello,

I've done some investigation and the 1% corporation tax rate is no longer available. It's 3%. You also can have a foreign company director. Based on this I was thinking of this structure:

A uk company that I am 100% share holder
Owning the Romanian company 100%
Romanian corporate bank account

The Romanian company director would be my brother who is a tax resident of the UK. I would pay him a small salary of €800 euros per month in to a uk bank account that he would declare in the UK as self employed, he is currently working full time but would work on this in his spare time. He would run the business and setup the corporate bank account.

The Romanian company would earn revenue from a spanish or american client. If spanish and over €60k I would need to register for VAT.

The romanian company would not issue dividends in the short term (1 - 3 years) and would invest in stocks and shares. In the the future the company may buy investment property in the UK or Romania either directly or by transfering profits to the UK company. I believe this would be a 10% dividend tax paid in Romania but nothing needed to be paid in UK, is that correct?

I may be a tax resident of the UK or in the future spain. But would not transfer any of this income to myself in the next few years or until I am in a different tax residency.

Are there any risks to my brother or to myself in this scheme?
Is the uk company a good choice? I'm guessing the benefit is as Romania is outside CFC money can be moved from Romania to the UK without paying additional tax (outside Romania dividend tax).

 

[Marzio]

The Romanian company director would be my brother who is a tax resident of the UK

Red alert.

If company is managed from UK it will be deemed UK tax resident.

You need a Romanian director and an office in Romania.

I believe this would be a 10% dividend tax paid in Romania but nothing needed to be paid in UK, is that correct?

Correct

I may be a tax resident of the UK or in the future spain

If you move you'll have to check first new country's CFC rules because if Romania is in the excluded UK CFC list, doesn't mean that it will also be excluded in the new country because your micro company pays a very low CIT and you also receive passive income from investing and having both of those elements is what usually triggers CFC rules.

 

[aisoftwareanalytics]

@Marzio Yes, the company would have a office in Romania thats a requirement. So it would also need a tax resident of Romania as the director?

HI, would you be willing to discuss this privately on a direct message? I'm finding it hard to navigate the correct structure.

I investigated using a Romanian director but this didn't seem to be a easy thing to find and not a service offered generally. I also worry about a director in Romanian having full bank access to the company, is that a legit concern?

And again, thank you for your replies.

And so I understand, the company being classed as a UK tax resident would mean that it should pay UK corporation tax on profits that are in Romania even without dividends being paid to the UK company.