Hi, Offshorecorptalk Team!
I am working with a business partner on setting up an international group structure, and I will keep 20% of the business while he takes 80%. For the purposes of the structure I have designed, let's say that my business partner runs the most expensive chain of hair salons in the world—mainly in the US but also in Europe.
Since I know many of you are veterans and have extensive experience, I thought I would share my idea here to see if anyone has any thoughts, improvements, suggestions, or can identify any flaws:
Nurredon!
I am working with a business partner on setting up an international group structure, and I will keep 20% of the business while he takes 80%. For the purposes of the structure I have designed, let's say that my business partner runs the most expensive chain of hair salons in the world—mainly in the US but also in Europe.
Since I know many of you are veterans and have extensive experience, I thought I would share my idea here to see if anyone has any thoughts, improvements, suggestions, or can identify any flaws:
- The UBO is a Spanish tax resident who owns a Spanish holding company.
- The Spanish holding company will own 80% of a Maltese company (for simplification, I haven't divided it between a two-tier holding/subsidiary entity or a single company), and I, as his business partner, will own the remaining 20%. This company will have economic substance, a couple of employees, local directors, and an office.
- The Maltese company will receive income in two different ways: (1) business income from charging set-up and marketing fees to the US salons and (2) dividends from a subsidiary in the Isle of Man.
- The Isle of Man company will be operated from there, with a CSP, real directors, and an office to ensure economic substance. The IOM company holds the IP for the salons (brand, etc.) and manages and licenses the IP to subsidiaries and third parties. The IOM company will have a wholly-owned subsidiary in the UK (the UK company).
- The UK company receives authorization from the IOM Company to sublicense (distribute) the IP globally. The UK company charges royalties to U.S. salons for exploiting the IP and sends the royalties back to the IOM Company minus a margin under a transfer pricing agreement, for which it pays CIT. The UK company will have economic substance. The UK company will be an IP management firm (which will effectively fight infringements, try to license it to fashion clients, etc.)
- Withholding Taxes (WHT): My understanding is that, with this setup, there is no WHT for dividends or royalties.
- Corporate Income Tax (CIT): My understanding is that, with the exception of the margin at the UK company level, CIT is not payable on dividends in any other company, and it's only 5% on trading income because of the 6/7 tax refund in Malta.
- CFC / EU Anti-Tax Avoidance Directive (ATAD): Since companies will have real directors and substance, I think it's difficult for the tax authorities to pursue this. With regards to ATAD, I'm not sure anyone has seen this in practice. Theoretically, it could only apply to Malta/Spain since the rest are outside of the EU. Still, the Malta company has two shareholders, with the Spanish company being one of the two shareholders with 80% ownership.
- Value Added Tax (VAT): I understand VAT might be applicable between the IOM and UK, and I considered whether I should use something else (Gibraltar, Jersey, Guernsey). However, in principle, because it's B2B, I could apply the reverse charge mechanism to avoid the cash flow effect. I haven't done much research on VAT, but there might be some exceptions regarding royalties as well.
Nurredon!
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