Offshore Corporation + Onshore Billing Company = Great Solution?

[rockrock]

What about using an onshore billing company formed by oneself in combination with an own offshore corp?

Contracting partner for customers is the offshore company. But since it is very difficult/impossible for offshore companies (such as Marshall Islands) have get access to decent banking, customers shall pay their invoice to an onshore billing company. The offshore company then invoices the onshore company.

In my experience customers do not really care about the terms and conditions. And they just trust whatever payment information they are given. Paying to an onshore company causes a lot less questions.

Obviously CFC would be in the way. In my case, I am resident in a country with a territorial tax system and without CFC rules.

The offshore company can hold assets, make contracts and take liability. The onshore company has no liability and holds decent bank accounts, payment processors.

On paper in some setups the onshore company would have to earn a margin. The onshore company might also be liable to a bit of taxes unless it is combined with a tax transparent entity such as a UK LLP by a UK non-resident -> UK LLP with a corporate and private partner (non-resident)

I haven't seen this concept discussed here.

google

siteffshorecorptalk.com "billing company"

siteffshorecorptalk.com "operative agent"

No results.

I've learned this idea on How to use intermediary agencies and billing companies in your business and ➽ Operative Agent Global Agency Service für Offshore Firmen which might explain it better than however I could explain here.

Do you see any issues with such a setup?

 

[uplana]

It can work depending on where you live and how you setup this structure, you will need some legal assistance if this should work so you will have to consider various tax regulations in both countries where you setup your company.

 

[Sols]

This is a very common setup and has been discussed before, although it's usually called a payment agent or just agent company.

In addition to the tax residence issue, you will face three problems: VAT, BEPS, and Transfer Pricing. All can be solved, but you need to ensure your structure accounts for these concerns.

Make sure whatever you do is checked by a professional tax adviser.

 

[GPT]

The concept you describe is very close to (if not the same as) "factoring".

CFC
Given that you own both companies yourself it's CFC (although not really a problem when you own both companies for 100%) AND profit shifting.

Profit shifting
Depending on where you live this might be your bigger challenge as the last years its next to impossible to avoid profit shifting especially when you don't have substance and management and control is done by one and the same person.

as Sols mentioned; do NOT try this without a tax advisor in both countries.

 

[Jerry1911]

In case someone wants to sue a business with this kind of structure, who would be liable? The agent or the principal? Say your agent company is based in the UK and someone sues it, what would happen?

 

[GPT]

@Jerry1911 the contract small print defines who will be liable. In most cases it is the provider of the service or the product. The collecting party is just that. A collecting party.

 

[Jerry1911]

Thanks, that makes sense. Two more questions:

- if we incorporate the billing/agent company in the UK, wouldn't we need a license from the FCA for payment processing services?

- would it be possible to remit the funds offshore in the form of cryptocurrency, in order to avoid the hassle of opening a bank account for the offshore company?

i.e. billing company invoices customers via Stripe/Paypal/bank transfer, takes a 5% fee or whatever the acceptable amount is in regards to transfer pricing and HMRC, buys crypto with the rest of the funds and sends it to the principal's wallet

 

[Sols]

- if we incorporate the billing/agent company in the UK, wouldn't we need a license from the FCA for payment processing services?

Not if you only serve a single company that is also the parent of the agent company, and if you structure the contractual obligations correctly. Work with an attorney to sort this out properly.

- would it be possible to remit the funds offshore in the form of cryptocurrency, in order to avoid the hassle of opening a bank account for the offshore company?

Yes.

 

[Jerry1911]

Not if you only serve a single company that is also the parent of the agent company, and if you structure the contractual obligations correctly. Work with an attorney to sort this out properly.

Yeah I found it on FCA's website in the meantime. Here's a link if anyone's interested: Commercial agent exclusion (CAE)

Thanks for the reply though