Philippines as the ideal place for place of management of an offshore company?

[pastet89]

I am looking for a country to find a Nominee Director for my offshore company. I want to make sure the tax residency of the ND won't make the company tax liable in his or her country based on a place of management.

So I researched a lot and the Philippines seems like the ideal place for this. I am posting my findings here just as idea and anyone is welcome to comment on it.

Based on my research on the Philippines tax code, here is why it seems even if the offshore company is managed from there, there will be no tax neither for the shareholder neither for the company (provided the company has no income from Philippines sources).

Seems like the ideal scenario for crypto trading if you don't trade on Philippines-based exchange (and so far I know only one small exchange to be based there):

- foreign companies (event resident ones) are taxed only on Filipino-income
- foreign individuals are taxed only on Filipino-income
- no CFC rules

In brief, that's it. If I am missing something, please let me know.

 

[Juleski70]

Very interesting.
I think it depends a bit on what you mean by Crypto Trading — if you're doing things for clients (operating as an exchange or advisory/broker), you may(?) need a financial license. If you're doing back office stuff (accounting/reconciliation), you're probably correct.

 

[FreedomSearcher]

I heard in Philippines the internet and electricity falls out a lot due to storms/rain, is it true?

 

[pastet89]

Very interesting.
I think it depends a bit on what you mean by Crypto Trading — if you're doing things for clients (operating as an exchange or advisory/broker), you may(?) need a financial license. If you're doing back office stuff (accounting/reconciliation), you're probably correct.

It's for proprietary trading. But even if it was not I don't think you would need a license for the Philippines if you don't do your business activities there.

BTW at least for proprietary training, this I already confirmed with a Filipino lawyer. Provided that you will not have Filipino income, e.g. trading on Filipino exchanges, no need to pay tax there or even to register anything if you have a director there.


That being said, I have troubles finding a director there. In a country with such huge population I am surprised.

There are two other (and possibly much more unexplored) options, which I consider (but still not confirmed with lawyers):

- Hong Kong: residency does not matter for taxes. You pay tax if you do business in Hong Kong and get Hong Kong sourced profit. E.g. if you live in any other country in the world and have zero relations with Hong Kong you should have the same tax liability if you trade on a Hong Kong exchange as if you were HK resident. For tax liability profits must arise from HK source AND from precise activities generating profits on HK territory. Investment decisions does NOT matter. No need to register company just if you have a director there. Info I collected from the HK government website.


- India: Director will not make the company resident if the annual turnover does not exceed 500M INR (around 7.5M USD).

As always, do yout own research and take your own responsibility.

 

[Juleski70]

a) what exactly are the attributes you're looking for in a nominee director?
b) I'd love it if you would DM me your Filipino lawyer's contact details. I could use a business lawyer who is cautious but not terrified (the culture is pretty risk averse here)

I heard in Philippines the internet and electricity falls out a lot due to storms/rain, is it true?

The Philippines is a big place and a lot of the westerners who retire here choose remote areas and then complain about the infrastructure.
1. Internet has improved immensely over the last 3-5 years, at least in central areas. And for anywhere else, Starlink recently launched here, monthly service is less than $50 USD.
2. Power is pretty good in central areas but brownouts are common enough (easily countered with UPSs and/or generators). Some islands are more storm-vulnerable than others.

 

[pastet89]

I am looking just for basic stuff, some signatures and personal documents usage for KYC verifications.

I am sorry but I don't feel comfortable sharing the lawyer. He is one I asked if he wanted to be a director. We had a video call and he politely rejected, for the reason it was going to be a non -Filipino company.

But I used the opportunity to ask him for free for how things work in general and he confirmed that for me.

Edit: sorry I just realized you are from the Philippines?

Are you offering yourself as a director, if yes, I am happy to discuss.

Why do you need the lawyer then?

 

[andrew28fl]

I am looking for a country to find a Nominee Director for my offshore company. I want to make sure the tax residency of the ND won't make the company tax liable in his or her country based on a place of management.

So I researched a lot and the Philippines seems like the ideal place for this. I am posting my findings here just as idea and anyone is welcome to comment on it.

Based on my research on the Philippines tax code, here is why it seems even if the offshore company is managed from there, there will be no tax neither for the shareholder neither for the company (provided the company has no income from Philippines sources).

Seems like the ideal scenario for crypto trading if you don't trade on Philippines-based exchange (and so far I know only one small exchange to be based there):

- foreign companies (event resident ones) are taxed only on Filipino-income
- foreign individuals are taxed only on Filipino-income
- no CFC rules

In brief, that's it. If I am missing something, please let me know.

I don't now much about PH as a jurisdiction, but a simple search returned the following:

"A foreign entity with a PE is considered to be doing business in the country. It thus falls within the definition of a resident foreign corporation, and not a non-resident foreign corporation. As such, the more proper mode of paying its tax is through the filing of its own tax return, like any other resident foreign corporation. A PE should be able to register with the tax authority so that it can comply with its tax obligations."

How Permanent Establishments Should Pay their Taxes?

A foreign entity with a permanent establishment (PE) is considered to be doing business in the country. It thus falls within the definition of a resident foreign corporation, and not a non-resident foreign corporation. As such, the more proper mode of paying its tax is through the filing of its...

www.bdblaw.com.ph

Doesn't this mean that if the person living in PH manages a foreign/offshore entity, that entity would be treated as a domestic PH entity for taxation?

 

[pastet89]

I don't now much about PH as a jurisdiction, but a simple search returned the following:

"A foreign entity with a PE is considered to be doing business in the country. It thus falls within the definition of a resident foreign corporation, and not a non-resident foreign corporation. As such, the more proper mode of paying its tax is through the filing of its own tax return, like any other resident foreign corporation. A PE should be able to register with the tax authority so that it can comply with its tax obligations."

How Permanent Establishments Should Pay their Taxes?

A foreign entity with a permanent establishment (PE) is considered to be doing business in the country. It thus falls within the definition of a resident foreign corporation, and not a non-resident foreign corporation. As such, the more proper mode of paying its tax is through the filing of its...

www.bdblaw.com.ph

Doesn't this mean that if the person living in PH manages a foreign/offshore entity, that entity would be treated as a domestic PH entity for taxation?

If the person is living and doing business in the Philippines from a foreign entity, that would form a PE (not the case when you have just a director there and don't do business).

It will not be treated as a domestic corporation but as a resident foreign corporation which is tax liable only for income within the Philippines. Which may include all income earned on Filipino territory BTW, I am not sure about that.

There is Filipino tax code in English on Google, quite useful.

The thing is that:

If you have a non Filipino company AND a Filipino director AND you don't do business on Filipino territory AND you don't have Filipino sourced income (Filipino exchanges, invoicing Filipinos etc...) - you don't pay tax there and no need to register anything.

 

[Juleski70]

I'm a foreigner living in the Philippines, my partner is Filipina, well-connected. I'm still on a tourist visa but the day will come when I become a proper alien resident (vs non-resident). I'm also trying to arrange my business for the best sheltering of income, and while I've met a couple of lawyers I haven't found one I really like yet... it's a very risk-averse culture, and legal advice tends to be super-conservative to begin with...

 

[TheCryptoAnt]

I heard in Philippines the internet and electricity falls out a lot due to storms/rain, is it true?

Varies greatly from region to region but for the most part expect infrastructure to kinda suck yeah

Cebu, Manila, Puerto Princesa, Davao etc are better but outside of that is proper 3rd world level infrastructure

 

[Juleski70]

AND you don't do business on Filipino territory

A couple more questions:

• Should I assume the company has filipino expenses, e.g. employees or contractor/service providers who do accounting or provide services to your (non Filipino) customers? Or do Filipino expenses/service-activity constitute 'doing business'?
• What about banking? You mentioned you wouldn't even have to register anything but I can't imagine a Filipino bank making an account for an unregistered business

 

[koohl]

and while I've met a couple of lawyers I haven't found one I really like yet...

How do you pick the lawyers you met with? are you taking the cheapest? are you checking for reputation and recommendation?

 

[Juleski70]

How do you pick the lawyers you met with? are you taking the cheapest? are you checking for reputation and recommendation?

Reputation, but I suppose I just need to think hard about the personalities of the people I got recos from. Cautious & fearful people recommend cautious & fearful lawyers.

 

[Mike Forman]

I don't believe Philippines is an offshore jurisdiction and every local established company has to do an annual filing and report all expenses, profit, payroll etc.

From my understanding you always have to pay corporate tax in Philippines unless you fall under the exemptions as Pezo etc, which has on its own turn different requirements. You are just vat exempted if you provide services outside Philippines, not corporate tax exempted. This means pct vat rate but results also not being able to recover or offset local paid vat in expenses such as rent, legal fees etc.

For the classic corporations such as an Inc you need local shareholders, depending on the type of business operations this could be up to half of the shares.

Pick some established firms as lawyers, some lawyers are useless. Be careful also when using nominees or locals, they can and possibly will run away with your business, had the personal experience.

Administration of a corporation is quite troublesome and if you want to stay out of trouble, especially if you ever plan to stay there, better make sure the books are correct.

 

[Juleski70]

every local established company has to do an annual filing and report all expenses, profit, payroll etc.

I think there is some terminology confusion on the thread. Unless I'm mistaken @pastet89 is talking about a Philippine Representative Office for a non-resident foreign corporation. And it would need a "resident agent", not a "nominee director" (by the way, the "resident agent" can be a foreign or Filipino resident or Filipino business). The purpose of this kind of entity is to do back-office/BPO/marketing functions for the foreign corp. As long as your foreign office pays all the expenses (no income generated in the Philippines), it is exempted from both VAT and Income tax.

and no need to register anything

That's the part that's confusing to me. It does seem from my research that you should register it & file tax returns (though there would be no tax owing) with audited books, etc., and if you pay people (including the resident agent), you're responsible for withholding payroll tax, etc. Head office has to remit at least $30k USD year (but if I understand @pastet89 correctly, the point is to funnel lots of $$ into this entity, where you can quietly enjoy it). As mentioned above, I don't know how you'd actually transfer $$ if you don't have a bank account, and I don't see how the representative office gets a bank account without registering first with the Philippines SEC (and I imagine that there is a 'chicken vs egg' problem: you can't register until you show that you've brought in $30,000, but how can you bring it in if you can't get a bank account until you're registered?).

 

[pastet89]

I think there is some terminology confusion on the thread. Unless I'm mistaken @pastet89 is talking about a Philippine Representative Office for a non-resident foreign corporation. And it would need a "resident agent", not a "nominee director" (by the way, the "resident agent" can be a foreign or Filipino resident or Filipino business). The purpose of this kind of entity is to do back-office/BPO/marketing functions for the foreign corp. As long as your foreign office pays all the expenses (no income generated in the Philippines), it is exempted from both VAT and Income tax.

That's the part that's confusing to me. It does seem from my research that you should register it & file tax returns (though there would be no tax owing) with audited books, etc., and if you pay people (including the resident agent), you're responsible for withholding payroll tax, etc. Head office has to remit at least $30k USD year (but if I understand @pastet89 correctly, the point is to funnel lots of $$ into this entity, where you can quietly enjoy it). As mentioned above, I don't know how you'd actually transfer $$ if you don't have a bank account, and I don't see how the representative office gets a bank account without registering first with the Philippines SEC (and I imagine that there is a 'chicken vs egg' problem: you can't register until you show that you've brought in $30,000, but how can you bring it in if you can't get a bank account until you're registered?).

No I'm not talking about representative office.

I mean specifically nominee director or just a director which simply means a Filipino resident who is the director of the company and signs its documents wherever he wishes on the Filipino territory - could be in his home, on the beach with 3G or in McDonald's while having a coffee there.

For this you don't need to register as I was told by the Filipino lawyer and he even gave me the reason why - because you're not doing any business on Filipino territory.

This is understandable to me because it is identical, following the same logic in Hong Kong. On the Hong Kong government website it's stated that if you have an office you must register. You must also register if you do business in Hong Kong. But if in Hong Kong you iust have a person "holding an office" (which in English is completely different from having a physical office and means serving a management position in the company), then you don't need to register.

When it comes to withholding taxes and employment, there is no need to hire anyone through the company (at least confirmed for BVI and Gibraltar by local lawyers). You can hire them as a natural person outside the company. And in this case your work relations with the director have nothing to do with the company. You have no liability as you are not tax resident yourself. It's his liability to pay tax on what you pay him, but this is something completely out of the scope of what we are discussing here - he would do that for any income he gets anyway.

 

[Juleski70]

Aaaah then I am confused again.

here is why it seems even if the offshore company is managed from there, there will be no tax neither for the shareholder neither for the company

Is the company incorporated? Where? In what country is the company and shareholder not being taxed because it is being managed in the Philippines? And where is the bank account?

 

[pastet89]

Aaaah then I am confused again.

Is the company incorporated? Where? In what country is the company and shareholder not being taxed because it is being managed in the Philippines? And where is the bank account?

The company could be incorporated anywhere elsewhere apart from the Philippines for this solution to work this way.

The company and shareholder's tax liability in their corresponding jurisdictions have nothing to do with the corporate tax liability in the Philippines we are discussing here. So there is no such thing as "not being tax liable because it is managed from the Philippines".

The shareholder is liable for personal tax, for example dividends from the company, in their home country. If their home country has certain CFC rules this can make the company tax liable out there as well. But not all countries have such rules. in other extreme case the shareholder may live in a country where there is 0% of tax.

When it comes to corporate tax liability it usually arises on three bases: where the companies is Incorporated, where the company is being managed and where the company has permanent establishment.

The reality with permanent establishment is that although theoretically it must be declared virtually everywhere, especially when it comes to offshore companies, on many places the practice is that you can get away with it without declaring it. Some people on this forum may say that this is risky but I'm yet to find a lawyer to tell me this. The lawyers I have consulted in Bulgaria, Slovenia and Cyprus told me it's fine not to declare it - mostly because it's untraceable. Of course, it depends on the country and the nature of the activities. One thing is one man business doing crypto trading for yourself on your laptop at home, another thing is if you need an office and customers.

When it comes to incorporation there are certain jurisdictions in which if you incorporate you have zero tax.

So usually with offshore companies the biggest hurdle for remaining corporate tax free remains the place of management. In most cases this is where the director is. For this reason if you are the director yourself apart from being a shareholder this would make the company tax liable for corporate tax in your country as it is managed from there. So to avoid this you look for other options. The thing is that in almost every single jurisdiction when you put the director you just switch the corporate liability there.

But there are some options, for example in BVI there is zero tax even if you have your director there. The problem is that usually the BVI directors cost around 10-20K per year. That's why I'm researching other cheaper options with "find your own directors". Such as the described ones - Philippines, Hong Kong or India, where if you meet certain conditions you may still have zero corporate tax liability even if your director is there.

 

[Juleski70]

Let me see if I have this straight:

• if you incorporate in a country where corporate tax liability is based on where it is managed (or where there is permanent establishment)
• And don't declare a place of permanent establishment
• And have it managed by a nominee director in the philippines (or BVI or Hong Kong at presumably higher expense)
• And (I'm assuming) do the company banking in the country of incorporation

Then you can leave the proceeds/profits in the corporation, tax free... Correct?

What are the best countries for incorporation with this strategy? You mention Bulgaria, Slovenia and Cyprus... Any others come to mind?

 

[backpacker]

It helps to use the search function of this forum -> Best country for a freelancer / digital nomad post-covid