Right Structure - (Setting up supply chain and/or SPV/SPE)

Discussion in 'Business Discussion' started by jakonda, Oct 9, 2018.

  1. jakonda

    jakonda Member

    Hi there !

    Asking all specialist for some help.

    I would like to know what should I take in consideration when developing a new supply chain - i.e. in this particular case, my company (currently looking for the best jurisdiction) is going to act as an intermediary between a supplier from a non-EU country and three separated buyers located in EU and Asia (one in Germany, one in UK and another in China).

    Is there a generic guideline on "how to properly setup a trading company" or a tax efficient "offshore structure"? My main goal is to not suffer tax on the income and in Europe I also want to avoid value added tax (VAT). In summary my goal is to have zero tax leakage, if possible.

    Lastly, I would like to know if forming a SPV is the only way to pool money from potential investors abroad i.e. China to invest in my supplier to expand production capacities. I could elaborate on this topic more if there will be some useful comments.

    Looking forward to fruitful conversation.
    negon likes this.
  2. anticfc

    anticfc Active Member

    This is probably obvious, but importation of goods into EU triggers VAT, so avoiding VAT at least requires not importing goods. Then if you sell to businesses, you don't need to register for VAT. If you sell to non-VAT registered persons, you need to register for VAT, but the Chinese don't, so ¯\_(ツ)_/¯

    Given that you want Chinese investors, the Chinese CFC rules might be relevant, or maybe these investors already have investment vehicles that fixes this for them. Anyways, the threshold is more than 10% per investor and more than 50% joinly (any number of Chinese companies/persons). Somewhat like the US CFC rules. Also any other means of control are covered. So you can have 5 Chinese investors owning 10% each, max.
  3. jakonda

    jakonda Member

    So should be my starting point examining current tax treaties between the countries I plan to operate and then check if there are any specific import tariffs on the commodity/material I want to offer?

    I have found this text useful but I think it is applicable only for the companies registered in the EU Zone; What happen if the company is registered in i.e. Seychelles ?

    Countries outside the EU
    If you sell goods to customers outside the EU, you do not charge VAT, though you may still deduct the VAT you yourself have paid on your related expenses (goods/services bought in specifically to make those sales).

    If you buy goods for the purposes of your business from a supplier based outside the EU, you must generally pay VAT at the point of import (and may deduct this in your next VAT return if you make taxed sales).

    Countries within the EU
    Selling to businesses
    If you sell goods to another business and these goods are sent to another EU country, you do not charge VAT - if the customer has a valid VAT number.

    You may still deduct the VAT you yourself have paid on your related expenses (goods/services bought in specifically to make those sales).

    If the customer does not have a valid VAT number, you must normally charge VAT on the sale at the rate applicable in your country.

    Selling to consumers
    If you sell goods and send them to consumers in another EU country, you need to register there and charge VAT at the rate applicable in that country - unless the total value of your sales to that country in the year falls below the limit set by the country.

    If you buy and receive goods for business purposes from another EU country, you must account for the VAT on the transaction as if you had sold the goods yourself, at the applicable rate in your country.

    Normally, you will later be able to deduct this amount.

    Thank you for this info! Do you have any useful links on this topic?
    Essentially, the offshore SPV must be formed as a JV where Chinese investors could own "only" 50% and the rest must be owned by foreigners - or I am getting this wrong? I see this is getting complicated. Looks like finding a finance/law specialist should be put on my priority list.
  4. anticfc

    anticfc Active Member

    Tax treaties
    Import tarrifs

    Those three things have absolutely nothing to do with each other! :)

    But yes, those are three things you need to check.

    Yes the text is applicable only for companies registered in EU. For Seychelles, you need to consider whether you are selling to a VAT-registered (business) or non-VAT-registered (person). Also re-read my post above!

    Yes, or your chinese partners might point you to companies that they have "no control over" that will invest and thus avoid their CFC rules.

    Yes, and it's great that you understand that! :)
  5. jakonda

    jakonda Member

    Okay, but they are equally important when setting up a new company for this special long term deal only. I think I definitely need to take in consideration those three factors. For example it might be better to set up a company in Cyprus or Ireland vis-a-vis Seychelles - is in this case so called transfer pricing scheme applicable ?