The Agile Micro ISV Blog

Following it’s humiliating defeat in  the House of Lords, Her Majesty’s Revenue and Customs are moving the goal posts, again. In an effort to treat small businesses differently to large businesses, HMRC is trying to prevent small family businesses from sharing profits equally between, say a husband and wife.

If you are a shareholder in a large company, you are entitled to
receive dividends on your shares, regardless of whether you perform any
function or not. HMRC is trying to create special rules for, say husband and wife limited companies, or two friends in a limited company.

The PGC believes this:

• means Government does not regard small businesses as proper businesses
• makes it impossible for small businesses to self-assess their tax liabilities and adds another crushing administrative burden
• is inconsistent with divorce law and capital gains tax
• prevents small businesses being able to distribute their profits in the way that large businesses can
• penalises people who have jointly set up businesses in exactly the way recommended for years by the Government

Please help small businesses in the UK by signing this petition.

I’ve
been on a virtual tour of all offshore tax havens over the last week.
I’ve learnt a lot of interesting things, and a lot of things that could
very easily land someone in prison.

The main hurdle that I hit was on the subject of income tax. I had
originally believed that if a company were to be incorporated offshore
in a zero tax jurisdiction, then one would attract personal tax only on
funds brought into your country of residence. Not so.
I have learnt that if you maintain effective control over an offshore
company, then you must pay tax on all profits even if you do not draw
them from the company. Ouch. And kerching!

I’m not sure if that sounds a little draconian. For my limited
company here in the UK, I pay corporation tax on my company’s profits
at around 20%, and I pay no income tax on dividends up to around
£36000, then 40% on dividends thereafter. Companies, by their very
nature are treated as distinct legal entities. I’m not quite sure why a
government should be able to treat an offshore company differently.

There is an important term I used above, effective control.
It basically means that you run the company. But it seems that some
offshore tax havens have thought this through. Let me take an example.

Belize

For those of you not up on your geography, Belize is a tiny former
British colony in Central America, home to about 300,000 souls. There
are a number of things that make Belize attractive as an offshore
location. Firstly, and probably most importantly, it is a zero tax
location. The means your International Business Company (or IBC) is
exempt from tax, and because it is exempt from tax, there is no need to
keep or file accounts.

Secondly, like Switzerland, Belize has very strict banking secrecy
laws. This means that your account information can only be made
available to external agencies by way of an order from a Belizean
court. Further, a Belizean court is only likely to give external access
in the process of investigating serious international crime, and, like
Switzerland, Belize does not consider external tax evasion to be a
crime.

A word of warning though. Be careful if you live under a despotic
regime. I’m not picking on the US, but just to use them an example, the
President now has the power to declare any American citizen to be an
enemy combatant, and to lock them up without trial or due process. If
this were to happen, and a request made to Belize to hand over
information on a terror suspect’s accounts, I don’t know what would
happen.

What makes Belize interesting is the notion of nominees. When you
form an IBC in Belize, you can opt to have a nominee director,
secretary and shareholder. This means that you name does not appear on
any documents associated with the company. On paper, it’s not yours.
You can also structure your company such that on paper, you have no
access to the company bank accounts.

Sound a little like buying snake oil? Yeah it did to me too. There
are a couple of caveats here. If you are prepared to sacrifice just a
smidgen of privacy, you can arrange to have power of attorney. The
alternative is that you entrust your IBC to a Belizean professional
management company. They will, at your request, execute your wishes. It
sounds a little scary but it seems to be quite a common way of working.
The important thing here is that you do not officially own the company.
Your name appears on nothing, and it would be very difficult for anyone
to prove effective control. Your bank account is probably the most
vulnerable part of this set up, so if you’re going this route, I would
recommend having another account set up in your name (offshore) so that
you can regularly transfer money into your control.

Incorporating an IBC in Belize is very cheap. Agents like Fidelity Overseas are able to set up a company for less than $1000. Nominee directors and shareholders etc are a few hundred dollars per year.

Usual disclaimer, I’m not an accountant or a lawyer. This isn’t advice, it’s just what I’ve researched.

Everybody
hates taxes. I hate taxes. I would hate taxes a whole lot less if I
respected the government that I gave them to. What with funding
scandals, illegal invasions, broken treaties etc, I’d rather my money
went elsewhere.

Unfortunately, as a British resident, I am obliged to pay tax. I
should make it abundantly clear (in case HMRC is reading this) I DO PAY
MY TAXES!

I’ve always had an interest in stepping out of the frameworks
imposed upon us as citizens, I don’t mean living outside the law, but
for example, getting out of employment and into entrepreneurship. Along
with some posts on the Business of Software forum, my interests have
led me to question whether, as an entrepreneur, I should be prepared to
be taxed to death by our guardians. But what is the alternative?

One vehicle I’ve been looking into recently is the concept of an
offshore incorporated company. In a nutshell, this involves
incorporating your company in a tax haven. For my purposes, a tax haven
is (usually) a country or principality where there is no corporation
tax, income tax, capital gains tax, or inheritance tax. Ever. Period.

But here’s the rub. Even with a company registered in a tax haven -
I would still have to pay tax on any earnings I brought into this
country. And it’s very important to remember this, unless of course you
enjoy showering with lots of tattooed men on a regular basis.

So how else could I organise my affairs? Well, one option is to
register your company in a tax haven, and become domiciled in another.
So I could register my company in, say, Dubai (zero tax) and become
domiciled in, say, Andorra. I could be a visitor in the UK without
paying any tax. Now, what I’m not clear on, is just how much time I am
allowed to spend in the UK without attracting tax. I’m going to look
into this further.

I should point out that this is not advice, I am not an expert, but I will share what I find as I find it.