Agency Agreement

An Agency Agreement is the agreement which ties a principal company in a low tax jurisdiction with a trading company set up to administer a key trading area. Our clients frequently have a European company to trade with and a company in an offshore jurisdiction to administer operations on a world scale and receive final profits.

Countries where an International Business Company (or IBC) is not taxed are the Seychelles, Belize and the British Virgin Islands - provided that the company does not trade in that particular jurisdiction. We specialise in incorporations in all these places.

By using a European registered company, which agrees to transact business on behalf of an IBC company, a structure is available to give you an on-shore profile yet allows the benefits of a confidential, and potentially low tax IBC.

The European company is incorporated specifically to operate as an AGENT for the offshore company. Therefore, the two companies need to sign an agreement which specifies the terms of the agreement between them. All business is then conducted in the name of the European company, but on behalf of the Seychelles or the Belize company. The existence of the IBC company behind the European company need not be apparent to customers; as far as they are concerned, all they will see is the European company. The customer enters into a contract with the European company: which could be in Malta, Cyprus, The Czech Republic or a number of other favoured jurisdictions. The customer is invoiced by this European company and pays the invoices into its bank account. Income is then remitted to the IBC company, in accordance with the Agency Agreement.

Why set up an Agency Agreement

The structure demands a formal agreement between the IBC and the European company:

• In case of a tax inspection of the European company
• Document the agreement; in case there are different people administering each company

What does the Agency Agreement have in it?

We state:

• Who are the principals
• Who are the agents
• What is the business
• The geographical area in which the agent is allowed to represent the principal
• What percentage needs to be remitted to the principal company
• When the amounts need to be remitted to the principal company
• The period for which the agency agreement should run

Taxation /Accounts

Here we have used a UK company as an example of an EU company.

The UK company pays UK Corporation Tax on its commission although all allowable expenses incurred in carrying out its business will be deducted first. The ultimate success of this type of structure relies on the fact there is no UK source income. This, in conjunction with the fact that the company is being controlled and managed from outside the UK, means that the UK Inland Revenue can only assess the UK company for tax on the fees it earns by way of commission for effecting the business of the Seychelles company. The payments made to the Seychelles company by customers are therefore not subject to UK taxes. Usually a commission of between 5% and 10% would be arranged which would mean that, on average, the effective rate of tax would be around 1.2% on a total turnover of £100,000 which would reduce on turnover above this. Annual accounts must be filed which may need to be audited.

VAT Registration

If the company's turnover exceeds £70,000 in a 12 month period the company must register for VAT (Value Added Tax). We can handle all VAT registration formalities, and also complete and file all VAT returns to HM Revenue and Customs.

Annual costs

Includes provision of nominee directors/company secretary/shareholders, registered office, filing annual returns/annual accounts (although not preparation/audit of accounts which we can arrange) and all government filing fees.

What happens if there is a tax investigation?

The agreement, and the arrangement are allowed by the tax authorities in most countries.

Is the agency agreement valid in all jurisdictions?

Yes - agency law has its equivalent in all types of law.

Who is registered for VAT?

The principal is not registered for VAT.

The agency company can be registered for VAT.

If the company's turnover exceeds £70,000 in a 12 month period the company must register for VAT (Value Added Tax) in the UK.

We can handle all VAT registration formalities, and also complete and file all VAT returns to HMRC.

VAT in the European trading company

We generally advise the European company to be set up in a jurisdiction where they can obtain a European VAT number easily and quickly. This is the case in:

• Malta
• Cyprus
• The Czech Republic

In some countries such as the UK and Ireland, a VAT number is difficult to obtain, so these jurisdictions need to be avoided in some circumstances.

Corporation Tax in the European trading company

The European company pays Corporation Tax on its commission although all allowable expenses incurred in carrying out its business will be deducted first. The ultimate success of this type of structure relies on the fact there is no source income in the country of incorporation. This, in conjunction with the fact that the company is being controlled and managed from outside the country of incorporation, means that the tax authorities in Malta, Cyprus or the Czech Republic can only assess the local company for tax on the fees it earns by way of commission for effecting the business of the offshore company.

Terms and Conditions for the Provision of a Standard Agency Agreement: linking a Principal and an Agent for the delivery of a product or the provision of a service

We can provide a standard agency agreement, which is acceptable in English law, and has been accepted in tax inspections. In most cases theIBC will be set up in Countries which accept English Common Law.

Should a tax investigation take place when a client has relied on our agency agreement, we are prepared to receive tax officials in our offices to explain aspects of the agreement.

Our business involves distance selling, so we cannot fully understand the business of our clients, and cannot therefore create an agreement which totally reflects the nature of an individual business. We provide a standard agreement for the provision of physical goods, and a slightly adapted agreement for the provision of services.

You must:

• Ensure the wording of the contract is adapted to fully reflect the delivery of the product or the provision of your service.
• Take advice to ensure that the use of the Agency Agreement is legal in the jurisdictions where the product is sold or the service is provided.
• Put a system in place to revise the agreement in accordance with changes in the law or interpretation of the law.