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our officesUse of an intermediate company for trading in Europe
The problem experienced
A person is has an international structure, trading in Europe, with a European company, but wants most of the world profit to be assessed in a company in a jurisdiction with low tax.
A potential 'double tax' trap?
Many continental countries penalise payments to a company incorporated in a low tax jurisdiction. They do this by levying a withholding tax on these transactions: both France and Spain define a low tax jurisdiction in legislation, and penalise transactions to companies on their so called "black lists".
This is not completely fair, as a company incorporated in a low tax jurisdiction, while not taxed directly, could be taxed:
- as the excess profits could be subject to personal tax on the beneficiaries
- the company itself could be subject to tax in a country; if the majority of its receipts are in a given jurisdiction
The solution
Many tax authorities in Europe do not penalise payments to any individual or any company.
Examples of these are: the UK, Malta, Cyprus, the Czech Republic and the Netherlands.
Therefore it is common for companies to trade in, say France and Spain, have a management company, say in Malta, and a further "top level" management company in a low tax jurisdiction.
Trading company - Company A |
Intermediate management company - Company B |
Top level management company - Company C |
| France, Spain, other countries which penalise transactions with low-tax jurisdictions |
Which could be in the UK, if no VAT number is required or in Malta, Cyprus or the Czech Republic; when a VAT number is required. | Delaware, Belize, Seychelles or Costa Rica |
| Makes profit on operations, but the managing of the global operation should be done elsewhere |
This company is an agent on behalf of the administration company, which coordinates its activities from an base in a low tax jurisdiction. A small profit is made in this company | This company is the principal and key manager of the global group |
What we can do for you
We can assist you in develop your structure.
The structure legitimately and fairly avoids potential double-tax traps, but this results in less tax being paid in the main trading jurisdictions, so must be designed to avoid certain traps:
- Company B (the "intermediate") is an agent for a principal and not a subsidiary. This needs to be demonstrated by ensuring that there is no visible link between Company B and Company C (the "top level management company"). In some cases, therefore, we advise that Company C is a nominee companies, rather than sharing the same directors as Company B. As we have set up a number of structures like this, we can advise if this appears necessary or not.
- As Company B is giving services to the trading company (Company A), we need to ensure that a fair amount is billed for these services. A contract may be required between Company A and Company B. We can assist in the preparation of this contract.
- The services carried out by the management companies (Company B and Company C) have to be properly documented and invoiced in detail to the trading company.
Formacompany Ongoing Services
We work directly with professionals; Chartered Accountants and Lawyers, to ensure that your company can have continued services throughout the company existence. This includes:
- Preparation of annual accounts
- Assistance with tax inspections
- Assistance with contracts between companies in international groups
