How about a Contractor Owned ManCo?

[nodric]

Why not have an agreed monthly profit that will result in an equal dividend distribution
say €6000
The average daily rate is most likely about €500 day
€4000 in Salary + 6000(less tax ) +Dividends (less tax )

Here’s the problem.

If a contractor generates 10K income for the company each month, but another generates 15K (I used my words advisedly so as not to suggest we actually earn such income as individuals!), and let’s say a third generates 20K.

Now the chap who contributes 10K, will be happy to say handover 6K to the dividend pot for later profit share etc. However, will the guy who contributes 15 or 20K? That would mean that the guy at 15K would have to take a fee of 9K into say Belgium, and the one at 20K a fee of 14K. The tax bill will be huge!

If then we set the contribution at 10K, the chap contributing 10K would have no fee income into Belgium, and would essentially starve to death living on the park bench, while he desperately waited for his next dividend.

I have toyed with the idea of different share categories, which can be done, so that the dividend pays different amounts, and maybe this is a solution.

i.e. Cat 1 shares for those of 20K plus a month who contribute say 15K a month to the share pot.

Cat 2 shares for those on 15-20K who contribute 10K a month into the pot.

Cat 3 and so on, you get the idea.

The problem is that not everyone will work every day of every month, and will they always be able to contribute the fixed amount every month. If we set the bar lower, then the guys who work more, will have to receive more of their income as fees, and therefore pay more tax

Trying to find a balance to suit everyone, and we are the worst breed out there, will be a complex nightmare. So the first option is to seek a solution where a dividend can be paid to a shareholder based on their proportionate income generated into the company.

As I said, it may be workable for a small group of contractors who come together and love each other long time, but for the masses out there who trust few around them, it will be a challenge that may just not be worth taking up.

I’m not Lech Wałęsa trying to form the next Solidarity, to campaign for a new tax regime for contractors, and I doubt anyone would want to fund me to do so I’m simply trying to structure the most effective way of paying the lowest tax possible in the EU, whilst respecting the tax compliance rules that exist.

It’s really easy to set up a structure to offshore all your money, and get away with it as long as you leave the cash offshore, but this is nothing new and is tax evasion, and I prefer not the be swimming in the same sea as all the other sharks. If you get caught, you get a bill, and if you happen to be German, far worse

[Sergeant Murphys Cosh]

The issue I discovered with Cyprus is that a dividend distribution must be equal amongst shareholders, or be directly proportionate to the number of shares held. This is very difficult to arrange when there are multiple contractors all responsible for the different levels of income to the company. i.e. You want your share dividend to be equal to what you earned for the company.

Have you considered asking the nice Cypriot people to change this? If you point out the amount of business that will flow their way, they may lovingly oblige....

[nodric]

Have you considered asking the nice Cypriot people to change this? If you point out the amount of business that will flow their way, they may lovingly oblige....

Deloitte's have now been instructed, and will soon approve, modify, or otherwise kill the structure.

They may propose a better, more flexible way to do things. We will see. However, we are close!

For now the Cypriot IBC is fine for the individual, or close group of contractors as I mentioned a few posts ago.

In fact I will be structured that way myself, regardless of any collective solution. Given I supply advice and services beyond day to day contracting, I will be able to demonstrate that the IBC is a bona fide company, with an operating base in Cyprus. Add to that a good website advertising my freelance consultancy services for a range of skills, and the package will be complete.

I’ll be able to declare a modest salary into whatever tax residency I'm living in, and then take dividends taxed at an average of 10-15%. I could even consider an offshore company as a shareholder, not owned or directed by me, which can also receive dividends. Perfectly legal

[Sergeant Murphys Cosh]

In fact I will be structured that way myself, regardless of any collective solution. Given I supply advice and services beyond day to day contracting, I will be able to demonstrate that the IBC is a bona fide company, with an operating base in Cyprus. Add to that a good website advertising my freelance consultancy services for a range of skills, and the package will be complete.

But how can you maintain the company's CEI there, if you are not? It also needs to do business locally, as well as abroad.

[nodric]

But how can you maintain the company's CEI there, if you are not? It also needs to do business locally, as well as abroad.

I have written on this a lot!

Remember your personal CEI is different from the Companies CEI. Less onus on you to prove the companies CEI, and as you don’t seek to move your own CEI, there will be less interest. Also much harder for the local Hector to challenge the Company CEI.

For the record, if you have a director who is based in, and living in Cyprus (nominee), and you have some admin work done there (not too much imagination required), and you have a phone/fax/snail mail address there, you have established an operating base.

Then if your website of services offers accountancy, tax advice, IT consultancy, contract management, and add anything you like to this list… you have established a real business in that country.

Before you challenge this think about it. You will establish a contact with the company that sets up your Cyprus IBC. Therefore you are able to offer his services through your own company, as well as the services of a tax expert and accountant you will get to know.

You can also advertise your own consultancy and expertise to Cypriot based companies via your website, and get Google to index your site with appropriate search tags. Whether you actually ever intend to do any work in Cyprus, assuming someone calls you, does not matter a jot.

As long as the company has ‘some feasible trade’ in Cyprus, it can demonstrate its CEI.

The fact you, as an employee, do all/most of your work in another place is immaterial. As long as you pay your local dues if you draw a local salary, then you’re in the clear. If you take dividends and pay the local taxes, again you are home and dry.

Scenario

Hector asks, show me some business in Cyprus.

Your respond by asking your nominee director produces a list of meetings he has attended in Cyprus concerning some of the advisory services you provide, or are advertising. You pay him a fee for his time

Hector cannot investigate the Cypriot company, and is only concerned with your direct income from the company. If you have declared all the payments, and can demonstrate the existence of some work happening in Cyprus, the questioning stops.

Depending on your individual tax status (basic or higher rate) you may not be the only shareholder either! Several shareholders further establishes the legitimacy of the company.

Just needs a little effort and forethought. i.e. Plausible & feasible business activities of the organisation. Assuming you have some, it is perfectly legal to locate your head office in a low tax zone! That’s what all corporates [sic] do!

Is it worth it?

A lot of this comes down to whether you (anyone) is prepared to make the effort, build a plausible business image in Cyprus, and put the effort into maintaining it.

Some can’t be arsed, and want it all done for them. i.e. Just do all the paperwork for me and send me the cash every month. Great for the collective solution, and I’ll happily welcome their monthly fees

Some are sh*t scared of doing anything other than handover large wadges [sic] of cash to Hector. Just no hope for them, but if they’re happy, then live and let live.

My advice would be to seek out a tax expert, discuss the proposed solution for your case with them, and follow their advice. This is what I’m doing with Deloitte.

One way or another, there will be a legal, and fully tax compliant solution for contracting in Europe, but for now, there is an individual option. You just have to put the effort in

It’s like asking a girl for a dance at a nightclub. You might get told to f**k off, and look a tw*t in front of your mates, or you might pull, and leave your mates all green with envy. It just takes some guts, and a little effort.

[Brussels Slumdog]

[QUOTE=nodric;1166450]For the record, if you have a director who is based in, and living in Cyprus (nominee), and you have some admin work done there (not too much imagination required), and you have a phone/fax/snail mail address there, you have established an operating base.

QUOTE]

Now here is a thought for the over 70s

I might be happy in 10 years time to live after I am semi retired in Cyprus as your employee/Director for
€1000 a month doing some paper work... answering Hectors calls etc.

[Sergeant Murphys Cosh]

For the record, if you have a director who is based in, and living in Cyprus (nominee), and you have some admin work done there (not too much imagination required), and you have a phone/fax/snail mail address there, you have established an operating base.

You will establish a contact with the company that sets up your Cyprus IBC. Therefore you are able to offer his services through your own company, as well as the services of a tax expert and accountant you will get to know.

You can also advertise your own consultancy and expertise to Cypriot based companies via your website, and get Google to index your site with appropriate search tags.

As long as the company has ‘some feasible trade’ in Cyprus, it can demonstrate its CEI.

It’s like asking a girl for a dance at a nightclub. You might get told to f**k off, and look a tw*t in front of your mates, or you might pull, and leave your mates all green with envy. It just takes some guts, and a little effort.

It's not fear, it's lack of confidence. I wouldn't know HOW to go about setting up a Cyprus-based company. I wouldn't know HOW to get someone to act as a nominee director (let alone understand why they would want to do that, since if anything should go wrong it'll be on their head).

HOW do you open an office there. HOW do you 'hire' staff to do any work locally, etc. etc. etc.


That's why the 'collective' solution is preferable, since the rest of us (well, certainly some of us) haven't got a Scooby about how you go about doing this in real life. If you held our individual hands, I'd feel far more confident. But then if you are going to hold our hands, you might as well provide the 'collective' solution.


As for the 'asking the girl for a dance' analogy, they were the ones who always asked me.

[Sergeant Murphys Cosh]

Now here is a thought for the over 70s

I might be happy in 10 years time to live after I am semi retired in Cyprus as your employee/Director for
€1000 a month doing some paper work... answering Hectors calls etc.

Yes, nice little earner until things go tits up, then it's your neck on the block.

[nodric]

Yes, nice little earner until things go tits up, then it's your neck on the block.

The concept of nominee directors has been around since time began. If the MyCo goes t*ts up, the nominee is like Teflon.

A nominee director is someone who in fact is renting his or her name to you. In other words, the name of this person is used and not yours for the incorporation documents. They are also taking the positions on paper of the company directors. The term of straw man or front man has been used to describe someone who is acting as the nominee.

Legally, according to the incorporation documents, the nominee is responsible for the company or entity. In addition, if it is the case of a nominee that is also listed as the nominee shareholder, then they in effect also have the related ownership responsibilities as well.

The basic function of the nominee director is to shield working executives of limited and other companies from the public disclosure requirements that exist in the UK and other jurisdictions. It is a perfectly legal device which preserves the privacy of an individual. It is designed to help a person who would rather not disclose their interest or association with a given corporate body.

Anyone performing a company search on a company with a nominee director would be unable to discover in whose name the nominee director was registered.

The Nominee Director cannot and will not enter into any business contract or financial or moral commitment. At the same time the appointed nominees are not actually entitled to manage the company.

The beneficial owner is provided with a Power of Attorney empowering him to run the business, manage the company's activities and open and operate the company's bank accounts.

A Nominee Director will only sign company accounts and annual returns prepared by the accountants appointed to the company. A Nominee can also hold statutory board meetings, and sign such minutes.

How it works

The nominee signs the Memorandum and Articles of Association to form your entity. The nominee will sign a General Power of Attorney document, which gives you full power to manage your company.

The nominee will give you a signed and undated letter of resignation document, which gives you the peace of mind that he can't act against you.

Upon provision of a nominee director, you would normally be required, as beneficial owner(s) of the company, to sign a Letter of Indemnity indemnifying the nominee director against all liabilities incurred by him by virtue of being so registered.

[nodric]

It's not fear, it's lack of confidence. I wouldn't know HOW to go about setting up a Cyprus-based company. I wouldn't know HOW to get someone to act as a nominee director (let alone understand why they would want to do that, since if anything should go wrong it'll be on their head).

HOW do you open an office there. HOW do you 'hire' staff to do any work locally, etc. etc. etc.


That's why the 'collective' solution is preferable, since the rest of us (well, certainly some of us) haven't got a Scooby about how you go about doing this in real life. If you held our individual hands, I'd feel far more confident. But then if you are going to hold our hands, you might as well provide the 'collective' solution.


As for the 'asking the girl for a dance' analogy, they were the ones who always asked me.

The HOW is relatively simple. The plausibility is the bit that takes the effort.

For instance: I give lots of advice, or perhaps suggestions. This is a form of consultancy. MyCo in the sunny East would offer similar consultancy to Worldwide contractors. This requires me to have a suitable operating base served by relevant experts. Cyprus offers such expertise to support my consultancy, and is ideally located for both Europe, emerging economies like Turkey, and for those ex-pats working in the Middle East. Whether I actually get any business is not relevant.

If you were say a Project Manager. You could setup a website offering management consultancy! Isn't this what a good PM does everyday? This provides you with a vast scope of skills to sell!

If you’re a developer (insert skills here) you could setup a offshore advisory service, specialising in setting up offshore development centres in your skill set.

The list goes on. Just sit down and think of all the dumb clients you have worked for, all the problems you have had to sort out, and from that imagine you are a 2 grand a day Cap Gemini consultant charging to come in and sort out said mess! In other words, all those things you wanted to tell the CEO/CIO that would improve his organisation.

Now build a management consultancy business in your head/on paper around that. Pay someone 750 Squid [sic] to build a flash (not Flash!) looking website (I can give recommendations), and you are now a sexy looking consultancy targeting the developing parts of western Europe, or the Middle East. Look at where Cyprus sits on the Globe :-)

HOW to setup a Cyprus company?

Google it. I can give you names. Pay a professional service 2500 Euros to set everything up.

HOW to get a Nominee Director?

Included in setup above.

HOW to open an office there?

Included in setup above. aka REGUS (shared office space/registered address etc)

HOW to hire local staff etc?

You define what admin tasks need to be done, and the formation company provides these on a T&M basis. It's not necessary to actually have them do anything, it's the fact they can, and will say they do, if they are asked.

Annual running costs are about 1500 Euros to maintain all the above.

Hire a local accountant to do the books. The formation company will recommend their best mate of course, but down to you to negotiate the cost, or use Google to find one in Cyprus.

Expect to pay 1500 Euros a year for a good cook!

So, for about 3K a year, you have all you need. Do your job, try and win some independent work since you setup that whiz bang website, and even consider hiring a local to carry out a Cyprus based contract

You'll need your local accountant wherever you are tax resident to declare your income and dividends from Cyprus, unless you do UK self assessment, when it should be relatively easy.

I'll be in touch to sign you up as a customer once the 'collective' solution is running, which I hope will be September/October in time for the new contract season