How about a Contractor Owned ManCo?

[nodric]

Seems that Nodric knows all the answers. Where have you got all this information from? You seem to be an expert.
More to the point, where have you found the time during the day to compile such information.

Hello Mr 1 Post!

Do I take it your nose is out of joint? Perhaps representing one of the offshore money laundering outfits...

I guess you're happy, wealthy, and in need of no support or assistance moving to Belgium then...

[fadyg]

I am interested in this setup.

I did not not go into the details, however, from experience, i found that a collective contractors' company may give a permanent solution for independents. 1. It is a fully legal entity. 2. it cut the costs and the hassle that each would have to go through to establish himself either as self employed, or sprl. 3. it would definitely cut on the tax and social charges, although, this is the part that needs more clarification. What exactly would the net in-hands be for someone on a daily rate of lets say EUR500 a day. Both net salary + dividends versus personal tax + charges+ employer charges.

[Gregory]

Belgian citizen

Would such a scheme apply also to a Belgian citizen.
currently residing in Belgium for a brand new contract ?

Also How can I enable PM ?

<admin note>PM enabled!</admin note>

[wind]

Indeed

If it is applicable to Belgian citizens you can count me in, even if it just for understanding the tax issues better.
Can I have my PMs enabled ?

<admin note>PM use enabled</admin note>

[ettubrute]

Any progress on this brilliant idea yet?

[najafchuddy]

Hi Nodric

Nose is not out of joint.
Just that I am interested in your posts.
It has taken me nearly a week to read everything!!!!
I haven't got much time during the day to read this useful information, but it seems that you have a lot of spare time posting. Just jealous, as I am swamped.
You need to lighten up.

Anyway, I am struggling to see why there is any point working in Belgium now. 5 years ago it was fine, now it is too much like hard work trying to find an efficient way to get paid.

[nodric]

A Possible Solution for Individuals

Hi Nodric

Nose is not out of joint.
Just that I am interested in your posts.
It has taken me nearly a week to read everything!!!!
I haven't got much time during the day to read this useful information, but it seems that you have a lot of spare time posting. Just jealous, as I am swamped.
You need to lighten up.

Anyway, I am struggling to see why there is any point working in Belgium now. 5 years ago it was fine, now it is too much like hard work trying to find an efficient way to get paid.

You're probably right, caught me on a bad day

Anyway, I updated my main thread yesterday with my latest thoughts. Links Here and Here

In this latest post I suggest a way of working that is related to this thread about a contractor owned ManCo. I think the suggestion is very sound, at least for each individual to follow themselves. What is still not clear, is how to expand this to a group of contractors.

The main points extracted from the other thread are:

The latest thought is you operate two UK LTDs. One has a sole director that is not you! i.e Your wife, dad, brother sister wife mother. You get the idea. This company signs the contract with the agency, and handles all the billing. It is effectively your own personal management company. You are then a director of your usual LTD.

You sign a sub-contract with the company of your wife (or other trusted party). You then fully declare your income from this sub-contract. Of course the income is meager and barely enough to sustain yourself in Belgium, or any other country for that matter. Just sufficient funds to pay your base salary, and to keep a few nuggets in the LTD to meets it’s statutory demands etc.

You then register for LIMOSA as a foreign worker, and file local tax returns based on your personal income from the sub-contracting company. All costs for accountants etc being deductable, as are many other expenses. You register as an expat (Belgian account needs to do this for you) and pay your NI in the UK thereby avoiding the local and very high SS, and you also maintain your UK pension contributions for what it’s worth. You then pay your taxes on personal salary in Belgium as and when due. You continue to file the company returns in the UK.

Even if the BTA one day claim you have moved your sub-contracting companies Centre of Economic Interest to Belgium, it will have little impact, as any corporation tax will be non existent as the income is just enough to pay you. All the profits from the contract are of course safely in the trusted partner company! As you are not a director of this trusted company, you can never move it’s Centre of Economic Interest to Belgium You could very easily then shut down the sub-contracting LTD, and start another, and restart the whole cycle!

Of course while ever you continue to sub-contract in Belgium, you should not become a director or shareholder of the trusted company (the one that signed the agency contract), as this would expose additional Worldwide Income! However, the wife (or whoever) can use the funds from the trusted company as normal under the UK tax regime. Once you leave Belgium, you can then receive a payment from the trusted company into your sub-contracting company, or even become a director/shareholder and receive a dividend.

Glad you enjoy the read

[nodric]

The Solution Presents Itself - Part 1

So here we go, the solution presents itself. It won’t suit everyone, and I’m sure there’ll be arguments to the contrary, but this is a legal solution.

After a great deal of research, and advice from numerous experts in the field, there is a possible structure to maximise the tax benefits of a lower tax jurisdiction.

Where?

Cyprus is a fully paid up member of the EU, and as such is fully OECD compliant, and offers the lowest tax regime in Europe, and has double taxation treaties with all other EU member states.

What?

Cyprus offers an IBC (International Business Company). This is a normal limited liability company which is used as a tool, legally, by corporations and individuals through out the world to direct profits out of high tax countries into offshore jurisdictions or international financial centres, taking advantage of low or zero tax rates, and double taxation treaties. The beneficial ownership and business activities of the international (offshore) enterprise in general lie outside the country of its registration.

The Legal Way

From an individuals point of view, you can establish a resident IBC with non-resident shareholders, but having its management and control in Cyprus (resident IBC). This means you need a nominee director (someone in Cyprus who acts the company director, and controls the company). You become a shareholder, and are given power of attorney over all operational decisions, and more importantly the assets (bank account).

The IBC signs the contract with the agency. You can be paid a small salary from the IBC, or if you prefer, the IBC pays all your expenses for fulfilling the contract. If you are paid a small salary, you will ultimately declare this into the local tax jurisdiction where you are working. However, there is no law that says you must take a salary!

On all profits you retain in the company you pay 10% <------------ corporation tax!!!!! Remember profits are after all expenses have been taken into account, and there are many opportunities to mitigate your costs against the business profits.

In simple terms, a local Cypriot accountant will find ways to offset you life’s costs against the income to the IBC. What’s left over will cost you 10% tax. You are then free to spend this remainder as you please. There are no laws that dictate what a company can spend money on, just not everything is deductable for tax.

If the IBC funds all your expenses, and not all are deductible, then you pay the 10% tax on that proportion of non deductible costs.

The other option is the IBC will pay you a dividend every so often. Dividends attract no Cypriot withholding tax for non resident shareholders! In other words, the Cypriots will not tax you on any dividends. You will have to declare this dividend into your home country, and for this example I use the UK.

The UK will tax a foreign dividend at 10% (according to their own website) assuming you are a basic rate tax payer.

Now, there are some very complicated explanations that Hector in the UK gives on his website, but in simple terms, there is also a 10% tax credit for shareholders receiving dividends from a company, where the corporation tax has already been paid on the profits of the company. What this means it that if you are a basic rate tax payer, you effectively will pay no tax on dividends you receive from the IBC. Individuals do need advice from a UK tax accountant on their personal circumstances however.

In reality you could receive a legitimate dividend from your IBC and pay no tax on it whatsoever. If you have a partner, who is also a basic rate taxpayer, he/she could also be a shareholder and receive a dividend. This way you avoid becoming a higher rate tax payer! In addition, your MyCo can also be a shareholder and receive a dividend.

The only tax you will pay is 10% on profits in the Cypriot IBC, less expenses!

Rules vary across the EU, so it’s important to check and fully understand foreign dividend payments for where you pay taxes.

VAT

Just a reminder about VAT. The IBC would be VAT registered, and as such, would not charge VAT on its sales invoices, as they are across EU borders. This means you become a net receiver in Cyprus. In simple terms you avoid the hassle of VAT accounting, and will receive refunds on any VAT paid in Cyprus for business expense. e.g. Your accountant and managed company provider.

Summary

You establish a Cypriot IBC that earns all your contract fees. The IBC pays 10% taxes on profits after expenses.

You receive dividends free of tax from that IBC. You declare those dividends back home, and pay whatever taxes are levied on those dividends. In many case this will be 0-10%.

You can split the dividends amongst you and your partner, and if necessary your MyCo. If the dividends are the only source of income, personal allowances may also reduce any taxes levied.

As the IBC maintains its operating base in Cyprus (local nominee director, offices, phone lines, email and snail mail functions, and staff allocated to manage its running), it therefore maintains its Centre of Economic Interest in Cyprus. This means all income to the company is only taxable in Cyprus!

The Other Way

You establish a non resident IBC with nominee directors, and again you take operational control under a power of attorney. No Cypriot taxes are due for this type of IBC. NONE WHATSOEVER. It is still VAT registered and able to trade like the resident IBC.

You establish an offshore company with a trustee as director. You still have power of attorney. In reality the trustee can be named ‘Mickey Mouse’. No one cares or will check! Average costs 2-3000 Euros to setup, and about 1200 Euros a year to maintain.

The offshore company becomes a shareholder of the IBC, and can even be the nominee director, and receives all the dividends tax free. As the offshore jurisdiction does not levy taxes on the offshore company you now have all your funds tax free.

You could leave all the funds in the IBC since there is no tax, but the offshore company adds a degree of separation and makes it very hard for the OECD snoops to find your funds, and impossible for the local inspector, unless you hand him the evidence :-)

The risk associated with this method is the repatriation of the funds. You can’t start paying bills using the offshore bank account, or someone is going to show interest in how you afford your lifestyle. If this is not an issue for you, then you may consider this method, and rely on the Visa card to pay for ‘fun’ things.

Remember, this structure although frowned on, is legal up until the point you receive the funds, and fail to declare them. So if you are planning to leave Europe in the future, you could use this structure to build your nest egg, and once you stop being tax resident in Europe, you can then take it with you legally.

COSTS

The initial setup costs of either structure equate to around 2800 Euros using a recognised company formation service in Cyprus. This includes all the necessary registrations etc to get you fully operational.

It also includes the 1st year costs for a nominee director, registered office with mail and phone services in your name, but excludes accountancy costs for a local Cypriot accountant. You will need one to file the necessary annual returns, and to keep you legal in Cyprus. Estimated costs annually are 1500 Euros.

Annual costs thereafter for maintaining the structure will be around 1500 Euros.

Year 1 total costs – approx. 4300 Euros
Year 2 onwards total costs – approx. 3000 Euros

Bear in mind that those of you already using a ManCo will be paying an average of 500 Euros a month anyway, plus extortionate bank transfer fees, so as the saying goes, “do the math!”.

You will need to factor in having a good accountant wherever you pay tax, and ensure he is savvy when it comes to foreign source income from dividends. i.e. Be skilled in interpreting the rules.

Part 2 continues below (10000 character limit )

[nodric]

The Solution Presents Itself - Part 2

The Collective

So, how to we make this a collective thing?

Someone ( I wonder who? ) establishes the IBC, and manages the contracts with the agencies, the communications with the contractors, bank transfers, and general day to day duties etc. Some of this is done from Cyprus using the managed services to further demonstrate its operating base! A local consultant is deployed into Europe and the UK to meet and greet contractors and agencies. (I wonder who? )

Each contractor becomes a shareholder of the IBC, plus any of their nominated partners or MyCos, including their offshore companies if applicable.

You can elect to receive a small monthly sum by way of your fees to the IBC for doing the work. You declare this locally, and get robbed for the appropriate tax and SS. Again, there is no law says you have to invoice for fees.

You then receive dividends on a quarterly basis (or agreed period) to the account of your choice. If this is in your local tax residency (e.g. the UK), you then have your local accountant declare this in your tax return as a foreign shareholder dividend. If the dividend is paid to an offshore account, or through an offshore company, your tax affairs are yours to manage as you see fit.

Each contractor pays a monthly fee for the management as per the norm, (not a f****ng percentage ) to cover the costs of running the IBC.

Also remember, as there will be no retained profits in the IBC (apart from its fees which are not your concern, and are accounted for locally by the IBC), you will not pay any taxes in Cyprus on your contact income. This could work out an even cheaper (more profitable) solution than setting it up yourself.

I am now seeking final legal and tax advice on this structure, and maybe you’ll see a new management company emerge onto the market soon.

You now have the guidance on how to set this up yourself should you wish to. If the costs and complexity scare you a little, wait a while until the new management company is born.

Once the legal and tax advices are validated, it is my intention to actively promote this with the agencies and their compliance officers.

Of course you should not just assume I am right, and should seek independent advice, but for now, it looks like this is the way to do it.

I’m sure the competition for your money will be a little miffed that I’ve written this, but I believe there is business for everyone, provided you offer a service that is legal, tells the truth and is upfront from the off, and of course charges reasonable fees for its services.

Conclusion

There are no laws that state you cannot use a lower tax jurisdiction to reduce your liabilities on income earned legitimately in the EU, provided that income passes through an OECD compliant structure, or member state.

Cyprus is such a member state. No law says you cannot transfer the offer of work (a contract) to management company to deliver that work. In fact that’s what we do whenever we use a ManCo!

As long as the management of that contract obeys the tax laws and treaties in the EU, you cannot, and will not, be penalised. Yes, you may be challenged, but so what!?! That’s why you pay an accountant!

If your accountant tells you to steer clear of this structure, chances are he’s a small town accountant with simple double entry bookkeeping clients that generate him simple stress free income. However, this does not mean he is acting in your best interests, or he has the knowledge to effectively represent you on matters such as foreign source income from dividends.

If he cannot answer your questions authoritatively on such matters, it’s time to find a better accountant!

As I say, this will not suit everyone, and there will be plenty of naysayers, but that should not stop you from exploiting the EU to minimise your liabilities, and maximise your retained income.

Is it dead simple requiring no effort from you? No, but life is never simple. Don’t want the effort, but still want the benefits, then watch this space and ready your pen to sign up

[ASB]

The latest thought is you operate two UK LTDs. One has a sole director that is not you! i.e Your wife, dad, brother sister wife mother. You get the idea. This company signs the contract with the agency, and handles all the billing. It is effectively your own personal management company. You are then a director of your usual LTD.

You do need to be cautious with this. Even if you are not a director or employee or whatever HMRC can consider you to be a shadow director. Whilst this is in no way illegal (provided you would qualify to be an actual director) this can complicate things somewhat. Essentially if you as an individual can get your mitts on the money then HMRC can tax it as yours. If this was the basis of a claim for non residence then you have also just neatly brought the income back into HMRC wordwide income grab. This is certainly one area that HMRC are very aware of.

I'm not saying that it doesn't work in some circumstances, just that a deal of care needs to be taken to ensure it is appropriate for ones specific circumstances.

I would also express similar reservations about the Cypriot registered entity you propose. I'm certainly not saying it doesn't work. Indeed if it is established properly and has a reasonable number of participants I think it probably does, however it would arouse the interest of HMRC (only relevant to those in the UK of course) and they may seek to see through it. As you say the dividend will need to be declared in the UK and it is important for individuals to check the tax treatment of the foreign dividend.

A further possible pitfall is IR35, arguably the revenue could seek to impose IR35 (depending on the contractual arrangements of course); there are clause that would allow them to (at least try to).

If you've been through this with your advisors and satisfied yourself that there is no risk then that is fine (and would of course also show your typical thorough approach).