Offshore and foreign trade transactions: advantages and pitfalls
Hi, Habr! I continue to publish my book on the legal aspects of IT business. Today - about offshore.
The book "The law of a startup":
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Right is essentially national: it refers to individual countries. The right even of neighboring states can be very different. What principles apply here?
If entrepreneurs from different countries enter into a contract, they can choose the law that will apply to the transaction and the court that will resolve the disputes that arise. In this case, both the law and the court may relate to a third country - for example, the London Arbitration (LCIA) and English law may apply to a transaction involving entrepreneurs from Russia and Kazakhstan.
Many modern entrepreneurs perceive the state as a service, similar to the bakery: you can choose the one that is cheaper and tastier, and not the one that is closer to home. This phenomenon is called competition jurisdiction.
Continuing the idea of ​​the author: of course, the most delicious buns - in a specialized private bakery, and not in the one that is larger and spends resources on buns for allergy sufferers, social buns (tasteless, but free) and armed guards. In other words, social functions, maintenance of the army and other expenses make large states a priori ineffective in the market of jurisdictions. Conversely, micro-states with a small population have long realized their advantages, optimizing taxation, registration of firms and reporting requirements. And some of them have gone very far in this business optimization.
While traditional trading powers like Switzerland, the Netherlands, and Hong Kong attracted businessmen with low taxes and a lack of formalities, the resulting independence (and impoverished) ex-British colonies began to compete in uncompromisingly attracting capital from around the world. Thus, offshore companies appeared - countries that do not levy taxes on non-residents and guarantee complete anonymity to company owners. The Cayman Islands, Belize, the British Virgin Islands have heard everything about these countries, but not all offshore owners will be able to find them on the map.
The two described types of comfortable jurisdictions are called “onshores” and “offshores”. Onshore include countries that do not provide special treatment to non-residents. As a rule, in these countries, prefers to operate a legal business, not tied to the location. For example, if a company (suppose an online store) operates worldwide, it is logical that the head office will be open in the country with the most favorable regime. Onshore is not used for tax evasion or for hiding shadow capital.
Offshores, in contrast to onshores, offer zero income tax for non-residents, that is, for companies that do not carry out actual offshore activities. An entrepreneur can pump an offshore firm with money and not pay any taxes on income or profits. However, there are some nuances.
Zero income tax can not be maintained if the companies in the offshore do not have anonymity. After all, as we already know, it is unprofitable to withdraw dividends to offshore (tax can be up to 30%). It is advantageous to pretend that the company in an offshore is independent (it has other owners), and conclude an agreement with it under which the Russian company will spend money (thus reducing its profit), and the offshore will earn (after all, it does not pay profit tax ). For example, a Russian company pays an offshore for using a trademark: a company spends money (reducing profits and taxes), an offshore company receives income (and does not pay anything for it). Money flows abroad at the expense of offshore.
However, in this case, the tax will easily see that the transaction, in fact, is a fraud committed to tax evasion, because two companies with the same owners are involved in it, and the goal here is not to provide a trademark, but tax evasion . Therefore, offshore companies are often created anonymously, and nominal local employees can be director and even a participant - however, lately, this is no longer helping against tax and, moreover, criminal prosecution by influential countries.
The use of offshore companies for an unprepared entrepreneur brings more problems than real benefits.
The first problem: an offshore transaction is a marker that will immediately scare away all organizations with state participation, non-profit organizations, and also cause serious questions to the tax inspectorate and banks.
The second problem: offshore is easy to lose: due to problems with island authorities or because of the wiles of nominal owners.
The third problem: the money lying in the offshore, you have to spend on something, and when you try to transfer them to a civilized jurisdiction, the first problem again arises.
As for onshore, this is a completely legal tool in transactions. It allows you to carry out more trouble-free logistics, simplify exchange controls, and in some cases save on taxes. In addition, many onshores, as well as offshores, belong to the former British colonies (Malta, Cyprus, Hong Kong), which means that they have a common law (English law). The use of such onshore allows you to fully use the tools of common law (for example, enter into advanced shareholders' agreements - agreements between shareholders), as well as to consider disputes in British courts, famous for their integrity (as well as very heavy time and cost of the process).
At the same time, foreign companies (both offshore and onshore) impose a number of restrictions on the entrepreneur. They close access to government procurement programs, support and subsidies, loans from state banks and government funds. The advantages of common law transactions are also not unlimited: a Russian court may refuse to execute a decision of a foreign arbitration.
In short, if you hesitate, not knowing what to do, open a company in Russia. A good accountant will help to charge expenses as high as possible, and taxes will not seem such a heavy burden. And your CFO will take over the foreign jurisdiction (when you get one).
For the withdrawal of money from the country are watching special authorized organizations. Control over financial flows is called currency control . Its main task is to block the channels of irrevocable money outflow (including offshore). We are talking about those situations where Vasya, under a fake contract, transfers money to Belize (the previous example).
Since 2016, currency control over entrepreneurs is carried out by the Federal Tax Service of Russia and the Federal Customs Service of Russia, but entrepreneurs rarely encounter government bodies in this area. The fact is that in the Russian currency control system, banks are responsible for checking the operations of their clients and, formally not being agents of currency control, in practice they often block suspicious transactions.
In very general terms, currency control requirements are as follows:
On the last paragraph we will dwell in more detail. When performing operations within the country, banks rarely ask for confirmation (except for very large transactions). You can transfer money to the counterparty without any reason - you only need to send an order to the bank to make a payment (payment order). True, documents will still be required for submission to the tax service, but their absence in itself does not constitute a ground for refusal on the part of the bank.
In foreign trade transactions, the order is different - permissive. When opening an account, the bank will ask why you need it and what you plan to do. And if a foreign transfer comes to the account without justification, the bank may reject it. The basis for payment approval is an agreement with the counterparty. From 2014, this agreement is not required to be presented in the original or translated into Russian. For example, if your company creates mobile applications, then to justify the income from Apple there will be a sufficiently printed offer from their website.
If the amount of the transaction exceeds $ 50 thousand, the bank will require the original contract with a foreign counterparty and a special document - the transaction passport (in fact, a description of the required currency transfers). The transaction passport is associated with other foreign trade documents (customs declarations, invoices), which together confirm your tax security.
Please note: penalties for violation of certain currency control rules (including repatriation of currency) are set at a multiple of the amount of the transaction.
For those who do not want to wait for the publication of the remaining chapters on Habré - a link to the PDF of the full book is in my profile.
The book "The law of a startup":
')
- Starter vs. entrepreneur
- Choose a form
- check in
- Corporate Governance
How is a company legally built? - Current work
Contracts and how they work
How to check an open source partner - Taxes
What does IT business pay in Russia? - Governmental support
- Startup cycle
How venture investment (in general) works - Venture transactions
- Venture funds
- Intellectual property
- Offshore and foreign trade
The advantages and pitfalls of offshore
Right is essentially national: it refers to individual countries. The right even of neighboring states can be very different. What principles apply here?
- Public law (for example, the criminal code) is valid in a particular area. Usually it is the territory of the state - land, underground and air objects (including warships abroad), territorial waters. For example, if the border runs along a river, the same action near one bank could be considered a crime, but not near another.
This approach is effective, since criminal law usually “works” with the facts of the crimes committed, which are easy to link to a certain territory. In some situations, there are difficulties - for example, computer crimes are not always resolved in the same way, and what is forbidden in one country may be legal in another. Therefore, law enforcement agencies have to lure hackers into their territory in order to detain and indict. - With private law is more complicated. First, the right of ownership and similar real rights are governed by the law of the country in which the property is located. Thus, a foreigner can sell real estate in Russia only under Russian laws (with registration of a transaction in the Federal Register).
- The status of an individual, his rights and obligations are determined in accordance with personal law. Personal law depends on citizenship or place of residence.
Thus, a foreign citizen should not serve in the Russian army (personal law is applied according to the principle of citizenship). At the same time, a foreign citizen permanently residing in Russia is a tax resident. This means that he must pay taxes in Russia (the principle of residence). - But what about legal entities? They are usually applied personal law on the principle of place of registration. Compared to obtaining citizenship, it is usually easier to register a legal entity in a foreign country. So businessmen have a choice: you can register a company in a country with suitable corporate and tax laws.
If entrepreneurs from different countries enter into a contract, they can choose the law that will apply to the transaction and the court that will resolve the disputes that arise. In this case, both the law and the court may relate to a third country - for example, the London Arbitration (LCIA) and English law may apply to a transaction involving entrepreneurs from Russia and Kazakhstan.
Offshore and onshore
In recent decades - with the development of the Internet, the simplification of the visa regime, the cheapening of flights - it has become much easier to travel (both real and virtual), as well as doing business that is not tied to a specific physical residence.The entrepreneur opened the production of low-voltage electrical equipment using the following structure: its goods were produced in China, the management company was registered remotely in Hong Kong, and all reports were filed there. The product was sent from China with the help of logistics brokers at Amazon.com. The equipment was sold through the “Low Voltage Appliances” showcase. The Internet giant independently processed orders, carried out delivery and return to buyers. The entrepreneur himself (the business owner) and several of his employees lived in the USA.
The entrepreneur accessed the online store from a tablet. Once he bought the same tablet for his son, and in order to distinguish them, on his tablet he changed the name of the device in the system: from his name to “baba” (“dad” - in Chinese). However, the name in the account on “Amazon” automatically changed. The online store found this suspicious and blocked sales until the entrepreneur confirms the change of name (which actually was not). It was not possible to get a response from technical support.
Stocks, transfers, logistics, salary - everything was blocked for about a month until the entrepreneur could reach one of the top managers. Only after that the problem was resolved.
Many modern entrepreneurs perceive the state as a service, similar to the bakery: you can choose the one that is cheaper and tastier, and not the one that is closer to home. This phenomenon is called competition jurisdiction.
“Everything is simple with services. You choose the one that is better, more convenient, cheaper: you can go to this bakery, and you can - to another. And the choice - in terms of the flow of capital, business, information and people - is determined by simple economics. When deciding where to open an office and run a business, we simply consider the costs and benefits of different jurisdictions: Moscow, Atlanta, London, Prague, etc. It is clear that many factors are taken into account, but first of all - the level of resistance of the business environment. ” (Dmitry Denisov, "Business Journal")
Continuing the idea of ​​the author: of course, the most delicious buns - in a specialized private bakery, and not in the one that is larger and spends resources on buns for allergy sufferers, social buns (tasteless, but free) and armed guards. In other words, social functions, maintenance of the army and other expenses make large states a priori ineffective in the market of jurisdictions. Conversely, micro-states with a small population have long realized their advantages, optimizing taxation, registration of firms and reporting requirements. And some of them have gone very far in this business optimization.
While traditional trading powers like Switzerland, the Netherlands, and Hong Kong attracted businessmen with low taxes and a lack of formalities, the resulting independence (and impoverished) ex-British colonies began to compete in uncompromisingly attracting capital from around the world. Thus, offshore companies appeared - countries that do not levy taxes on non-residents and guarantee complete anonymity to company owners. The Cayman Islands, Belize, the British Virgin Islands have heard everything about these countries, but not all offshore owners will be able to find them on the map.
The two described types of comfortable jurisdictions are called “onshores” and “offshores”. Onshore include countries that do not provide special treatment to non-residents. As a rule, in these countries, prefers to operate a legal business, not tied to the location. For example, if a company (suppose an online store) operates worldwide, it is logical that the head office will be open in the country with the most favorable regime. Onshore is not used for tax evasion or for hiding shadow capital.
Offshores, in contrast to onshores, offer zero income tax for non-residents, that is, for companies that do not carry out actual offshore activities. An entrepreneur can pump an offshore firm with money and not pay any taxes on income or profits. However, there are some nuances.
Vasya opened Romashka LLC in Moscow and Vasilek Co., Ltd. in Cyprus (more recently, Cyprus has ceased to be offshore). Then he sold 100% of Daisy to Cornflower. "Daisy" became 100% owned by a Cypriot company.
LLC “Romashka” made a profit of $ 100. From them she must pay taxes in Russia (for example, according to the simplified taxation system - 15%). Then, if Daisy pays the remaining amount as dividends to Cornflowers, the latter will pay a small tax on dividends (about 10%). As a result, from $ 100 will remain around $ 76. In general, such a scheme is completely legitimate, but not very profitable. If Romashka does business in Russia, it is more profitable for her to leave money here and not withdraw them anywhere.
Now imagine that Vasya opened an offshore company, Nezabudka, Ltd, in Belize. He enters into an agreement between Chamomile and Forget-Me-Not: for example, a license agreement on the use of a trademark (the Chamomile trademark belongs to a company located in Belize; Chamomile LLC uses it under a paid license). Accordingly, all profits of “Daisy” are transferred to Belize as payment for a trademark. In Russia, she does not pay taxes, since she has no profit. Nezabudka is also not paying taxes in Belize, since it is not a resident (does not operate in Belize).
Zero income tax can not be maintained if the companies in the offshore do not have anonymity. After all, as we already know, it is unprofitable to withdraw dividends to offshore (tax can be up to 30%). It is advantageous to pretend that the company in an offshore is independent (it has other owners), and conclude an agreement with it under which the Russian company will spend money (thus reducing its profit), and the offshore will earn (after all, it does not pay profit tax ). For example, a Russian company pays an offshore for using a trademark: a company spends money (reducing profits and taxes), an offshore company receives income (and does not pay anything for it). Money flows abroad at the expense of offshore.
However, in this case, the tax will easily see that the transaction, in fact, is a fraud committed to tax evasion, because two companies with the same owners are involved in it, and the goal here is not to provide a trademark, but tax evasion . Therefore, offshore companies are often created anonymously, and nominal local employees can be director and even a participant - however, lately, this is no longer helping against tax and, moreover, criminal prosecution by influential countries.
The use of offshore companies for an unprepared entrepreneur brings more problems than real benefits.
The first problem: an offshore transaction is a marker that will immediately scare away all organizations with state participation, non-profit organizations, and also cause serious questions to the tax inspectorate and banks.
The second problem: offshore is easy to lose: due to problems with island authorities or because of the wiles of nominal owners.
The third problem: the money lying in the offshore, you have to spend on something, and when you try to transfer them to a civilized jurisdiction, the first problem again arises.
As for onshore, this is a completely legal tool in transactions. It allows you to carry out more trouble-free logistics, simplify exchange controls, and in some cases save on taxes. In addition, many onshores, as well as offshores, belong to the former British colonies (Malta, Cyprus, Hong Kong), which means that they have a common law (English law). The use of such onshore allows you to fully use the tools of common law (for example, enter into advanced shareholders' agreements - agreements between shareholders), as well as to consider disputes in British courts, famous for their integrity (as well as very heavy time and cost of the process).
At the same time, foreign companies (both offshore and onshore) impose a number of restrictions on the entrepreneur. They close access to government procurement programs, support and subsidies, loans from state banks and government funds. The advantages of common law transactions are also not unlimited: a Russian court may refuse to execute a decision of a foreign arbitration.
In short, if you hesitate, not knowing what to do, open a company in Russia. A good accountant will help to charge expenses as high as possible, and taxes will not seem such a heavy burden. And your CFO will take over the foreign jurisdiction (when you get one).
Currency control
For the withdrawal of money from the country are watching special authorized organizations. Control over financial flows is called currency control . Its main task is to block the channels of irrevocable money outflow (including offshore). We are talking about those situations where Vasya, under a fake contract, transfers money to Belize (the previous example).
Since 2016, currency control over entrepreneurs is carried out by the Federal Tax Service of Russia and the Federal Customs Service of Russia, but entrepreneurs rarely encounter government bodies in this area. The fact is that in the Russian currency control system, banks are responsible for checking the operations of their clients and, formally not being agents of currency control, in practice they often block suspicious transactions.
In very general terms, currency control requirements are as follows:
- you cannot pay for the transaction currency between Russian businessmen;
- to transfer currency abroad should be through a special bank account (transit or current currency account);
- one cannot pay for foreign trade transactions and accept payment on them without having a basis (in particular, contracts and closing documents).
On the last paragraph we will dwell in more detail. When performing operations within the country, banks rarely ask for confirmation (except for very large transactions). You can transfer money to the counterparty without any reason - you only need to send an order to the bank to make a payment (payment order). True, documents will still be required for submission to the tax service, but their absence in itself does not constitute a ground for refusal on the part of the bank.
In foreign trade transactions, the order is different - permissive. When opening an account, the bank will ask why you need it and what you plan to do. And if a foreign transfer comes to the account without justification, the bank may reject it. The basis for payment approval is an agreement with the counterparty. From 2014, this agreement is not required to be presented in the original or translated into Russian. For example, if your company creates mobile applications, then to justify the income from Apple there will be a sufficiently printed offer from their website.
If the amount of the transaction exceeds $ 50 thousand, the bank will require the original contract with a foreign counterparty and a special document - the transaction passport (in fact, a description of the required currency transfers). The transaction passport is associated with other foreign trade documents (customs declarations, invoices), which together confirm your tax security.
Please note: penalties for violation of certain currency control rules (including repatriation of currency) are set at a multiple of the amount of the transaction.
The Russian company has sold the offshore company several tons of its products, which were exported from the country, but the money has not been credited. The currency control authority (FCS) fined the company for violating the repatriation rules for 100% of the transaction amount.However, it should be understood: this approach of state bodies is not the same as “walking in a short skirt, which means that she herself is to blame”. In most cases, violators really understand what they are doing. The trouble is that when the innocent fall under the hand, the noise rises so much that it drowns out the rest of the background information on the topic.
The logic of the company: “We were fined unfairly, because we already incurred losses (the contractor refused to pay), and now customs have charged us the same amount! Why should we be responsible for the fact that the counterparty did not fulfill the contract as promised? ”
The logic of customs: “Surely this company actually handed over the goods to its own offshore in order to sell it abroad and not pay taxes in Russia. Otherwise, why didn’t they take an advance, why did they even sign an agreement with some kind of garbage? Why the company did not go to court and law enforcement agencies? Even if it is not related to offshore, then she is guilty of the wrongdoing!
For those who do not want to wait for the publication of the remaining chapters on Habré - a link to the PDF of the full book is in my profile.
Source: https://habr.com/ru/post/334788/
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