Incorporating an offshore translation company
Thread poster: Miguel Garcia Lopez

Miguel Garcia Lopez  Identity Verified
Spain
Local time: 10:47
Member (2008)
English to French
+ ...
May 20, 2008

Hi to all !

I just noticed today that an agency posting jobs in Proz is incorporated in Seychelles and their bank account is in Switzerland. I presume they have done so to obtain benefit of the low-tax or zero-tax situation of the Seychelles.

Do you have any experience working as a one-man company incorporated in Seychelles or any other tax heaven (Gibraltar, Andorra, Jersey, BVI, Bahamas, Cyprus, etc...)?

Thanks in advance.

[Subject edited by staff or moderator 2008-05-20 14:08]


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The Misha
Local time: 04:47
Russian to English
+ ...
Probably not worth it May 20, 2008

I can think of a number of reasons this may not be such a hot idea. First, maintenance fees (such as local agents, annual stamp fees, whatever) will probably be way too high for a lone freelance translatorr living somewhere else. Even with an agency, how much does a typical agency do in annual sales? Even assuming they gross out a few million a year - which is probably a pipe dream for most - it's really peanuts for this particular purpose.

Second, if your country's tax authority is anywhere near the US IRS, it will probably want all its residents to pay taxes on their income worldwide. The mere fact of trying to hide profits offshore will make you a criminal tax evader in their eyes. With the kind of profits you are talking about, it is hardly worth it.

All in all, if you have the itch to engage in creative accounting, better pump up your expenses or take full advantage of whatever lawful deductions your jurisdiction allows. Cheers!


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CFK TRAD  Identity Verified
France
Local time: 10:47
English to French
+ ...
More to lose than to win... May 20, 2008

Hello Miguel,

I have seen that you are based in Spain. There should be common fiscal rules (at least basically) throughtout the EU. As far as I know, to pay your tax in another country, you are supposed to live in that other country more than half the year. It means that if you decide to create an off-shore company in Ireland, or in Switzerland, you tax authority may consider that all taxes (including those of the off-shore company) have to be paid in Spain, as you live here most of the year.

If the fiscal authority has a website, you may want to check it, in the "Company" section, and then something like "international".

But if you do not live abroad, this could be more or less a waste of time and money - not to mention troubles !

Best

Coralie


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Williamson  Identity Verified
United Kingdom
Local time: 09:47
Flemish to English
+ ...
More to win than to lose. Aug 12, 2008

You stand to gain if your country is a high-taxed country.
In case of Spain, that is one of the reasons, I am not going to live there. I am fluent in Spanish, i love the lifestyle and could integrate in Spain immediately, but I don't want to live in a high-taxed country.

Some don't make a distinction between themselves (natural person) and a ltd (judicial person). In French,
"Il y a une différence entre une S.p.r.l et une personne naturelle/there is a distinction between a ltd and you, the natural person".

If you register as a limited and the company has its headquarters on the soil of the country where it is incorporated, you as a director and natural person may live in the jungle of Brazil. A judgment of the European Court of 2003 stipulated that all types of European Companies are equal, which means that a British ltd is equal to a French sprl or a German Gmbh.
If you plan to register in the UK as a ltd, you need a good accountant and a tax-consultant.

BTW, Cyprus is not a tax-haven, but a E.U.-Member with the lowest tax-rate in the entire European Union (10% on everything) and an interesting place to live. Pitty houses are bl..dy expensive there. Did you ever consider the green heart of Europe -Slovakia: tax-rate 19%.

The different tax-rates in Europe can be found on the website of the E.U. Google "EU"+"Taxes".


[Edited at 2008-08-12 13:06]


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Teresa Bento  Identity Verified
Portugal
Local time: 09:47
Member
English to Portuguese
+ ...
No taxpayer's ID number because they're a BVI-registered company Apr 6, 2010

I was about to write an invoice regarding a small job I did for a company. When I asked them their taxpayer's ID number, they said they didn't have one because they were a "BVI-registered company". According to my country's law I must write an ID number for the company so I don't really know what to do next. What would you advise me to do?

(Yes, I've asked them as well but I'm still waiting for their reply.)

Thanks in advance for your help.


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Tomás Cano Binder, BA, CT  Identity Verified
Spain
Local time: 10:47
Member (2005)
English to Spanish
+ ...
Tricky Apr 6, 2010

From what I have read, it sounds like tricky business. It takes a long time and some investment (in the order of several thousand euros) to establish a company offshore. Then you have to pay administrators to maintain your offshore company, file all official papers when due, etc., something that can very easily cost a thousand euros per year. Then there is the question of the taxes paid by the company abroad.

When you are paid by your company as a manager or worker, you are taxed on your actual income by the local Spanish authorities. Any amounts you receive from the company to your bank accounts could be scrutinized by the tax authorities at any time, and you would need to explain where that money comes from if you did not report the income. All in all, I think it is not that much worth in the end, but indeed some people do it, so there must be a plus somewhere.


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Martin Stranak  Identity Verified
Czech Republic
Local time: 10:47
Member (2009)
English to Czech
+ ...
Pros Apr 7, 2010

The pluses seem to be in cases, when the company´s profits gained outisde the country, where it has been incorporated, are not subject to income tax at all.

So, let´s say, an agency in the U.S. with some two million dollars in revenues annualy can consider setting up a company in the BVI as the mother company of the branch in the U.S.
The only fees you pay are the administration fees there. It all depends how much a translator agency can actually count towards its expense allowance for income tax purposes. Some people might find this very useful and do not have to appear as mone launderers


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Sergei Tumanov  Identity Verified
Local time: 11:47
English to Russian
+ ...
Welcome to Estonia Apr 7, 2010

Local companies enjoy the pleasure of zero income tax on reinvested profit.
From practical point of view it means that a company pays nothing to the state if it has no employees on payroll and/or pays no dividend.

The owner cannot draw money out of his/her company for personal needs, but can use legal entity's assets for purposes 'related to business activity'.


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Sarah Ferrara  Identity Verified
Italy
Local time: 10:47
Italian to English
offshore companies Apr 7, 2010

You can register an offshore company in the Seychelles or Panama and an associated bank account (in the name of the company) in Switzerland. From a quick Google search, registering a company like this costs one or two thousand euros and a few hundred euros per year for agency fees. You don't pay any tax whatsoever and have no obligation to file accounts. Remember, the company and you are considered to be two separate legal persons.

This is legal.

However, if Spain is anything like Italy, you'd still have to pay tax (in Spain) on your PERSONAL worldwide income. So anything you draw from the offshore company as personal income would be taxed, as normal. Failure to declare this personal income would be tax evasion.

So in theory, any money that remains in the account in Switzerland still belongs to the company, not you. However, the day you take that money out and pay it to yourself it becomes personal income, and taxable in Spain.

BUT - and it's a big but - many countries, Italy included, have a blacklist of offshore countries. In Italy, Italian-based companies cannot deduct invoices from a company based in a blacklisted country. This is a major issue with corporate clients; less of a problem with private individuals.

As most translation agencies will mainly be working with corporate clients, the ability to be able to offset the invoice as an expense against income is very important, so no Italian-registered companies would use a translation company based in the Seychelles, for this reason.


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Tomás Cano Binder, BA, CT  Identity Verified
Spain
Local time: 10:47
Member (2005)
English to Spanish
+ ...
Corporate social responsibility Apr 8, 2010

Sarah Ferrara wrote:
So in theory, any money that remains in the account in Switzerland still belongs to the company, not you. However, the day you take that money out and pay it to yourself it becomes personal income, and taxable in Spain.

Apart from the heavy issues with the tax authorities, indeed the main issue here is the location of incorporation the offshore company. How do you explain to your customers that they receive an invoice from a Seychelles company and not from Spain? It would immediately reveal to them that you are not very much into corporate social responsibility, huh?


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Sarah Ferrara  Identity Verified
Italy
Local time: 10:47
Italian to English
two separate legal entities Apr 11, 2010

Tomás Cano Binder, CT wrote:

Sarah Ferrara wrote:
So in theory, any money that remains in the account in Switzerland still belongs to the company, not you. However, the day you take that money out and pay it to yourself it becomes personal income, and taxable in Spain.

Apart from the heavy issues with the tax authorities, indeed the main issue here is the location of incorporation the offshore company. How do you explain to your customers that they receive an invoice from a Seychelles company and not from Spain? It would immediately reveal to them that you are not very much into corporate social responsibility, huh?


the company and individual are two separate legal entities. So the company can be based in the Seychelles and the individual in Spain. So the company would obviously invoice from the Seychelles, as it's the company doing the invoicing, not the individual.
But any monies that the individual draws from the company are taxable in the individual's country of residence.


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Veronica Lupascu  Identity Verified
Netherlands
Local time: 10:47
Dutch to Romanian
+ ...
Living in Cyprus, plans for future Apr 11, 2010

Hi,

I actually posted this idea in another thread (for Romanian language), but got no replies...

At the present time I live in Cyprus. I have been translating for Companies, providers of offshore services, since my first day here, so I am quite familiar with all they can offer.

I am planning to remain a Cyprus tax resident in future. I do not plan to live in Cyprus, but to pay taxes here. It would, of course, involve the incorporation of a Cyprus Company. As written above, people are scared of maintenance fees. The annual fees are not so big actually and the bigger advantage is that Cyprus is an EU country (so, low rates for bank transactions, common laws etc.) Furthermore, the employees' income is exempt from tax if up to 19,500EUR per annum. Also, already incorporated companies somewhere else can be redomiciliated in Cyprus to enjoy its tax advantages.

If interested, I can provide you with links or even direct contact people. You may contact me via my proZ profile.

Believe me, it is worth trying!


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Fabio Salsi  Identity Verified
Peru
Local time: 03:47
Member (2006)
English to Italian
+ ...
possible but you have to live there Apr 12, 2010

It is possible to set up a company or incorporate as a freelancer in a tax heaven or a country with low income (i.e. Cyprus) but to avoid problems and to do it legally you must live in that country for at least 6 months + 1 day and prove that your life is based there. Any EU citizen can register as a freelance in Cyprus but if they do not spend more than 6 moths plus one day in Cyprus their native country might ask them to pay taxes in their native country (i.e. what happened to Pavarotti who supposedly was living in Montecarlo). Creating a company in a tax heaven but not living there will get you into trouble because all the money earned as company director/owner will have to be declared and will be taxed in the country where the person is a legal resident. Bottom line, the only way to legally pay less taxes is to incorporate and physically live in country with reduced tax rates. Creating a company in a tax heaven but living "most of the time" in a EU country will get you into trouble if you do not declare the income coming from the offshore company. The advantage for a translator compared to other professional is that they can physically "delocalize" and offer their service remotely so in theory they can pick and choose the country with the lowest tax rate and move there. The problem is how to become legally a resident of a tax heaven country which is not part of the EU. Most of these tax heavens offer investor visas: basically you have to buy property or deposit money in blocked bank accounts for a certain amount of money or prove you have a fixed income (pension, dividens, etc..).
Fabio


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Veronica Lupascu  Identity Verified
Netherlands
Local time: 10:47
Dutch to Romanian
+ ...
correct, but Apr 12, 2010

Fabio Salsi wrote:

It is possible to set up a company or incorporate as a freelancer in a tax heaven or a country with low income (i.e. Cyprus) but to avoid problems and to do it legally you must live in that country for at least 6 months + 1 day and prove that your life is based there. Any EU citizen can register as a freelance in Cyprus but if they do not spend more than 6 moths plus one day in Cyprus their native country might ask them to pay taxes in their native country (i.e. what happened to Pavarotti who supposedly was living in Montecarlo). Creating a company in a tax heaven but not living there will get you into trouble because all the money earned as company director/owner will have to be declared and will be taxed in the country where the person is a legal resident. Bottom line, the only way to legally pay less taxes is to incorporate and physically live in country with reduced tax rates. Creating a company in a tax heaven but living "most of the time" in a EU country will get you into trouble if you do not declare the income coming from the offshore company. The advantage for a translator compared to other professional is that they can physically "delocalize" and offer their service remotely so in theory they can pick and choose the country with the lowest tax rate and move there. The problem is how to become legally a resident of a tax heaven country which is not part of the EU. Most of these tax heavens offer investor visas: basically you have to buy property or deposit money in blocked bank accounts for a certain amount of money or prove you have a fixed income (pension, dividens, etc..).
Fabio


1. Cyprus is not a tax heaven, but it has the lowest tax rates in EU;
2. One must live 180 days in CY to become a tax resident there, if he is an individual. If you own a Cyprus Company, it is not applicable. The question of this thread is about incorporating an Offshore Company. The idea would be:
a) for agencies, to incorporate or redomiciliate their companies in a low tax country;
b) for freelancers, to incorporate their own company in Cyprus or to make groups of freelancers who incorporate their own company in Cyprus and are declared there as employees of this company (they would also save money, paying together the maintenance fees);
3. It is totally accepted and considered legal by EU;
4. You do not have to buy property in CY or so, neither to deposit money in blocked Bank Accounts. You can have your own normal bank account in a CY bank or not, it is not compulsory, but it facilitates company's bank transactions.

and there are so many others legal advantages... the only one who has to suffer somehow is the home country, but it will suffer in a legal way, as well.

If you are a real patriot freelancer (sounds great, ja?), continue rating your source word with 0,06EUR and paying 40% from it! (p.s. i am not talking about any person here, it is a totally general "you").


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Tomás Cano Binder, BA, CT  Identity Verified
Spain
Local time: 10:47
Member (2005)
English to Spanish
+ ...
It is hard to be a patriot Apr 12, 2010

Veronica Lupascu wrote:
If you are a real patriot freelancer (sounds great, ja?), continue rating your source word with 0,06EUR and paying 40% from it! (p.s. i am not talking about any person here, it is a totally general "you").

I think that all sane people would very much prefer not to have to resort to an off-shore company to save taxes. Each of us love our countries or the places where we live, but it is very hard indeed to endure very high taxes if you are moderately successful, while you see even the most modest local politician "working" 1/4 of the working hours you work, but nevertheless drive a very expensive car while you drive some cheap solution.


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