Nowadays, setting up offshore companies and setting up an offshore structure has become the most effective and mature model for multinational companies to invest abroad. They not only have great advantages in tax saving but also have the characteristics of investment information security and business risk dispersion.
The so-called offshore structure refers to the legal structure built by offshore companies to maximize the benefits of the ultimate beneficiaries.
But the structure is not necessarily multi-layered. For example, a personal offshore account opened in Hong Kong is a non-use structure; if a Samoa company is established and then an offshore account is opened in Hong Kong, then a structure is formed. This structure plays a role in better confidentiality and elimination of tax risks.
Of course, the general structure may be related to not only a company but not just a territorial company. The role of the structure is not single, but multifaceted, and even multi-faceted. A structure can involve the overall business objectives of the client, various local legal policies, financial supervision, and other factors.
Below we list three typical offshore structures and show some of the main features and advantages of their offshore architecture:
The offshore structure of overseas investment has two core elements: one is the offshore platform and the other is the overseas trust plan. There are also two core steps in the creation of offshore platforms. One is to choose the appropriate offshore registration site (land), and the second is to choose the appropriate offshore company form.
The establishment of an overseas investment platform cannot only bypass domestic monopoly or regulation on foreign exchange, industry, capital market operation, etc. but also effectively utilize the loose legal system of offshore registration to achieve a sound and efficient overseas investment structure and operation. Construction of the structure.
The overseas trust plan is an important part of the offshore structure. It can make the offshore structure a more advantageous overseas investment solution by virtue of the characteristics of trust, efficiency, privacy, and security.
1. Covering investor information and bypassing barriers
Due to various commercial factors, some investors are not convenient to publish their own information, so the offshore structure can effectively bypass various barriers, minimize risks and achieve investment objectives.
Example: Two domestic companies, A and B, who want to invest in the US, but because their main business involves sensitive matters, and the US government has set strict review standards, it is subject to policy interference in the investment process. Later, A and B each entered into a US$50% joint venture, established an offshore company C in BVI, and financed Hong Kong with C as the investment entity, thus smoothly entering the US market.
When Chinese enterprises “go out”, they can use the characteristics of offshore company information confidentiality, structural security, and freedom of identity to rationally plan overseas investment and financing projects, bypass barriers, and achieve the goal of “saving the country by curves”.
For the purpose of avoiding and diversifying risks, some investors need to equip different investment projects with offshore platforms to avoid exposing the investment structure of the entire investment process while avoiding and diversifying the commercial risks of investment.
Examples: A, B, and C are three domestic high-net-worth individuals who want to jointly invest in setting up a Hong Kong company to invest in three overseas projects. The initial investment structure of these three investors is hidden:
First of all, the information of investors A, B and C is completely unprotected. Secondly, Hong Kong companies have the characteristics of complete transparency of information, which makes all project investment structures exposed in the subsequent investment process. Finally, Hong Kong companies hold simultaneously. Three overseas projects, which have great hidden dangers in risk prevention and dispersion. It can be seen that the overseas investment structure of Groups A, B, and C needs to be rationally optimized.
First, a BVI company, A, B, and C, can be held by each of Groups A, B, and C to ensure the opacity of investor information. The information of the three people will be completely confidential, guarantee the security of the original investment information, and separate the co-investment behaviors originally belonging to Party A, B, and C from the investor information, and obtain the effect of non-associative investors.
Secondly, the three BVI companies A, B and C jointly hold one BVI company D, D company invests in overseas projects one; A, B, C three BVI companies jointly hold one BVI company E, E company invests overseas projects Second, A, B, and C BVI companies jointly hold one BVI company F, and F company invests in overseas projects III. Since D, E, and F are all BVI companies, their opacity is still used to ensure the information security of investors.
Finally, three BVI companies, D, E, and F, respectively held three overseas projects, achieving the goal of risk dispersion.
Controlling and saving tax costs is an important function of offshore architecture. Investors should focus on the tax law risks of investment destination countries and investment home countries when constructing their overseas offshore investment platform. In combination with tax treaty preferences, transfer pricing arrangements, and intangible asset allocation, they should have sufficient commercial purposes. On the basis of economic substance, we will create an offshore structure in which economic interests and tax benefits are consistent, thereby bypassing tax law risks and saving cross-border tax costs.
Example: Chinese company A wants to invest in Southeast Asia, with the aim of acquiring local cheap labor and using advanced technology to develop local raw materials. Since the target raw materials belong to the buyer’s market in country A, the Chinese company A has a strong and powerful pricing authority.
Because the structure of direct investment is too simple, there is no protection for investors’ information, which greatly restricts the right of Chinese enterprises A to fully exercise pricing, as well as the arrangement of domestic and overseas profits, which reduces the flexibility of funds and profits, and is for Chinese enterprises A. The future withdrawal of investment from State A has laid a heavy cross-border tax burden. Therefore, it is necessary to re-plan and design the overseas investment structure of A company.
First, Chinese company A can set up an investment platform company in Hong Kong and inject funds into Hong Kong companies. Secondly, the Hong Kong company set up a BVI trust company in BVI and placed the funds in the trust plan of the BVI company. The trust beneficiary was set as the Hong Kong company and the trustee was set as the BVI company. Finally, BVI uses the funds in the trust plan to set up Company B in Country A to undertake the production function of the target raw materials.
In addition to the commercial investment advantages inherent in the aforementioned offshore architecture, the offshore architecture also has the following three tax advantages:
(1) Give full play to the pricing advantage of investment companies
Since the target raw materials belong to the buyer’s market in the country A, the Hong Kong company can freely and flexibly implement the pricing arrangement when purchasing the raw materials produced by the company B, and can separate the domestic companies from the procurement prices of the Hong Kong companies, bypassing the domestic tax authorities. Tax supervision of prices and income. The domestic A company can work with the Hong Kong company to implement raw material procurement to Company B, thereby enhancing the rationality of the purchase price.
(2) Secret investment and transaction information
By placing a two-tier offshore company between the domestic A company and the company A company, and an equity holding trust plan, it is possible to effectively conceal the investment relationship between the domestic A company and the company B company, making them The transactions and arrangements between the two are more free and flexible.
(3) Reduce cross-border tax costs when investment exits
In the offshore structure, the placement of the equity holding trust plan can conceal the investment relationship between the investor and the investee company. On the other hand, it can simplify and covertly implement the capital operation of the investment exit, thus avoiding the cross-border tax cost.
When a domestic A company wants to withdraw its investment in country A, it is not necessary to directly transfer the equity of company B. Instead, the BVI company, the Hong Kong company and the intended transferee jointly amend and sign the original equity holding trust plan, which will be entrusted. The person and the beneficiary are changed to the intended transferee.
Finally, the Hong Kong company will transfer the equity of BVI company to the intended transferee in Hong Kong, thus achieving the exit of investment in the country A. The above capital operations of BVI and Hong Kong companies can be completed with a small amount of tax, thus saving cross-border tax costs.