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Confidus Solutions

Confidentiality issues

Confidentiality is a legal term, which under corporate law refers to a degree of privacy that companies can enjoy in order to keep certain information and documents undisclosed. However, it may be necessary to identify the directors who actually run the company. Confidentiality, provided by nominees, is one of the major advantages of many tax haven jurisdictions.

In many countries, a list of directors is publicly available. At first glance, this seems to be a logical requirement, as it may play a role in daily business activities — for example, in concluding agreements, starting a new business relationship or negotiating a price when closing a deal.

Confidentiality of directors

The directors have full control over a company and enter into a fiduciary relationship with it. Directors have a duty to maintain the confidentiality of any information that they acquire by virtue of their position within the corporation. Nominee services usually provide high standards of confidentiality, as in some countries there are significantly fewer legal requirements to make information public.

Usually in onshore jurisdictions the board of directors is responsible for company activities, so in the event that the tax authority has any doubts regarding the legality of a tax optimisation scheme, this will first be challenged at director level. Internal documents relating to company governance require a certain decision-making process to be carried out which involves discussion, and so there is generally a certain level of trust and collegiality among the directors.

Internal regulations are not usually binding on third parties. However, it helps if responsibility is shared, and therefore the board of directors will from time to time revise the company policy and make amendments in order to make it clear that a director’s obligation of confidentiality isn’t limited to non-public company information, but also includes information regarding insider trading provisions.

Confidentiality of shareholders

Again, in many countries, a list of shareholders is publicly available and so this information is accessible to government institutions as well as to private entities. This is the case in most European Union countries where a public company register is in operation. However, in low-tax jurisdictions, personal assets enjoy a greater degree of privacy, thus increasing the level of protection of one`s assets. For example, in court proceedings, the claimant may ask for an injunction to freeze the defendant’s assets. If the court has no privilege to obtain data regarding those assets, protecting the defendant’s property is easier and it will require much more effort for the other side to gain access to it. The same applies in the case of other government authorities.

Another asset protection issue relates exclusively to receiving dividends. Dividends are taxable income, and tax authorities might take notice of the received income and apply taxes. Accordingly, the beneficial owner should be careful to place his or her assets in a safe manner and to look after all records. The advantage of certain jurisdictions lies chiefly in the fact that in most tax haven countries the administrative burden is minimal, and the law does not require you to submit detailed information. In some jurisdictions, bookkeeping isn’t mandatory. According to a general principle in tax law, the tax payable depends on the country where the income originates. Therefore, the choice of jurisdiction for placing assets plays a fundamental role.

The Importance of confidentiality

From a tax planning standpoint, confidentiality is important. There’s a very fine line between protecting and hiding assets, and this issue can be resolved by consulting professional and competent lawyers and tax advisors. Tax consultants are also best placed to know which jurisdictions would suit their client, since each case might be different and should be examined individually.

The scope of confidentiality should be stipulated when arranging for an agent to provide nominee services. Confidentiality itself is not strictly regulated, and so internal corporate documents and agreements between the client and nominee are likely to be helpful in resolving any situations that might arise.

Confidentiality risks

In many countries, the law requires you to declare all worldwide assets, including property, vehicles, business assets, cash, stocks and shares, etc. and on the basis thereof the tax authority will calculate the payable tax. This applies for example, in Russia. In Spain, non-residents only have to declare property and assets in Spain, and they are not entitled to an allowance against wealth tax. Perhaps as a result of the crisis in Greece, there have been changes to the country’s tax system; from February 2017, individuals will be obliged to declare all moveable and immovable assets, including cash. Furthermore, taxpayers will have to register any changes in their assets when they occur.

In any case, in most countries you must complete a tax report, and failure to do so may lead to financial sanctions. Failure to submit a declaration may result from a lack of knowledge of how this process works.

In certain countries, citizens are not allowed to possess assets abroad — for example, in Russia, citizens must apply to the government for permission, as must Chinese nationals. Vietnamese citizens are not allowed to transfer any funds abroad, a restriction aimed at keeping funds inside the country.

aeroview of gibraltar

The Automatic Exchange of Information (AEOI)

AEOI is a global forum on transparency and exchange of information for tax purposes maintained by the Organisation for Economic Co-operation and Development (OECD). The OECD aims to simplify administration and co-operation and ensure that taxpayers pay the correct amount of tax in the right jurisdiction, as cross-border activities on an international scale are becoming more and more widespread. Automatic exchange involves a common reporting standard that calls on jurisdictions to obtain information from tax authorities and automatically share this data with each other on annual basis. As a result, AEOI presents a high risk of violating confidentiality and will diminish security.

AEOI Participants

To date, 101 countries in total have committed to the global forum on transparency. The first jurisdictions to participate in exchanging information as of 2017 are Anguilla, Argentina, Barbados, Belgium, Bermuda, the British Virgin Islands, Bulgaria, the Cayman Islands, Colombia, Croatia, Curaçao, Cyprus, the Czech Republic, Denmark, Estonia, the Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Greenland, Guernsey, Hungary, Iceland, India, Ireland, the Isle of Man, Italy, Jersey, South Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mexico, Montserrat, the Netherlands, Niue, Norway, Poland, Portugal, Romania, San Marino, the Seychelles, the Slovak Republic, Slovenia, South Africa, Spain, Sweden, Trinidad and Tobago, the Turks and Caicos Islands and the United Kingdom.

A number of other jurisdictions have undertaken to perform their first exchanges by 2017. These are: Albania, Andorra, Antigua and Barbuda, Aruba, Australia, Austria, the Bahamas, Bahrain, Belize, Brazil, Brunei Darussalam, Canada, Chile, China, the Cook Islands, Costa Rica, Dominica, Ghana, Grenada, Hong Kong (China), Indonesia, Israel, Japan, Kuwait, Lebanon, the Marshall Islands, Macao (China), Malaysia, Mauritius, Monaco, Nauru, New Zealand, Panama, Qatar, Russia, Saint Kitts and Nevis, Samoa, Saint Lucia, Saint Vincent and the Grenadines, Saudi Arabia, Singapore, Saint Maarten, Switzerland, Turkey, the United Arab Emirates, Uruguay and Vanuatu.

Nominee services

Nominee services were introduced as a mechanism to guarantee privacy and protect assets. They offer the advantage that the declaration of trust is not available to the public, and so the official records will show only the name of the nominee(s). If you are interested in finding out more about nominee services, click here.

Other solutions

Another solution for protecting your assets is to hold them in an international company. Choosing a low-tax jurisdiction with low bookkeeping and record-keeping requirements, or none at all, will grant you anonymity and will help in hiding assets. Meanwhile, an international company provides the ability to access low tax rates, with some jurisdictions offering 0% tax. If you appoint nominee directors and shareholders for your international company, it is possible to ensure that your data remains private and confidential. The banks are aware of such corporate structures and will accept a power of attorney and declaration of trust, which will grant you access to the company’s bank account; the nominee will have no control over the account.

Top three jurisdictions with high levels of protection for confidentiality

The top jurisdictions for high levels of confidentiality protection are Belize, the British Virgin Islands (BVI), the Seychelles and Saint Kitts and Nevis.

Belize

A view in BelizeBelize is a small country on the eastern coast of Central America, to the south of Mexico, formerly known as British Honduras. This jurisdiction has a lot to offer international investors as well as corporate giants, with its favourable tax regime and banking legislation. Under the provisions of the International Business Company (IBC) Act of 1990, companies registered in Belize are fully exempt from all taxes and stamp duties on income from any source. An international business company (IBC) incorporated under the laws of Belize is a perfect solution to secure your confidentiality, as nominee services are allowed but no information on directors and shareholders is entered into the public register.

The Seychelles

A view in the SeychellesThe Seychelles is one of the most sought-after jurisdictions, offering a low-tax regime to international investors and entrepreneurs. The government has invested a lot of funds in order to turn the islands into the prestigious jurisdiction we know today. Over last few decades, the Seychelles has seen a dramatic modernisation of its legislation, which has resulted in an up-to-date, but reasonably strict, business-friendly environment. Laws governing the Seychelles’ tax regime and tax application offer excellent tools for asset protection, tax reduction and privacy protection for both individuals and companies.

The British Virgin Islands

A view in the BVIThe British Virgin Islands (BVI) is a classic low-tax territory. The most common legal structure for businesses is the international business company (IBC), commonly referred to as the offshore company. An IBC is normally exempt from all taxes usually applied to a company. BVI offers a flexible business structure, low requirements for reporting and record-keeping and high levels of confidentiality protection. The legal basis for this status is the BVI Business Companies Act, which came into force back in 2005.

Confidus Solutions

Confidus Solutions will help you evaluate all of the possible options and choose the most efficient, tailored solution to achieve your personal goals. We have many years of expertise in this industry and our experienced agents and lawyers can incorporate your company in any jurisdiction worldwide. If you require more information, please check our offered solutions or contact us for an offer unique to you.