Nominee Structures

The concept

The nominee structure is ostensibly a simple set-up where an onshore company acts as nominee for a low tax company principal. The concept is often used to avoid the problems often seen for low tax companies who trade internationally as it offers an onshore face with all the low tax benefits.

Advantages include:

1. High level of credibility.

2. With no ownership, related party transactions may not be reported by auditors.

3. A large percentage of the net profit on trade, for example 80% of the total, is payable to the low tax company.

4. A small percentage of net profit is kept in the onshore company, and therefore corporation tax is paid in the high tax jurisdiction. This tax could be as low as 5% of total turnover.

5. All transactions with clients are with the onshore company.

 

The Structure

The low tax company is the "Principal" in the operation while the onshore company is the contracted "Nominee" or "Agent" company. The nominee company carries out all business on behalf of the principal. A commercial agreement between the two companies must be drafted, setting out the terms upon which the nominee carries out its work.

As mentioned above, the nominee company is the "shop window" and so all goods purchased and all invoices generated are done by this company, on behalf of the principal. The resulting monies are collected by the nominee company and so the client is only aware of the onshore aspect and does not need to know about the low tax relationship. The nominee company receives a fee for its services and this is usually deducted from the trading income. After these costs, the remaining monies are sent straight to the principal. The nominee company's accounts will only show the fee income and any expenses incurred along the way. They will not need to show the trading income, as this was handled on behalf of the principal. Any profit made from the fee income, after costs etc. is taxable. The level of fee income is determined by the volume of trade, margins achieved and turnover during the year. Typically, a figure of 15-20% of gross turnover is acceptable.

Things to consider:

1. The nominee company should not trade in its country of residence, as it could be deemed liable to taxation on its revenue.

2. Although the nominee company is purchasing the goods, the ultimate ownership rests with the principal company.

3. Each company should have different officers and shareholders.

4. The Directors of the low tax company should be non-resident.

5. The nominee company should be registered for VAT if applicable.

6. All the advertising, marketing and promotion is undertaken by the nominee company.

7. The clients are not aware of the agency agreement which exists between the nominee Company and the low tax company.

8. The two companies need different directors and shareholders.

9. Contracts with the nominee Company should be signed outside its country of incorporation.

10. The directors of the nominee Company must not be resident in its country of incorporation.

11. The beneficiaries should be not residents in either country.

More informationa about offshore companies