How PHS managed to design and implement an international business structure for one of the 1000+ happy clients.
The facts
An overseas company was purchasing products manufactured from various US companies. Particularly, the company was purchasing the goods following various credits agreements signed between the two parties, such as third-party debt including interest. As a result of this, the US tax rate was higher than the overseas-country tax rate including any withholding taxes, as well as the foreign tax credits could not be fully utilised.
The sales of the overseas company were increasing rapidly, hence the company decided to increasing its European market share in a particular business line. As a result of this, the company acquired a European company. The acquisition idea and strategy was to designed to create corporate synergies, better customer service, reducing costs, minimising taxes and create flexibility of intercompany transactions.
It was obvious that when a company expands overseas there are a lot of problems that need to be resolved. As a result of this, the company was facing the following issues:
- The synergies between the different jurisdictions.
- Cash flow issues.
- Reduction of debt.
- Repatriation of profits.
- Restructuring to take advantage of low-tax rate.
The company’s Managing Director approached PHS to discuss the above issues and how can all these be eliminated.
The PHS approach
PHS developed an appropriate group structure, not only to address the issues company was facing but to even achieve its long term goals.
1. The Holding LLC.
The Holding company incorporated in a reputable jurisdiction, due to the fact that taxation of a US company can be deferred indefinitely as long as the profits are not repatriated back to the US. This is because of the so called US “check the box rules” and non-application of US Control Foreign Company or CFC legislation.
2. IP owner, Lux
The Limited Partnership is a tax transparent hence neither subject to Lux corporate income tax nor to Lux municipal business tax, unless both elements below are met:
a) The foreign partner (i.e. US company) derives profits from a commercial activity; and
b) The commercial activity is carried out through a permanent establishment.
3. The Cyprus Ltd
Cyprus Ltd was the Head Office and the principle operator of group’s web and business services offered via websites. Also, the Cyprus Ltd was holding the shares in different countries, such as Hong Kong, UK, Malta and Ireland.
4. The UK Ltd
UK Ltd incorporated in the UK with the solely purpose of hosting the server. According to HMIC, website as well as server are not creating a PE. This has also been announced by OECD in January 2001.
5. The Hong Kong Ltd
HK Ltd is a limited liability company registered in Hong Kong. Hong Kong has one of the most tax-friendly economies in the world. The city imposes three taxes and has generous allowances and deductions which reduce the taxable income.
6. The Maltese Ltd
Maltese corporate tax rate is 35%, but Malta Tax Payment and Refund System offers the possibility to reduce the effective tax rate close to 0%, if Cy company claim a refund on the Malta tax paid on qualifying profits out of which dividend was distributed.
7. The Irish Ltd
The corporate tax rate of Ireland is 12.5% for trading income.There is DTT between Ireland and Cyprus, hence no withholding tax on dividends and interest.
Losses can be carried forward indefinitely. Carry-backs are only allowed immediately for the preceding period, of equal length.
The outcome
Due to the business infrastructure and the necessity of security, public information, confidentiality, future goals and third party reliance (internet providers), PHS team have considered higher levels of taxation in certain circumstances. All of the jurisdictions applied have their special tax characteristics, constructive business environment, excellent infrastructure, informative company legislation and staple political environment.
The reorganization consolidates all of the functions and risks. The new operating structure significantly decreases the amount of tax the company pays.
Contact us to help you find out how to design and implement an international business structure and streamline your business.
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We will analyze your case and advice you on:
- What company structure suits you best,
- What is the best Tax solution(s) for your business,
- What Banking and cash flows arrangements available.
We will take you through a step by step process from A to Z in creating the perfect business in Cyprus.
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Become even more successful by working with accountants you can count on and be among the thousands that already did.
If you want to work with professionals who provide exceptional quality standards of services in Cyprus, the simplest way is to fill in the contact form below.
We will take you through a step by step process from A to Z in creating the perfect business structure in Cyprus.
Can’t wait any longer? Become even more successful by working with accountants you can count on and be among the thousands business that already did.