A Quarterly Newsletter from the UAE and Oman member firms of the PKF International Ltd.

VOL 14, Issue 04 October 2012

Offshore Update

Nominees in offshore companies – to use or not to use !

Nominee Director(s) or Nominee Shareholders are widely used when setting up an offshore company. This article discusses what they are and why they are so popular in the offshore world. The person who incorporates an offshore company is called the Beneficial Owner, i.e., the person entitled to enjoy the benefits of ownership of the company whether the shares of the company are in his or her name or not. That being said, the first question to ask is whether the person who is a beneficial owner of the company also wants to be a director and a shareholder of his/ her company.

The Beneficial Owner-Director-Shareholder matrix

The good side

  • The company maintenance costs would be lower as there would be no need to pay for the services of professional nominees;
  • The company structure is simple and clear to understand;
  • The person can transact business on behalf of his/ her own company;
  • The investor is in control of his/ her investment.

The flip side

Confidentiality: if an offshore company is being set up for privacy purposes (assets protection) then you may want to consider using nominee shareholders and directors for privacy protection.

Most of the offshore jurisdictions around the world do not have public registrars, therefore the information of who is a director or a shareholder of a company is kept confidential. Therefore the use of nominee’s directors and shareholders for confidentiality purpose will be needed only if the company is used not only for asset protections but also for daily business use.

Tax Issues: The country of residence/domicile tax law of the beneficial owner may contain a clause stipulating that a company is required to register for tax purpose in the country where it is managed and controlled from. “Place of management and control” is usually determined for tax purposes as the place where the Directors reside. Therefore, if an offshore company is going to do business with companies located in the investor’s own country he/ she may want to use the services of nominee directors and shareholders because his/ her name will appear on contractual documents made with suppliers or contractors in that country. In effect, the tax administration may be able, indirectly, to make the connection between the investor and his/ her company.

More often than not an offshore company may only remain legally tax-free if it is properly managed by a third-party Company Manager shielding the beneficial owner of the offshore company from most public scrutiny and a direct relation to the given company.

Absolute confidentiality does not exist: Even when nominee services are used, absolute confidentiality is not possible with banks (whether commercial or reputable offshore bank) as they will not open corporate bank accounts without information about the beneficial owner of the company.

Can you operate the bank account or transact business for a company that uses nominees?
Yes, using nominees does not mean that those nominees will be also controlling the company’s bank account(s). Most nominees don’t want to actually get involved with banking operations. Therefore you can use nominee services and still be the only signatory on the company bank account.

How is the ‘Beneficial Owner’ status in the company secured?
Upon hiring nominees as shareholders or directors of an offshore company there will be a separate ‘declaration of trust’ document that will clearly spell out that the investor is indeed the real owner of the company.

(This article is contributed by Mr. Chaitanya Kirtikar, Manager, Offshore & Free Zone Services.)