Dharmesh Naik, Group Director of OCRA’s base in Mauritius, explains the tax advantages of running a well-structured personal service company (PSC).
Some people believe that tax evasion is the underlying reason for setting up a personal service company (PSC). However, this vehicle, when structured properly with legitimate intent, can not only reduce the overall cost of administration and management of a company, but also provides a tax structure which will minimise the taxpayer’s bill.
What type of person suits a PSC?
Many individuals engaged in the provision of professional services in the construction, engineering, aviation, finance, computer, film and entertainment industries can achieve considerable tax saving benefits through the establishment of a PSC. The PSC can contract to supply the services of the individual outside the country in which he is normally resident and the fees earned can accumulate offshore, free from taxation in the offshore centre.
The PSC would be used mainly by expatriates, persons providing international services and consultancy, and professionals looking for asset protection against potential liabilities.
Advantages of using a PSC
The PSC is set up as a limited liability company. Therefore, it provides protection for professionals offering consultancy services who will usually adopt a professional indemnity cover in order to reduce risks associated with his business. By using a PSC, such risk is reduced even further.
Providing services through a company structure will prove to be a good organisational and marketing tool for two or more persons seeking to provide consultancy services to clients.
Using a PSC reduces the legal, accounting and administrative costs which can arise upon setting up such a company onshore. Such a structure in the UK would cost more than £10,000 per year, whereas providing the exact same service using a PSC, including the appointment of accountants and auditors, company secretarial skills for statutory filings, a secretary to look after the affairs of the company and a base for doing business, will cost roughly £1,000 per year.
Using a PSC in one of the recommended jurisdictions will ease the taxpayer’s liability as the rate of tax will be much lower than in his country of residence, if not nil. The structure will be set up to ensure that there is little tax which is payable upon repatriation of profits to the beneficial owner and that there is no double taxation of the income.
The jurisdictions recommended for the PSC provide full confidentiality for the applicant.
The ideal vehicle for such a structure would be a company which is exempt from taxation and which has minimal reporting requirements. OCRA would propose either a Seychelles international business company or a Mauritius global business company holding a Category 2 Licence for this purpose.
Both these types of vehicles are not taxed and monies (profits) can be repatriated by way of dividends back to the beneficial owner’s (or owners’) country of residence. The net effect is that there is taxation in only one state - that is the domicile of residence of the beneficial owners/shareholders. Some countries may exempt the income after being non-resident for a number of years.
How to proceed
To proceed with the set up of such a structure, the principals would need to undergo an initial due diligence check, which involves an identification document, a proof of residential address, a reference from their personal banker and a curriculum vitae, indicating their work experience and areas of expertise.
Along with these documents, a small business plan will also be needed to support the business case of the company. It is recommended that principals have an agreement with the proposed company, to act on its behalf, as a consultant or manager, and thereafter providing services to the company’s clients.
All transactions would need to be supported by the necessary documentation to explain exactly what the transactions consist of. Such documents would include contracts with clients, invoices and purchase orders. It is important to note that directors need to maintain enough accounting information to validate the financial status of the company.
Once the above documentation is provided, OCRA can help set up such a company within a few working days.The cost, depending on the services required, typically starts from £1750 with annual maintenance fees from £840.
OCRA advises that you seek professional (legal) advice prior to using our services/structures.