Expatriates working abroad often establish a Personal Services Company through which to conduct their business. A Personal Services Company is essentially an offshore company established for a single person who is engaged in the provision of services for income.
A number of legitimate reasons may be at the forefront of a decision to form a Personal Services Company. This may be out of necessity where a sole proprietor would otherwise struggle to gain business due to a reluctance of potential customers to retain the services of an unincorporated sole proprietor for instance. Of course tax related matters must also be considered. Forming a Personal Services Company that is either tax exempt or effective tax exempt since the PSC is only taxed on domestic sourced income but then operated outside of the country of incorporation can pave the way to a tax exempt overall solution. There are further benefits that may be equally or even more important such as providing limited liability to the individual, presenting a more professional image by operating through a company, access to corporate banking services and more.
Tom is a British National and operates as a consultant in the oil and gas industry. He has business opportunities to take on consulting work from a few large companies relating to their exploration activities in Africa.
The nature of the work will mean he is living and working outside of UK on nearly a full time basis (i.e. where he will be in UK for less than 90 days in any given year) for the next 2 to 3 years and will be traveling frequently whereby he will not qualify as a tax resident in any particular country. So Tom decided to contact Sterling to see about setting up a Personal Services Company.
There are a few options Tom could have chosen in this case. Sterling suggested that Tom consider either a Florida LLC (USA) or a Seychelles International Business Company. The Florida LLC is an interesting option as the corporation laws in Florida are very sound (based largely on the popular Delaware laws), Government fees are reasonable, a US company would not be viewed as “offshore” and more. However Tom’s customers were not concerned with where Tom’s company was incorporated and being knowledgeable they understand that Seychelles IBCs are quite popular and widely used companies. Furthermore, there were potentially a few issues with using a Florida LLC.
One was that one of Tom’s major customers was a US based company and as such we agreed this could bring some tax risk. Additionally, given that the activities were being carried out in Africa and with Seychelles being a member of the African Union and in the region, it was decided that Tom would go with the Seychelles IBC where he could come for meetings in Seychelles and use Sterling’s offices as his business “home base”. To provide additional certainty around the tax residency of the company, Sterling was also requested to provide the director of the PSC.
Sterling also suggested that Tom consider putting some of the shares of the PSC in a discretionary trust for his children taking advantage of his non-UK resident status for the time being.
Tom established the trust with Sterling as the trustees while he was a non-UK resident which offered tax advantages as the accumulated and compounded trust income was able to grow tax free until being distributed in the future to his children provided that neither Tom nor his wife were beneficiaries and distributions were not made to any children below the age of 18.