The Real Deal About Nominees for Offshore Companies

The Real Deal About Nominees for Offshore Companies

Offshore companies offer tremendous benefits in terms of asset protection and being as tax efficient as possible.

However, it’s the one international diversification topic that probably generates the most confusion. Offshore companies are often complex in terms of the structures themselves, the regulations surrounding them, and reporting them properly on your tax filings.

Plus, a myriad of unscrupulous promoters on the Internet spread dangerous half-truths and misinformation.

Combine all that with draconian penalties for not filing correctly, and you have yourself a veritable minefield.

That’s where International Man comes in, to help you cut through all of the spin.

Perhaps some of the biggest spin with offshore companies comes from the topic of nominee directors. What are they and what benefits do they really provide?

Find out in the article below from IM contributor Streber.

Last, be sure to get the free IM Communiqué, so you can keep up with the latest on the best opportunities for offshore companies and international diversification in general.

Until next time,

Nick Giambruno, Senior Editor

By Streber

I often come into contact with offshore companies—usually run by a sole individual—which, either through a sales pitch by the OSP (offshore service provider) or by misinformation on the Internet, has appointed nominee shareholders and/or nominee directors.

In almost every case, using a nominee directors or shareholders has no added benefit.

Instead, using nominees just causes problems. Nominees can make a company more expensive to manage, and companies with nominees have a much harder time opening bank accounts.

So let’s dig in to this matter. What are nominees? Who are they? When are they needed?

What Are Nominee Directors and Shareholders?

In short, nominees aren’t involved in a company’s day-to-day business activities. They’re essentially just names on a piece of paper.

When a typical offshore company is formed, it consists of one or more persons (legal or natural) who act as directors, shareholders, and/or partners, depending on the company’s legal form. In case of an LLC or partnership, nominees can still be used, but would then be called nominee members or nominee partners. The term nominee officer is sometimes used.

A nominee is a third party who’s nominated to act as director, shareholder, member, and/or partner in the company. Nominees are usually appointed with a separate agreement in place stating that the nominee can be let go at any time by the UBO (ultimate beneficial owner), which would be the company’s real owner(s). It’s unclear how (if at all) enforceable these contracts are in cases where the nominee is also a director and shareholder, or primary partner of the company.

A nominee director or shareholder typically will not do anything unless instructed by the UBO.

What Nominee Directors and Shareholders Are Not

Nominee directors are not resident directors or managers of a company. This means that using nominees will not qualify your company as resident of that country and thus, access a country’s DTAs (double taxation agreements) or other legal privileges (and obligations) a resident company may have.

Resident local managers, on the other hand, cost a lot more than nominees. They are commonly used in Singapore, the UAE, Cyprus, and Malta to make the company appear to be controlled from that jurisdiction for compliance and tax purposes.

Furthermore, nominee directors will not usually be bank account signatories. This is a different type of service; and although a nominee director can sometimes be the nominee bank account signatory, it’s a separate service, with a plethora of other fees, concerns, and risks.

What About Bank Account Signatory Nominees?

When you open a bank account for your offshore company, the bank will require one or more persons to act as signatories on the account. This means that any instructions sent to the bank (wire transfers, trades, card applications, etc.) require this person or these persons to sign on behalf of the company.

In most cases, the signatory on a bank account will be you as the offshore company director. This means that the bank account belongs to your offshore company and that you have control over the funds in the account.

By using a nominee bank account signatory, your name may not be known to the bank–unless required by law. Some banks tolerate not knowing the UBO and opting to believe (while knowing it’s not true) that the nominees are the UBOs of the bank account. However, in most cases, your identity will be disclosed to the bank under international standards of compliance. The bank will know who you are and will be able to disclose this in response to a governmental request for information.

If you use a bank account signatory nominee, you will not have control over the bank account—any wire transfers and so forth will have to go through the nominee. They often charge a handling fee, meaning both the bank’s fees for the wire transfer plus the nominee fees must be paid. This will get extremely expensive if the company makes a lot of transfers.

By using a bank account signatory nominee, the nominee is in control of the funds, and it’s unlikely that any misuse could be pursued in a criminal court. At best, one could try to make a civil case and sue the nominee. Since they will probably be in a different country, the chances of getting anywhere are slim.

So Who Needs Nominees, Then?

The purpose of nominees is not to hide your identity from governmental authorities—it wouldn’t work.

Laws regarding tax evasion and money laundering have caught up with the usage of nominees. Nominees could conceivably refuse to give up the name of the UBO, but they would be in breach of regulations and risking fines and jail time.

Nominees do offer a layer of privacy against certain nongovernmental bodies (nosy relatives, private investigators, and in some jurisdictions also creditors), in that your name will not appear on any public record.

So in conclusion, you probably don’t need to use nominees. If you decide that you do, you should weigh the costs and benefits.

Editor’s Note: This is what International Man is all about: helping you cut through the smoke and mirrors while making the most of your personal freedom and financial opportunities around the world. The free IM Communiqué is a great place to start.

Streber works as a consultant and director for a wide range of companies and has broad experience in offshore banking, offshore incorporation (formation and maintenance of offshore companies), taxation, privacy, ecommerce, merchant accounts, online payments, and all other things the privacy-minded entrepreneur might find interesting. You can read Streber’s blog on offshore incorporation and offshore banking.

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