Personal Service Company (PSC)

“A personal service company can reduce taxation and national insurance contributions ”

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.

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.

1. Reducing personal risk 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.

2. Continuity in provision of services 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.
3. Reduction of associated costs 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.

4. Reduction of the taxable estate 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.

5. Confidentiality The jurisdictions recommended for the PSC provide full confidentiality for the applicant.

For use inside the EU

For use outside the EU

Outside the EU

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.

For clients requiring further information regarding the establishment of a Personal Service Company please contact us.

Inside the EU

With the increased flexibility and mobility of working individuals, many now carrying our their work in cross border locations, there is a genuine need for a Company that is portable and able to avail itself to low rates of tax whilst still being able to comply with European VAT regulations. Historically, many clients utilised offshore companies for this function but with many countries now blacklisting these jurisdictions and offshore companies not being able to register for VAT, there practical use within the EU is seriously diminished.

The Maltese International Trading Company (ITC) is able to carry on trade throughout the EU, it is able to utilise an EU VAT number and benefit from an effective corporate tax rate of 4.17%. This provides excellent benefits to EU based consultants as Malta is a full EU Members State and able to trade freely throughout the EU without attracting the unwanted attention that many offshore jurisdictions attract.

The Maltese ITC provides the following benefits:

• EU Membership and VAT number
• Totally flexible and portable corporate entity.
• Can sign contracts with any EU Company.
• Minimal Tax of 4.17%
• Can trade with difficult EU jurisdictions that have implemented blacklists.
• Can bank anywhere in the world.
• Excellent legal system and Companies Act.
• Does not require a resident Director.

Directors and Shareholders can be offshore Corporations.
The Maltese ITC is perfect those clients engaged in cross border contract work, whether short term or long term. It is able to invoice any country inside or outside the EU and is able to avail itself to the many Double Tax Treaties that Malta has signed. Click here to read our Case Study or contact one of our Consultants to discuss your requirements.

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