We continue discussing issues related to client onboarding

We continue discussing issues related to client onboarding in the context of Corporate Services

This time we decided to touch another the frequent situation of when a client wishing to minimize company incorporation expenses, chooses different company services providers for different stages of company incorporation. For example, “Company Formation” with one provider, “Company Director & Company Secretary” with another one, “Registered address” with someone else, etc.

Griffiths + Associates attitude, as a licensed Corporate Services Provider, is to provide the full range of services rather than in a fragmented manner.

Let us delve into why shattering “company incorporation services” into pieces might be a problematic approach and what consequences may result.

Quality and Consistency:

Engaging multiple providers may lead to variations in the quality and consistency of services. A unified approach ensures understanding the client’s specific needs, and a standardized level of service quality throughout the entire process.

Furthermore, in case that unforeseen changes occur, a holistic approach allows for better adaptability and problem-solving.

Risk Management Considerations:

When the firm handling director and secretary officer services is not involved in the entire incorporation process, effective risk management becomes challenging. The firm needs a comprehensive understanding of the company’s history, structure, and initial setup to fulfil its obligations effectively.

Limited Oversight & Regulatory Compliance Challenges:

The provision of director and secretary officer services for Maltese companies with overseas residents is a regulated service, demanding a high level of responsibility and meticulous attention to regulatory compliance, including effective control by the Board of Directors.
When different providers handle distinct components of the incorporation process, there may be limited oversight and control over the entire process. This lack of comprehensive control can hinder efficient risk management and regulatory compliance.

Personal Liability of Directors:

Directors have personal liability for certain responsibilities, including tax obligations. If the director and secretary services are handled separately from the incorporation process, there may be gaps in understanding the company’s financial and tax structure, potentially exposing directors to personal liability.

Griffiths + Associates takes these obligations very seriously; that is why we prefer to provide a full range of services rather than a fragmented one. In line with our policy, we have to manage the entire incorporation process, including setting up internal registers, and using our premises as a registered address of the new registered company.

As you can see, it becomes obvious that opting for a fragmented approach may result in inefficiencies and a lack of streamlining in the overall process. At the same time, a seamless and well-integrated approach to company incorporation can enhance efficiency and reduce the likelihood of errors.

The integration of services throughout the company incorporation process is crucial for ensuring regulatory compliance, risk management, and a smooth overall experience for both the corporate services provider and the client.

Griffiths + Associates Case Study

We were approached by the Client who registered several Maltese companies, double structure, with some company service provider and asked Griffiths + Associates for Company Directorship & Secretary services.

The Client claimed that he is not to be a tax resident anywhere, while coming from a high-tax jurisdiction (Germany) and purported to use as proof of address the country where he is not supposed to be a tax resident.

Griffiths + Associates Client onboarding procedure:

1. The prospective Client was notified that Malta’s tax system favours the concept of “economic substance,” which means that companies should have a real presence in Malta, including physical offices, employees, and activities.

2. Griffiths + Associates Legal Department required following documents as was assumed that the ultimate beneficial owner (UBO) was a German tax resident in the past, and after deregistration, he has not been considered to be a resident for tax purposes in any other country:

  • Proof of de-registration in Germany and a declaration stating 1) the countries where he has been residing since then and that 2) he is not a tax resident in any jurisdiction including those stated in point 1).
  • A tax opinion issued by a German tax adviser on the potential tax liabilities of the companies from a German point of view (this would normally include confirmation of the tax status of the final shareholders in Germany, the taxation of dividends paid by the MT structure and any tax liability that may arise in Germany due to the type of business carried out by the MT companies and their UBO’s German tax status).

3. The Due Diligence was conducted to understand the details of the involved persons, as well as the details of the involved companies and the expected activities of the latter. Griffiths + Associates Legal Department asked to provide the enhanced level of following documentation:

Involved persons, for each of the beneficial owners (controlling or owning >25%):

  • A copy of ID or Passport.
  • Proof of address of involved persons. A valid proof of address is a document or certificate, not older than 6 months, issued by a public authority, a utility company (water, electricity, internet, phone -excluding mobile phone-), a bank (for example a bank statement) or an insurance company that includes the name and address of the given person, and that demonstrates the current residence of said individuals.
  • A Source of Wealth Declaration with supporting documents verifying the source of wealth of the beneficial owners.
  • Proof of tax residence of the beneficial owners.
  • A signed CV.
  • Online Identity Verification of the UBOs (via our KYCP platform).

Maltese Companies:

  • A fully completed Customer Acceptance Form for each Maltese company.
  • Memorandum and Articles of Association and Certificate of Registration, as well as the internal registers of the companies.
  • For the trading company, we would require a business plan describing the Business plan or detailed description of the activities of the Company. This would include a detailed description of the products or Services provided, the marketing and sales strategy, operational plan, financial projections, funding and financing of the company and a description of the countries of operations and customer base.

Foreign LLC:

the foreign entity is used to conduct Client’s business that will be conducted through the Maltese structure upon incorporation

  • A copy of the Articles of Organisation (or analogous founding document).
  • The Operating Agreement.
  • Proof of EIN (Employer Identification Number) registration.
  • Last income tax return and last employment tax return.

Taken Decision

Our Management and Legal Department have reviewed the case and denied the Client with following reasons:

If Germany claims taxing rights based on the place of management or control being Germany, the Directors would be personally liable to tax in Germany and overall, the rationale behind setting up the Maltese structure is dubious.

These potential tax implications, as well as the nature of their business profile, might be risky for the Directors of their proposed companies.

Additionally, it would not be very efficient for our firm to act as First Officers while not having managed the incorporation process or the companies not having their registered address managed by us. This would allow a situation where our firm would have a lesser level of control over the companies, which is not ideal in view of the tax and business risks that they might represent.

These are the main reasons for Griffiths + Associates to wish to provide the full set of services, rather than providing them in a piecemeal fashion.

© By Olga Saliba