Low Maintenance Cost Territories are jurisdictions with particularly favorable tax systems where the annual maintenance costs of the company are lower. An effective tax planning strategy often revolves around these jurisdictions, as low taxes and maintenance costs are among the most effective and straightforward cost-cutting tools for any business.

Company maintenance

In general, company maintenance includes any operations that ensure a business is active in its day-to-day endeavours. In addition, many favourable tax jurisdictions require every international company to undergo a company renewal procedure on an annual basis, by submitting a renewal application and paying a certain fee to the state. In terms of tax planning, company maintenance is normally understood as referring to the expenses associated with paying taxes, state fees, stamp duties, charges and any other costs that may arise from operating a company. These include, but are not limited to:

Taxes

Import/export duties

Salaries

License fees

Office rental

Stamp duties

Annual renewal fee

Notary fees

State fees

Maintenance usually does not include any expenses directly related to business transactions, such as the cost of raw materials to be used in production or the purchase of goods for resale.

Depending on the jurisdiction, company maintenance can either be the biggest source of expenses (especially due to taxes and renewal fees) or a barely noticeable cost of conducting a profitable business. This is the main reason why jurisdictions with low maintenance costs are so popular with companies seeking to optimise their taxes.

Steps to maintaining a businessThe first step to effective business continuity is financial planning, including tax planning. A company needs to identify its biggest source of costs and then find a way to gradually reduce those costs. One of the primary goals of effectively maintaining a business is to reduce its tax burden and annual renewal fees. The second step is to choose a jurisdiction with low maintenance costs and an advantageous tax regime. Confidus Solutions is happy to share our expertise on the matter to help you analyze the options and select the best jurisdiction to incorporate.
The third step is to move the actual company or incorporation to the jurisdiction of your choice. The details of this process may vary by jurisdiction and legal business structure, so each company should carefully consider which business structure is most beneficial in its particular case.
In the long term, maintenance costs are mainly related to wages, taxes and equipment. Wages are effectively determined by the cost of labor in each jurisdiction, which in turn is affected by work culture, levels of education and skills, level of competition, and so on. Taxes depend on the legal business structure and the activities undertaken by a company - some will require licenses and patents that need to be renewed periodically with costs. Finally, the supplies needed depend on the business, but typically include rent (providing premises), utility bills (providing heating, electricity, water, etc.), and supplies such as petrol and office supplies.

The limited liability company (LLC) is the most common legal form for companies in Germany. This legal form is often used by international companies that have decided to set up a subsidiary in Germany; local entrepreneurs also choose this legal form for their small and medium-sized businesses. It combines relatively few obligations with high flexibility to be set up in any economic sector. The limited liability company is subject to corporation tax, trade tax and the solidarity surcharge. The minimum share capital for LLC is EUR 25,000, with a minimum of EUR 12,500 proven in the bank account at the time of company registration. As the name of this legal form suggests, shareholders are only liable with the capital they have brought in and do not risk their personal assets.

An LLC is usually managed and legally represented by the directors of the company. In the case of a GmbH, at least one managing director must be appointed, who does not have to be a shareholder in the company or a resident of Germany. Typically, shareholders can exert direct influence on the company by issuing binding instructions to the managing director. Before you decide whether LLC is the most suitable legal form for your company, you should keep in mind that this type of company shares cannot be publicly offered for sale. Meanwhile, the administrative and financial controls are less stringent compared to public companies.

Mini GmbH
Another very similar legal form for companies is called a mini-GmbH, which is essentially the same as the regular GmbH in terms of limited liability for shareholders and no limitations on doing business. Meanwhile, it allows entrepreneurs to contribute less capital when registering the company in Germany and therefore risk with less funds to start doing business. In fact, no minimum share capital is required at all. Instead, 25% of the profits made by the company must be placed in special reserves until the total amount of these reserves reaches EUR 25,000. In this case, the company is transformed into a regular LLC. The Mini-GmbH enables young entrepreneurs to start their business with less capital, reducing their risk and lowering the cost of capital until the business is successful and generating profits.

German GmbH taxation
Typically, taxes are collected and administered by the local tax office. Local tax offices are usually responsible for administering income tax, corporate income tax (CIT) and real estate transfer tax (RETT) and value added tax (VAT). While trade tax is based on corporate taxes administered by local tax offices, enforcement of trade tax is the responsibility of municipalities. German LLCs are generally subject to the taxes explained below:

Corporate Income Tax – levied on the company's worldwide income, unless a double taxation treaty is in place. The corporate income tax rate is 15%, while corporate income tax is subject to a solidarity surcharge of 5.5%. This results in an aggregate tax rate of 15.825%;
Trade tax – is levied by the municipality where the company is based. The standard tax rate is 3.5%, while the additional multiplier is added in the range from 200% to 500% and is determined individually by each municipality. This results in an aggregate tax rate of 7% to 17.5%.
Both taxes are assessed annually, but companies are required to prepay corporate income tax and trade tax quarterly based on an estimated current year's tax due.

There is one scenario, when Canadian legislation foresees a possibility to register a Canadian legal entity and operate within it with a zero tax rate. This is possible via a legal type of business, called Limited Partnership. LP is a partnership with two or more partners. Each LP is required to have at least two partners: General Partner and Limited Partner. Both types of partners can be either a private person, or a legal entity.

A Canadian LP with foreign partners and no business activity in Canada is not liable to taxation in Canada. This is possible due to the fact, that Canadian tax legislation does not perceive an LP as a separate subject of taxation. Instead, taxes should be paid by the partners in their residence country. Since LP is not considered a Canadian resident for tax purposes, this legal entity is not entitled to advantages of Double Tax treaties between Canada and its partner countries.

Possible applications of a Canadian LP holding structure
There are several popular uses of Canadian LP:

A regular company for business purposes in Canada, EU, US or any other regulated jurisdiction;
An agent working under Sales Agency Agreement;
IT support and software development services or other online based businesses, such as marketing, webstore, auction or website development services;
A holding company due to beneficial tax exemption for LP.
In addition to highly advantageous taxation environment for LPs, there are numerous other benefits to consider before deciding whether Canadian LP is the right choice for your business:

Being a reputable Canadian company;
No requirements regarding the residency of partners;
No requirements for company secretary to be appointed;
No requirements to file annual financial statements;
Possibility to establish a one-man limited partnership, where one person is both – the general partner and the limited partner;
No requirements regarding minimum authorized capital.
Readymade limited partnership (LP) acquisition process
If you are not familiar with Canadian company set-up requirements, or simply have no time to incorporate a new LP, you are able to acquire a ready-made, or shelf company. A ready-made company is a legal entity that has been registered some time ago, but no operational activity is taking place in this company, therefore, it is “sitting on the shelf”. When acquiring a shelf company, you are able to acquire a business with reputable age, which inspires more confidence among suppliers, partners, clients as well as financial institutions.

Shelf companies in Canada generally are sold with the Articles of Incorporation, Certificate of Incorporation, Revenue Canada Tax Business ID number, Corporate Organizational Minutes as well as Resolutions, Corporate Minute Book, by-laws and finally – customized stock certificate. The ready-made company is organized according to the client’s wishes with shareholders, directors and officers indicated by him or her. In case you would like to change the company name, this can be easily done upon acquisition of the shelf company. There are three types of ready-made companies in Canada: Federal, BC and Ontario shelf companies. Each of them is different in terms of partner suitability and other requirements. For example, if you are a non-resident, you are allowed to purchase only a BC shelf company.

Advantages of having a Canadian LP structure
There are numerous benefits of acquiring a ready-made company. First of all, you are able to acquire an already established company without wasting your time on incorporation documentation and procedures. This also means that you are able to start trading as soon as the acquisition process is complete. Additionally, each company becomes more credible when it ages. You will be able to use this benefit when negotiating with partners, attracting new clients, as well as simply opening a bank account or acquiring a credit.

How to purchase readymade Canadian LP?
The easiest way to acquire a ready-made company is through a company that specialises in such services. Typically, these companies acquire inactive companies to keep them “on the shelf” until a potential buyer decides to acquire one of them. Additionally, most of these service providers also incorporate new companies and leave them for some period of time. You are able to acquire a ready-made company in four easy and straightforward steps:

Go online and shop for the most suitable service provider depending on their service package, fees, possible client reviews, credibility and other aspects.
Fill an application form and submit it along with all the necessary documents and other information.
Pay all the service and government fees.
Receive already complete company incorporation documents. From this moment, you are able to start trading.
Generally, prices for ready-made companies differ among service providers and become higher with the age of the company. This is due to the fact that older companies take more time of maintenance and they become more credible over the years. Prices are typically calculated per month.

A limited liability company (hereinafter referred to as LLC) is a commercial company with legal personality status. Typically, an LLC's equity consists of the total face value of its shares. One of the key features and benefits of an LLC is the fact that shareholders cannot be held personally responsible for the company's debts or liabilities - only the company's assets themselves are at risk. However, the issue of limited liability also depends on the national legislation of each jurisdiction. In general, an LLC is a corporate structure that combines the simplified taxation of a partnership with the principle of limited liability of a corporation. It can be the perfect solution for an international trading company, provided the jurisdiction is well chosen.

A key difference between a public company and an LLC is that the latter is always a closed corporation and its shares are not publicly traded. Another internationally used name for an LLC is a private liability company, or simply "Ltd". This term is widely used in the UK and some other common law countries.

Choosing the right legal form for your business can be crucial for tax planning, profit sharing and cost reduction purposes. There are some key differences between them, and each has its own pros and cons depending on the case. Therefore, effective business planning prior to incorporation is essential.

Functions of a limited liability company
There are no special circumstances in which you would be required to incorporate a limited liability company. An LLC is a type of legal entity that successfully blends the majority of the most desirable characteristics of other business types, which explains why most entrepreneurs choose an LLC when starting a business. Additionally, many offshore jurisdictions have simplified accounting and record-keeping requirements for LLCs.

Normally we would advise our clients to consider an LLC as a viable option if they wish to form a commercial corporation or small business within certain limits. LLCs are perfect for those looking for a way to run a business (locally or internationally) and distribute profits at minimal cost. However, you should always keep in mind that an LLC does not typically provide an effective mechanism to introduce a partner with limited voting power or numerous investors to your company. In these cases, we recommend that you consider a limited partnership or a public company, as they may offer more effective ways to achieve your goals. Forming an offshore company in a tax haven can be a great way to reduce maintenance costs.