You're reading: International structuring: stylish term or effective tool for business development?(advertisement)

The term of international structuring is relatively new for Ukraine, mainly because it appeared in its full scale meaning only a few years ago, with the development of the market economy. This expression may be even hardly named as established one since its treatment varies among both businessmen and consultants. This notwithstanding, the relating services have been actively offered in Ukraine for a while, and are associated with real profit for the medium and big business.

Shortly, international structuring is the process for tax and legal wise optimization of business throughout the synergy of advantages proposed by various jurisdictions. Importantly, the methods used by the international structuring are exclusively lawful and transparent, which however does not prevent their combining with purely Ukrainian approaches on doing business.

The essence of the international structuring may be perfectly explained via the goals achieved thereby:

Legal
protection of property. Before all, such protection relates to the protection of business from the corporate raiding and other risks explained by the Ukrainian realities.

Such task is achieved by procuring solely 100% corporate ownerships in Ukrainian companies of the group for avoiding any minor shareholdings, while the agreements between the shareholders are formalized outside of Ukraine, namely in the developed jurisdiction under the developed laws.

Moreover, the property protection is achieved by splitting, on the level of Ukrainian companies of the group, the assets and operations.

Serhiy Moliboh
Managing Partner
BDO Legal Ukraine

Such approach significantly mitigates the risk of tax or other arrests of the key assets of the group, in other words, it is quite easy to replace the operational company which owns no assets, while it is much harder to fight for own assets.

  • Confidentiality. The institutes of nominal shareholders and trusts which are exploited in foreign jurisdictions allow procuring the maximum confidentiality of the beneficial owners of business which is often critically important for public individuals.
  • Reducing the tax burden. Reducing the amount of due taxes is achieved throughout the effective profits distribution, as well as by using the most effective methods for business financing. Such task is also interrelated with the transition to the softer and therefore safer optimization schemes.
  • Achieving business specialization. Specialization of business under separate directions procures the ability to finance and sell separate directions of business, as well as optimizes the cash flow and overall management of the business.
  • Fund raising under more beneficial conditions. Attracting of any types of financing, either debt of equity, under the most advantageous conditions, both in Ukraine and on international capital markets, is procured by the structured character of the business, its transparency, as well as receiving money outside of Ukraine, namely in the reliable jurisdiction.
  • Effective exits trategy. Thanks to the proper corporate group structure, the alienation of business (i.e. shares) may be performed outside of Ukraine without any Ukrainian tax consequences, because such transaction may be performed between two non-residents of Ukraine.

It is noted that the need of international structuring is quite rhetorical question for any middle or large business, since this process brings clear significant benefits, often inaccessible by other means.

The process for international structuring of particular business takes approximately 3-12 months, depends on many factors, such as the need of getting permits for concentration of the Antimonopoly Committee of Ukraine, the number of companies in the group, the number of types of business activities etc. The whole procedure for the international structuring may be divided into four stages of work:

  • Studying the current structure and the wishes of the owners. At this stage, a comprehensive study of evidence relating to the business (companies, turnover, assets, cash flow etc), as well as all the plans and wishes of the owners of the business is performed. Such information builds up the foundation for all further work.
  • Developing the target optimal structure. At this stage the analysis of a huge number of issues is going to beperformed, which is critical for the development of the optimal structure for the particular business. Among such issues is choosing the jurisdictions for the foreign companies of the group, development of the corporate group structure, optimization of the Ukrainian part of the group, analysis of financing and profit distribution mechanisms, development the schemes for the use of intellectual property, modeling the financial effect from the international structuring etc. This stage ends with approving by the client the optimal target structure among several alternatives prior developed by the consultant.
  • Developing the implementation plan. This document is a detailed action plan for the transition from the current structure to the target structure and includes the detailed description of necessary actions, as well as associated timing and costs.
  • Implementation. This stage may be implemented either by the business independently or with the assistance of external legal advisor. The combination of specific actions is always individual and may include incorporation of foreign companies, incorporation, liquidation or reorganization of Ukrainian companies of the group, getting permits for concentration of the Antimonopoly Committee of Ukraine, assets transfer between the companies of the group, due diligence of existing companies or their assets, getting tax rulings in foreign jurisdictions etc.

The cost of the international structuring is individual and usually is estimated in USD dozens of thousands. The specific of this type of legal services is that, prior to commencing the project there is a possibility to calculate the expected financial benefits of international structuring. The legal company BDO Legal Ukraine, for example, provides the clients an opportunity to perform such calculations on the company website (www.bdolegal.com.ua). Within less than five minutes, any web site visitor may find out, using the "international structuring calculator", the expediency of respective legal expenses by comparing them with the expected financial benefits from the international structuring.

Summarizing the above, it is noted that the need of international structuring is quite rhetorical question for any middle or large business, since this process brings clear significant benefits, often inaccessible by other means. At the end of the day, the expenses for international structuring, as properly performed, is nothing else than an investment with high return and short payback period.