|In most cases an Offshore Private Foundation is set up to hold the shares of an Offshore Trading Company or Offshore Investment Company.
In short you don’t need to pay your nil tax Offshore Company’s profits to the Offshore Private Foundation. In the usual model all the money revolves in and through the Tax Haven Offshore Company (see below re how to access that money).
Why is that?
The zero tax Offshore Company does the buying and selling. The Private Foundation is completely passive; all it does is it holds the shares of the Offshore Company.
In the usual model the Company doesn’t pay any dividends to the Foundation unless or until you are ready to wind up the business and retire.
And what the really clever clients do at that point is they shift tax residence for a year or two to a country which does not have Capital Gains Tax (nor, ideally, income tax) at which time the tax free Offshore Company pays all remaining capital to the tax free Offshore Private Foundation as a dividend; The Foundation then pays Distributions to you/your family. If you choose the right place to live for a year or two those distributions could be received tax free…
You don’t have to live in the “tax haven” forever. After a year or two you could decide, for whatever reason (eg you can’t handle the climate, you have family back home that needs you, an exciting business opportunity back home is calling you), that the expat life is not for you and decide to return home.
And what better way to return home than with a fat (tax free) check in your back pocket?
Note for this to work you’ll need to take certain steps before you expatriate to achieve non-tax resident status in your home state. Usually this entails you being seen to have cut your ties with your home country. A specialist Tax Lawyer in your country of residence should be engaged to provide you with the necessary advice of how to achieve non tax resident status well in advance of your planned expatriation.
How to Bring Offshore Money Onshore
Often I’m asked how can I access money earned by my Tax Free Offshore Company?
There are 5 ways to bring home money from a nil tax Offshore/International Business Company:
1. Set yourself up as an arms’ length consultant and have the IBC pay you consulting fees periodically. This means you should only have to pay tax on what you bring into your home country (and even that you should be able to minimise as a lot of what otherwise-might-be personal expenses could be written off as business costs, eg home office, utilities, car, phone, electrical/office equipment, stationery, computers, travel etc etc etc). The rest of the IBC’s income can remain offshore and be (re)invested offshore in tax friendly investments. Say your target capital base is 3 million Euro and every year you can leave at least half the IBC’s income offshore. Because you’re not paying tax yearly on all the IBCs income instead of taking 20 years to accumulate 3 million Euro, with the power of compounding, you could accumulate 3 million within 5 to 7 years. This is what my/our smarter clients do ie they pay a little bit of tax at home each year on their overseas earnings but most of their income is kept offshore and reinvested offshore.
2. Bring back the money as a loan. Yes this can be done but great attention to detail will be required particularly with respect to lending parties, loan terms and documentation.
3. Use an anonymous debit card and withdraw cash from automated teller machines. This can still work in some places though it should be noted that some of the bigger countries now have the ability to trace and connect one to such withdrawals.
4. Have your IBC form and fund a subsidiary ie 2nd tax free Offshore Company and then have that 2nd Offshore Company buy any substantial assets you’d like to have onshore (eg cars, real estate, shares, general investments etc). Yes in theory you could have your IBC buy these things but, given most likely there will be a Consultancy Agreement in place between you and the IBC (and payments going from the IBC to you which will be visible to your local tax authorities) the smarter thing to do would be to have a 2nd (seemingly unrelated) IBC buy these items for you.
5. Another option is to take the long hold view. What this entails is letting your capital base build over a period of years; Then, when you get to the stage where you are ready to close down your Offshore business, (or you are ready to retire) you can do one of two things: Either:
(a) Expatriate your home country and become “non-resident for tax purposes”, shift to a country which has no income tax and/or CGT (eg Panama, Seychelles, Monaco, etc etc etc) and draw down the capital from your offshore entity (and bank the money tax free); or
(b) Expatriate your home country, become “non-resident for tax purposes”, and become a PT ie a Perpetual Traveller. How this can work is you spend say 4-5 months a years in one country, 4-5 months a year in another country and the rest of your time travelling. This way, assuming you are not seen to have substantial ties with any one country, you should not be considered as tax resident in any one country. Then you simply draw down the capital from your offshore entity (and bank the money tax free).
Note unless you live in a country that does not have Controlled Foreign Corporation laws (and/or unless or are structured in a tax effective/compliant manner) you may still be required to declare and pay tax at home on your IBC’s earnings.
Local laws can have an impact. Hence you should seek local legal +tax +financial advice before committing to do anything contemplated by the above.