How to Buy an Asset Using an Offshore Foundation

 

We are often asked what the process would be, practically speaking, for a Tax Free Offshore Private Foundation to buy property/assets. How it normally works is:

 

  • You (ie the person who sets up the Offshore Entity) are appointed by way of Consultancy Agreement as the Foundation’s Authorised Representative (eg depending on your background you could be formally appointed as the Foundation’s Financial and or Investment Adviser/Consultant or Real Estate Broker etc)
  • You go shopping for investments and carry out the negotiations on behalf of the Foundation
  • Once the price and terms of the deal have been agreed upon you could/should engage Lawyers on behalf of the Offshore Foundation (ie in the country where the asset is located). Sale/Purchase contract & Transfer documents would then be drafted
  • You would present the Sale/Purchase contract & Transfer documentation to the Private Foundation Council (or Sole Councillor as the case may be) for signing
  • The Offshore Foundation Council would call a meeting and pass a resolution (a) authorising the transaction to proceed and (b) ratifying the appointment of the lawyers and (c) authorising the signing of the Sale/Purchase contract & Transfer documentation

 

If you want the Foundation to buy your home then ideally the offers to buy should be seen to be coming directly from the Foundation Council. See also below “How To Transfer Ownership of Property to an IBC” for more details on how that would work.

 

How To Transfer Ownership of Property to an Offshore Company (“IBC”)

 

I’m often asked can I transfer ownership of my home or investment property/s to my tax Free IBC/Offshore Company?

 

It can be done legally but you need to assume the worst case scenario (ie that that the local authorities or a litigation lawyer will investigate and possibly try and overturn the sale) and plan accordingly.

 

The key is commercial reality. The sale must be and appear to be “above board”.

 

Tips:

1. The inquisitor might ask Where did the buyer come from? How did you meet the buyer? So the smart thing to do would be to list the property for sale with an agent that has international reach (ie one which regularly attracts non local real estate investors) and have the IBC/International Business Company (or Tax Free Offshore Company as the case may be) make a bid for it after a few others have made an offer.

 

2. The sale will need to be seen to be at fair market value (you can’t just sell the house to the IBC for one Dollar/Euro!). And the contract of sale will need to be seen to be on normal or reasonable commercial terms. That said the sale contract could be an instalment or vendor finance contract ie where a deposit is paid and ownership is transferred but the seller retains a mortgage until such time as all the instalments have been paid.

 

3. Depending on where you live you may be able to “gift” the property to an Offshore entity. It might be difficult to explain why you’re gifting a piece of property to an IBC hence the smarter thing to do might be to set up (and transfer ownership of the property to) a tax free Offshore PIF ie Private Interest Foundation (eg a Charitable Purpose Foundation). This one might survive the “sniff test”. Why? Because all day every day well-intentioned wealthy persons gift money or assets to Charitable causes.

 

4. You will not want to be seen to be doing or managing anything for the IBC/PIF. Hence the communications will need to be seen to be coming from the IBC Director.

 

5. Check local tax laws first. Often when a piece of real estate is sold the seller has to pay capital gains tax. Likewise if/when property is gifted a gift tax may apply.

 

6. Check local investment laws next. There may be prohibitions or restrictions on the ability of non-local persons or companies buying and/or holding real estate in your country of residence.

 

7. If you intend to keep living in the property don’t pay rent to the IBC/PIF direct; have a property manager appointed to collect the rent and manage the residential tenancy.

 

Local laws can have an impact. Hence it would be wise to seek local legal/tax/financial advice before committing to embark on a course of conduct such as that described above.

 

 

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