Generally speaking a Controlled Foreign Corporation Law is one which requires you to declare at home any income earned by an Offshore Company where you hold or have the ability to hold the shares of that Company (eg an IBC where you have deployed a Nominee Director and Nominee Shareholder).
These days given that many countries have CFC Laws more and more clients are choosing to establish a dual structure ie a Tax Free Offshore Company and Tax Free Offshore Private Foundation (or a Tax Free Offshore Company and a Tax Free Offshore Trust) as such structures can potentially get you around CFC rules.
In the above scenario/s the shares of the Company are held by the Foundation or Trust as applicable.
I’m often asked by clients who live in countries with Controlled Foreign Corporation Laws. Can I set up a Company now and add a Trust or Foundation later?
Ideally the Foundation should be registered first as it is the “parent” entity (and the child should not be older than the parent!). You could just incorporate a Company first and then add a Foundation later but there are two problems with that idea:
- Without the Foundation ie until such as time as the IBC Is owned by the Foundation you would be liable to declare at home any income earned by the IBC. Failure to so declare would be an act of tax evasion which is a criminal offence punishable by imprisonment.
- If you want the transfer of ownership of the IBC to the Foundation (or Trust) to be beyond legal challenge you would need to have the company valued and the Foundation (or Trust) would need to be seen to be paying fair market value for the shares it receives. And a sale and purchase agreement (contract) would need to be drawn up which would be need to be seen to be on commercially realistic terms.
