Monthly Archives: October 2015

A Private Trust Company (PTC) is a Company which is established with the sole purpose of acting as a corporate trustee to a trust or a number of connected/related trusts (eg Trusts with common Settlors or Beneficiaries).

PTCs are commonly used by High Net Worth (HNW) families as a key plank of their wealth management (and succession planning) strategy, for a number of reasons:

1. They deliver confidentiality
2. They provide a comprehensive framework under which family members can be involved in decision making (by being on the board of the PTC)
3. They can avoid the complications of succession law ie when used in conjunction with a tailored Offshore Trust or Offshore Private Foundation
4. They reduce management costs (ie there’s no need to engage or pay a Private/Outside Trustee)
5. They provide protection from fiduciary risk (ie a PTC eliminates the chance of an external Trustee turning rogue and stealing or wasting assets).

As long as certain criteria are fulfilled the PTC will not have to obtain a licence to carry out trust company business. The speed at which a PTC can be established, and the relatively low cost of operation have made PTCs extremely attractive to HNW families and their advisors.

A PTC’s sole purpose is usually to act as trustee of a trust (or group of trusts) belonging to a family or commercial group; these trusts may be family succession-oriented, commercial or philanthropic in their aims.

A PTC can be particularly useful for wealthy families who either do not wish to relinquish control to professional trustees or where the trust fund is to be invested in assets, which a professional trustee may be reluctant to deal with, such as works of art or family businesses.

For maximum confidentiality it would be preferable to register your Private Trust Company as an IBC in a privacy haven (ie somewhere which does NOT have a publicly accessible Register of Directors or Shareholders or Beneficial Owners – contact me for details of which jurisdictions meet that criteria).

A Private Trust Company is commonly deployed to act as Trustee of a Purpose Trust or as Councillor of a Purpose Foundation (ie a Trust/Foundation which is established purely for the purpose of holding a particular asset).

Given their nature and structure Purpose Trusts and Purpose Foundations (as they do not have to name specific beneficiaries) can deliver cutting edge asset protection and tax minimisation possibilities (more on that next week).

Local laws can have an impact. Hence it would be wise to seek local tax/legal/financial advice before committing to set up a PTC.

Cryptocurrency Trading is an activity which lends itself well to Offshore Corporate Structuring.

To summarise how it would work (assuming you intend to trade your own money or borrowed money) is:

• You set up a zero tax International Business Company
• The IBC opens an account with the Cryptocurrency Exchange/s
• You are appointed as the IBC’s authorised trader (ie you place the buy and sell orders on behalf of the company)
• For all intents and purposes the IBCs trading profits are generated in a nil tax environment tax free/offshore (ie provided the IBC is structured properly)
• When you need some living/spending money the IBC pays you a wage, or consulting fees or a commission (eg a percentage of trading profits generated – see below)
• That living/spending money can be paid to your local bank account (which means it would be assessable income wherever you are tax resident though you should also be able to claim a sizeable amount of allowable deductions eg for home office, car, equipment, insurances, travel, stationary etc etc to reduce the amount of your “taxable” income at home)
• If you don’t want the authorities to know how much money you are earning by way of wages you could use an anonymous ATM or Debit/VISA card to withdraw your wages from an Auto Tele Machine (see below fmi)
• The majority of trading profits could be reinvested Offshore potentially tax free.

Other Ways To Utilize Monies Earned Offshore

There are 5 ways to bring home money from an IBC:

(a)   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 tax 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 potentially tax free. Say your target capital base is 3 million Euro and every year you 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.

(b)   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.

(c)    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.

(d)   Have your IBC form and fund a subsidiary ie 2^nd tax free Offshore Company and then have that 2^nd 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 2^nd (seemingly unrelated) IBC buy these items for you.

(e)   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:

(i)     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

(ii)   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, provided you have successfully become a non-resident for tax purposes of your home country, there’s nothing stopping you from changing your mind a year or 2 later about the expat life and returning to your home country with a bunch of tax free dollars in your back pocket. 

Note unless you (have expatriated or) live in a country that does not have CFC 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.

Particularly given all such services can be provided online Translation Service Businesses lend themselves well to “Offshore Corporate Structuring.

Here is how such a business could work from an Offshore Perspective:

1. You would set up a nil tax Offshore Company
2. The nil tax company would sign contracts to supply Translation Services and/or receive orders/service requests via email/online
3. The Company would be set up in such a way so that’s it’s seen to be (a) managed/controlled from, and (b) supplying services from, Offshore
4. The Company would appoint you as an authorised representative of the Company (ie empowering you to negotiate such contracts and to bid for such contracts on behalf of the Company).
5. Once the contract has been signed the Company would subcontract the work to you
6. You would be paid a profit share (eg a third of the work you invoice – which is a common practice in professional firms) or a minimal hourly rate.

As part of your brief you might also be given signing power on a bank account reporting/answerable to the Director. However that relationship is structured for legal reasons, it would need to be seen to be commercially realistic. The income you generate from this would be paid to you (or your local company which, I imagine, would then pay a dividend to you) which would be assessable income at home for you.

The remainder of the profit could be held (and/or reinvested) offshore potentially tax free. (See below How to Bring Offshore Money Onshore for more details).

How To Bring Offshore Money Onshore

There are 5 ways to bring home money from a tax-free IBC:

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 tax 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 could be held offshore and be (re)invested offshore potentially tax free. Say your target capital base is 3 million Euro and every year you 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 the 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 2^nd tax free Offshore Company and then have that 2^nd 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 2^nd (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: provided you have successfully become a non-resident for tax purposes of your home country, there’s nothing stopping you from changing your mind a year or 2 later about the expat life and returning to your home country with a bunch of tax free dollars in your back pocket.

Note also unless you (have expatriated or) live in a country that does not have CFC 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 it would be wise to seek local tax/legal/financial advice before committing to embark on such an endeavour.

U.S. authorities are reportedly targeting a Belize-based bank in a brazen bid to try and extract names of US citizens with accounts at the Bank.

A federal court in Miami on Wednesday approved a special “John Doe” legal summonses seeking information about U.S. taxpayers who may hold undeclared accounts at Belize Bank International Limited (“BOBI”)

The court order gave federal investigators authorization to seek records of so-called correspondent accounts maintained by BOBI at Bank of America and Citibank. The US IRS is hoping to extract information from those records, (“Correspondent” accounts enable foreign banks without a U.S. presence to handle transactions in U.S. dollars), to help the IRS identify U.S. taxpayers who hold or held accounts at or with BOBI.

Given the nature of a “Correspondent” Bank Account – where the account is held in the name of a Bank and not an individual – the manoeuvre smacks of desperation of the highest order. Why? (a) Because most people bank Offshore in the name of a Company and (b) Even if the correspondent bank hands over details of the BOBI’s account held at the correspondent bank it will not reveal the names of the beneficial owners of the account (eg if the account is held in the name of a Company); the only information on file at the correspondent Bank will be the name of the BOBI account holder (which in 99% of cases will be a Privacy Haven Tax Free Offshore Company).

Moreover such a move is a disincentive to persons and businesses the world over (not just Americans banking offshore) to transact in USD. Like bycatch in an illegal whale hunt the manoeuvre risks the name of non US persons with accounts at BOBI being revealed to the US Courts. Doubtless smart investors will become aware of this and will start transacting in stable non USD currencies.

The court action marks federal investigators’ latest use of the special summonses to try and compel account disclosures by offshore banks suspected of helping American clients evade U.S. taxes. The IRS previously used the tactic to pursue account data from banks elsewhere around the world, including Switzerland’s Zurcher Kantonalbank, Bermuda-based N.T. Butterfield & Son and Swiss banking giant UBS.

This case however seeks to push the envelope in that each of the aforesaid banks either had Banking licenses in or a physical presence in the US such as might afford the US courts some, albeit tenuous, jurisdiction.

Moreover the case smacks of desperation in that it is the first time that the US IRS has attempted to extract bank account holder information from a bank with zero US presence.

It will be interesting to see how BOBI responds. If I were their Lawyer I would either ignore the order or appeal the decision . It’s hard to see how the US Courts can legitimately claim that they have jurisdiction…

Two things that can be said for sure and certain are:

(a) That US residents (and non US Residents) banking Offshore will soon begin to abandon the USD in favour of other currencies; and

(b) More and more Americans will be looking to set up Private Offshore Foundations as a way of shifting “legal and beneficial ownership of their Offshore Companies/Bank Accounts away from any US person/s.

(Even if only as a hedge bet) if I were an American banking Offshore I would (if I could) only be transacting in currencies other than the USD.