Monthly Archives: November 2015

I’m often asked can I transfer ownership of my home or investment property/s to my tax free Offshore Company (“IBC”)?

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

The key is commercial reality. The sale or transfer 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 (ie assuming you wish to sell the property to your Offshore Company or Foundation – see below) is 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 Tax Haven Company (or Private Foundation – see below) 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 a house to a nil tax IBC for one Dollar (unless it is gifted – see below). Similarly 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 a tax free Offshore Company (or tax free Offshore Private Foundation). It might be difficult to explain why you’re gifting a piece of property to a zero tax IBC hence the smarter thing to do might be to set up (and transfer ownership of the property to) a tax free PIF ie Private Interest Foundation (eg one characterized as 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 (or Private Foundation Councillor as applicable)

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 to buy and/or hold real estate in the country where the property is located.

7. If you intend to keep living in the property – and you want to fly under the radar – it might not be wise to pay rent to the Offshore IBC (or Offshore Foundation as the case may be) directly; It would probably be more prudent to have a property manager appointed by the Offshore Company (or Foundation) to collect the rent and manage the residential tenancy.

Local conditions can have an impact. Hence before committing to transfer property to an Offshore entity you should seek local legal/tax/financial advice.

The Cook Islands an English speaking sovereign state in the south pacific comprising some 15 islands and is a world leader in the field of Asset Protection Trusts. A self-governing state with a British based legal system in the mid1980′s the Cook Islands became the first ”Offshore”  jurisdiction to create comprehensive asset protection trust legislation. Its asset protection trust law has now been implemented in one form or another in thirteen countries and eight U.S. states (and is famous for having resisted attempts by US Authorities/Courts to tap into assets held by a US resident settled Cook Islands Trust see FTC  vs. Affordable Media, LLC, 179 F. 3rd 1228, U.S. Ct. of Appeals, 9th Cir. 1999).

Features & Benefits of the Cook Islands Trust

Registration of a Cook Islands International Trust affords a number of benefits including that a trust will not have any taxation liability in the Cook Islands.   It is a relatively simple procedure for a trust to be registered in the Cook Islands eg it is not necessary for a copy of the trust deed to be filed with the Registrar of International Trusts.

The Register of Trusts which is administered by the Financial Supervisory Commission is not open to public inspection, where any such inspection or release of information can only be achieved with a court order and subject to the International Trusts Act 1984.

The Cook Islands is still considered the leading Asset Protection jurisdiction in the world, and can boast a long line of judicial precedent which upholds the integrity of the International Trusts Act 1984 (“ITA”).   The Cook Islands can distinguish itself as one of the few jurisdictions where US Government Authorities have failed in their attempts to upset a Cook Islands International Trust.

Exemption from Taxation

An international trust has no taxation liability in theCook Islandsand no requirement to file any returns, reports, or records.

Modification of Common Law Rules

The ITA alters the common law rules relating to:

• the rule against accumulations

• the rule against perpetuities, removing the perpetuity period.

• the rule against double possibilities

• the rules restricting the extent of charitable purposes

• the rules against purpose trusts

Revocation

The trust can provide for an express power of revocation otherwise it will be deemed to be irrevocable.

Retention of Control and Benefits by Settlor

An international trust shall not be declared invalid or a disposition declared void or affected in any way if the Settlor retains or acquires:

• a power of revocation of the Trust;

• a power of disposition over Trust property;

• a power to amend the Trust Deed;

• any interest in the Trust property.

Heirship Rights

A disinherited heir cannot challenge an international trust on the basis that it interferes with his or her right to succeed to assets or property.

Spendthrift Beneficiary

An international trust can provide that an interest in property given to a beneficiary for life or a lesser period shall not be alienated or pass from the trust by bankruptcy or be taken in execution by process of law.

Bankruptcy

An international trust is not void or voidable in the event of the Settlor’s bankruptcy, notwithstanding any law of the Settlor’s domicile or place of residence and notwithstanding that the Trust is voluntary, without valuable consideration and made for the benefit of the Settlor, the Settlor’s spouse or children.

Fraud

Comprehensive rules provide when an international trust may be challenged on the grounds of fraud.

• Where a creditor proves that an international trust was settled:

-                      with the principal intent of defrauding a creditor, and

-                      the settlement rendered the Settlor insolvent or without property by which the creditor’s claim could have been satisfied;

the settlement is not void or voidable but the trust is liable to satisfy the claim of the creditor out of property, which, but for the settlement, would have been available to the creditor.

• An international trust and a disposition to a trust is not deemed to be fraudulent against a creditor of a Settlor:

-                      if the settlement or disposition takes place after the expiry of 2 years from the time the creditor’s cause of action arose;  or

-                      the creditor fails to bring his action before the expiry of 1 year from the date of such settlement or disposition;  or

-                      the settlement or disposition takes place before the creditor’s cause of action arose.

Governing Law

A term of an international trust expressly selecting the laws of theCook Islandsto govern the trust is valid, effective and conclusive regardless of any other circumstances.

Foreign Judgments

Foreign judgments are not enforceable against an international trust.  Any claimant must commence new proceedings in theCook Islands, subject toCook Islandslaw.

Exclusion of Foreign Law

An international trust governed by the laws of theCook Islandsor disposition of property held by the trust will not be void, voidable, liable to be set aside or defective by reason that the laws of any foreign jurisdiction prohibit or do not recognise the concept of a trust, or that the laws of theCook Islandsare inconsistent with any foreign law.

Commencement of Proceedings

Any proceedings to be commenced in the High Court of theCook Islandsto set aside the settlement of any international trust or disposition to such trust must be brought within 2 years of the settlement of disposition.

Statutory Rights of Delegation

A trustee has a statutory right to delegate its powers and functions, such as management of trust property, including investment management, and to employ professionals to act in relation to the affairs of the trust.

Custodian and Advisory Trustees

A Custodian trustee may be appointed to hold trust property and an Advisory trustee to advise the trustee in relation to the trust property.

Guarantee against Expropriation

TheCook Islandsgovernment guarantees that there will be no compulsory acquisition or expropriation of trust property except in accordance with due process of law.

For more information on Cook Islands Trusts please contact me:

Recently I was approached by a prospective client looking to reduce additional (prohibitive) expenses over and above wages that usually apply “onshore” when one hires workers.

Via strategic deployment of an Offshore Corporate Structure there is the potential to save money here and in two ways.

What you could do here if you are/were in such a position is:

1. Incorporate a tax free Offshore Company (“IBC “ie International Business Company)
2. You/your firm would secretly be the owners of the IBC
3. You/we would set up a bank account and an email address for the IBC Offshore
4. You would have the user name/passwords for the IBC’s bank account and email account (and would have 100% control of both)
5. Your workers/contractors would invoice and or get paid by the IBC
6. The IBC would invoice your local/onshore business each pay period for the cost of providing/managing your labour force.

You would probably want to characterize the IBC as a Labour Hire Company. For more information on what a Labour Hire Company is and how it can save you money check here: https://en.wikipedia.org/wiki/Labour_hire

If you set this up (a) you should be able to avoid having to pay high taxes, worker’s compensation insurance, superannuation, and social security contributions etc above payroll for your workers and (b) you should be able to avoid having to pay an independent firm a commission for invoicing.

Local laws can have an impact. Hence it would be wise to seek local legal, tax and financial advice before committing to create such a vehicle.

Irish Companies investing in research and development will be able to avail of a new 6.25 per cent corporation tax rate under a new “knowledge development box” (KDB) announced in the Irish budget on October 12. 

Such an announcement could herald a boon for persons looking for low tax Offshore IP Company options – Ireland’s Minister for Finance Michael Noonan is boasting that said the KDB will be the first such measure in the world that is compliant with the new recommendations of the OECD (Organisation for Economic Co-operation and Development). 

“This puts Ireland in a unique position to offer long-term certainty to innovative industries planning their research and development investments,” he said. 

Mr Noonan said fostering innovation would be critical to Ireland’s new economic model and the KDB was designed to incentivise this. 

Income that qualifies for the KDB will be subject to a reduced rate of corporation tax of 6.25 per cent. Ireland’s corporation tax rate is 12.5 per cent. 

The KDB adds a further dimension to our ‘best in class’ competitive corporation tax offering, which includes the 12.5 per cent headline rate; the R&D tax credit; and the intangible asset regime, Mr Noonan said. 

Joe Bollard, a tax partner with global “Big 4” Accounting Firm Ernst & Young, said the report on redrafting the global tax regime, released recently by the OECD as part of its Base Erosion and Profit-Shifting (BEPS) programme, had changed what Ireland had been intending to do with its knowledge box. 

New recommendations as part of BEPS are behind a move from the ownership of an IP asset, to the expenditure of money on research. Activity in relation to scientific and technical work, as against brand development, is also being targeted under the new regimes. 

The new Irish knowledge box, he said, is not likely in itself to “turn the dial” in relation to attracting new talent to Ireland so that companies can avail of the lower tax rate. He said Ireland’s relatively high income tax rate was an issue in this regard. 

What remains to be seen however is what income will attract the 6.5% tax regime. Early indications are that to qualify for the 6.5% rate the innovation/IP in question will need to have been developed in Ireland. If not (and or if the IP/Technology is on paper seen to have been incubated in Ireland) then an Irish Company could be formed to hold any form of IP (regardless of where it was developed) in which case nett income received by way of royalties/license fees would be taxed at just 6.25%.

For clients looking for a transparent controversial low tax “Offshore” IP Company solution such an offering could prove extremely popular.

Watch this space for developments!

A Purpose Trust is a particular type of trust which, unlike a conventional trust, can be formed to hold assets for a purpose without conferring a benefit on any specific person. An example of such a purpose is to hold shares in a company.

Purpose Trusts are currently used, among other things, in conjunction with asset financing transactions and securitisations.

They are also used to hold the shares in a Private Trust company (PTC) structure, where confidentiality and control issues are important. The advantage of using a Purpose Trust in such a scenario is that there are no registration or disclosure requirements of such trusts at law generally speaking. Therefore the ownership of the PTC will be confidential, and the shares in the PTC will be immune from an attack on the Settlor (ie the person who sets up the Trust).

A PTC is a privately owned company that acts as trustee, usually exclusively for a wealthy family trust or group of trusts. The board of the PTC can be populated with a mixture of professional advisers and a client’s family members. Often PTCs are at the heart of The Family Office. They have a number of popular advantages including:

• They provide a means by which a Settlor, or his family, can retain a greater degree of control over their trust affairs without compromising the validity of the trust(s).
• The Board of the PTC will have a heightened knowledge of the family’s business and financial affairs and be sensitive to the range of those interests, whilst also being empathetic to the needs of the beneficiaries, and having an intimate knowledge of the Settlor’s wishes. All of this should allow them to deal with sensitive family issues more freely and often with greater speed and flexibility;
• Having a PTC as trustee of family trusts will also avoid the need for future changes in the trusteeship;
• Professional trustees are often reluctant to take ownership of assets or participate in ventures where substantial risks may be present, and a PTC (due to the composition of the Board) can enable riskier investments to be included in the trust fund, (although the PTC will still have the usual trustee obligations).

Not all Trust jurisdictions enable the registration of Purpose Trusts. We can assist to register a Purpose Trust in Seychelles, Belize and the Cook Islands.

Though not as widely known a Purpose Foundation could also be used in lieu of a Purpose Trust. But more on that another time.

For more information on PTCs check my Blog Article of 25 October (scroll down to below my last published article)

Eccentric entrepreneur and privacy advocate Kim Dotcom is building his own private internet, allegedly safe from the prying eyes of surveillance authorities.

Via video link at Sydney (Australia)’s SydStart conference this week, the web mogul explained that “MegaNet” will work on a non-IP-based internet “that uses the beauty of blockchain [Bitcoin's public ledger] and new protocols to communicate and exchange data”, while still using the internet’s existing physical infrastructure.

“If you don’t have IP addresses you can’t hack the server, you can’t execute denial of service attacks on gaming services or websites,” Dotcom said from New Zealand, where he is currently awaiting the result of an extradition trial.

“Most importantly it will make it difficult for governments to invade our privacy. This entire network I’m working on is fully encrypted. It literally works from the people for the people.”

How will it work?

MegaNet will rely on people’s unused processing power on their phones and laptops, and allow them to donate bandwidth to the service.

“The more people that install the MegaNet app on their devices, the more powerful it will become,” Dotcom said.

If 100 million smartphones joined up, the network would have more online storage capacity, bandwidth and calculating power than the top 10 largest websites in the world combined, he said.

It will rely on existing physical internet infrastructure people use today – so-called “dumb pipes” – but will add a new layer of encryption running through all communications.

Dotcom claimed the encryption technology he’ll use is so powerful no super computer will be able to crack it.

In order to function, MegaNet is literally going to be using up your device’s battery power, storage capacity and web bandwidth to power its so-called private network.

If you consent, it will draw from your smartphone’s processing power and bandwidth while it’s idle – for instance, when you’re asleep – if it’s plugged in and connected to Wi-Fi.

However, Dotcom told media that default settings would use only processing power, and users would opt in to donate bandwidth.

“In the beginning you set your restrictions,” he said.

“The default is no use of bandwidth, and only storage on your phone. But if you want to, it enables us to utilise some of your bandwidth. Users are fully in control. It’s not costing them anything.”

As for the blockchain, MegaNet will borrow from Bitcoin’s lauded method of recording transactions (even the Australian Securities Exchange is considering it), but instead of users storing transaction records, they will store some of the files that make up this new “alternative private internet”. Presumably these will be encrypted too, otherwise everyone who connects to MegaNet will have some record of who is using the system and for what purpose, and that would contradict Dotcom’s pitch.

When can we get it?

The millionaire admitted that phone technology, including battery life, will need to improve before MegaNet can really take off.

“We’re looking at a 10-year plan,” he said.

“Over the next decade, current smartphones are going to be replaced by phones 10 times stronger and faster, with massively more computing power, that are as powerful as desktop computers are today.

“Battery tech in the making is going to give you 24 to 48 hours battery time with full usage. There are lots of advancements currently taking place. Today’s bottlenecks might be a challenge, but over the years, with new devices and new capacity with mobile bandwidth, there will be no limitations.”

The mogul is confident that a technology solution will keep people secure and that privacy doesn’t require new infrastructure.

“Right now they’re just my words, but I’ll prove it to you with proof when the service goes live. You watch. The security community will appraise it and validate this service.”

Dotcom expects 100 million users to sign up within the first year of launch (expected sometime in 2016).