December | 2019 | Offshore Companies International

How To Use a Tax Free Offshore Company To Invest in Alternative Investments

The advent of the global village has broadened the scope of potential investment activities considerably.

These days it’s not uncommon for an investment portfolio to include exposure to left of field “alternative” investments.

Investments that come under this category include long hold capital focused assets such as venture capital, private equity, hedge funds, real estate investment trusts, commodities, precious metals, rare coins, fine wine/whisky, artworks, antique furniture, aged/quality name brand musical instruments (eg guitars, violins etc), vintage cars and etc. (Prime/unique real estate could also form part of such a portfolio)

Investing in alternative investments is an activity that lends itself well to an Offshore Corporate Structuring plan.

How it works is:

(a) You incorporate a tax-free Offshore Company (“OC”)

(b) You structure the Company in such a way as to ensure that the Company is seen to be managed and controlled from Offshore; This can/will be achieved by via deployment of a tax haven based Nominee Director (which is a service that OCI can/will provide).

(d) You advance funds to your OC

(e) The OC then purchases the investment. Any purchase contract is concluded/signed “Offshore” by the Nominee director

(f) The asset is held by your OC for some time, commonly for the long haul. Eventually one day you may decide to sell the investment having (hopefully) made a substantial capital gain. Sale proceeds are paid into your OC’s tax free bank account

(g) Capital Gains tax is typically paid by the/an investor to the taxman of the country wherein the investor is domiciled. If you are smart you will have set up/domiciled your Offshore Company in a jurisdiction that does not levy Capital Gains Tax

(h) Provided (a) your OC is seen to be managed and controlled from offshore (which can be achieved via deployment of a nil tax jurisdiction based “Nominee” director) & provided (b) you are not, at law, the beneficial owner of the Company (which can be achieved by setting up a Private Foundation to own/hold the shares of your OC) returns paid to your OC can be banked and/or reinvested Offshore potentially free from tax (ie without you needing to declare/pay tax on this income at home)

Note if you need to draw on these returns at home there are at least 6 different ways to (discreetly) access money banked abroad by your Offshore Company.

Would you like to know more? Then please Contact Us:

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

How To Avoid Being Listed as the Beneficial Owner of an Offshore Company

We are often asked Can you set up an Offshore Company for me without my name being listed in any official record as beneficial owner of the Company?

The short answer is this is possible. And the solution is somewhat left field. Let us explain…

Typically, clients who are privacy focused like to deploy a Nominee Director and Nominee Shareholder. But the downside of that is, even if you have a nominee shareholder in place, you would still be classified at law as the underlying beneficial owner (“UBO”) of the Company. The solution is to set up a Private Foundation to act as the shareholder of your tax free Offshore Company.

Why?

The Private Foundation is basically Europe’s version of a Trust (Foundations began in Liechtenstein around about the 1600s) save for one big difference (see below). A Trust is more like a contract between 2 parties ie the person who set up the Trust, called the Settlor, and the person set up to manage it, ie the Trustee (The Trustee manages Trust property for the benefit of the Trust’s beneficiaries). A Trust is NOT a separate legal entity. For example if a Trust buys a piece of real estate on the Title Deed the name of the proprietor says XYZ Trustees Ltd as Trustee for the ABC Family Trust. In other words the legal owner of the property is the Trustee. But the beneficial owner/s of the property is/are the beneficiary/s of the Trust.

A Foundation is similar to a Trust ie it’s a 3 headed creature – its set up by a person called a Founder (like a Settlor in the case of a Trust), is managed day to by a person called a Councillor (which is more like a Company Director than a Trustee) and, like a Trust, it has beneficiaries ie persons who are ultimately designed to benefit from the existence of the Foundation.

BUT, and here’s the key….

A Foundation (unlike a trust) is a separate legal entity ie it can sue and be sued. AND, at law, a Foundation is presumed to be both the legal AND beneficial owner of any asset it holds!

One jurisdiction has even taken this a step further ie Seychelles which has actually codified this aspect of European Common Law ie written it into legislation – in Section 71 of the Seychelles Foundations Act (refer pages 48 + 49 of the Act which can be downloaded via this link: https://seylii.org/sc/legislation/act/32-2) it actually says that the legal and beneficial owner of any asset held by a Seychelles Foundation IS THE FOUNDATION ITSELF.

The end result?

If you set up a Seychelles Foundation to own the shares of your Offshore Company or IBC if anyone (eg a bank or revenue authority or regulator) ever asks who is the beneficial owner of this Company, you can legally say it’s the shareholder, because the shareholder is a Seychelles Foundation and Section 71 of the Seychelles Foundations Act which you’ll find enclosed (ie DO email them a copy of the legislation) provides that the legal and beneficial owner of any asset held by a Seychelles Foundation IS THE FOUNDATION ITSELF.

If you wanted to be extra careful/private you could utilize the Discretionary nature of a Foundation (ie beneficiaries can be changed at any time) to make the initial beneficiary of the Foundation a tax free International Charity (eg UNICEF, The International red Cross, Oxfam or?) or you could install a (nil tax jurisdiction resident) “nominee” beneficiary to act as the initial beneficiary (which is a service that some Corporate Service Providers, including OCI, can provide).

Would you like to know more? Then please Contact Us:

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

IBCs – How To Get Around New EU Economic Substance Requirement

Following on from the OECD’s BEPS Action plan, in July 2018 the EU’s Code of Conduct Group (Business Taxation) decided that certain Companies/Legal Entities registered in tax havens would, moving forward, be required to show local substance. In short, the tax havens in question (eg the BVI, Cayman Islands, Bermuda, Guernsey, Jersey, the Isle of Man, Bermuda, Vanuatu etc) were threatened with blacklisting by the EU if they failed to pass laws forcing their International Business Companies etc to show economic substance on the ground in the jurisdiction (eg a local/stand-alone office and local staff).

The jurisdictions affected moved promptly to pass laws requiring such Companies to show substance, in particular with respect to the following business types:

Banking
Insurance
Shipping
Regulated fund management
Finance/leasing
Distribution and service centre
Headquarters
Intellectual property
Holding company activities

The argument for requiring businesses such as banking and insurance etc to have a local presence is hard to counter but of far greater concern is the requirement for Holding Companies to show presence on the ground. Given its passive nature, if a Company is just to set up to hold a parcel of shares for example why would it need to have a stand alone office (or staff for that matter)? It is self evidently an absurd requirement.

The good news is that for Holding Companies at least the requirement is easy to get around.

How so?

Across the board per the model legislation (eg in the BVI) to fit the definition of a Holding Company the Company in question must just hold shares. If it holds any other asset it doesn’t meet the definition of a “Holding” Company.

Any other asset could (would) include a bank account.

So, if you have a Holding Company in any of the effected jurisdictions – and you want to get around this ridiculous new EU requirement – (if you haven’t done so yet) we’d suggest you take steps NOW to open a bank account for your Company!

And if your current Offshore Company Service Provider (“CSP”) doesn’t believe you when you tell him/her that you shouldn’t be required to set up an office or hire staff refer him/her to this article and tell him/her to read the fine print of the legislation! (and or sack your CSP and change to a Provider who actually knows the fine print eg OCI).

Would you like to know more? Then please Contact Us:

www.offshoreincorporate.com

info@offshorecompaniesinternational.com