Category Archives: Company- Management

What is a Discretionary Foundation?

If you are looking for maximum Privacy Offshore you should seriously consider including a Discretionary Foundation as part of your International Corporate Structure.

A Discretionary Foundation (like a Discretionary Trust) is a Private Interest Foundation (“PIF”) wherein the Foundation Council has a broad discretion including in terms of:
(a) who to install as beneficiaries and when; and
(b) when distributions are paid, to whom and how much.

In the case of a Discretionary Foundation the beneficiaries do not have a fixed entitlement or interest in the Foundation funds/assets. The Council has the discretion to determine which of the beneficiaries are to receive the capital and income of the Foundation and how much each beneficiary is to receive. The Foundation does not have a complete discretion however. The Council must act in accordance with the Letter of Wishes provided by the Founder at the outset (which commonly provides for the Founder and his/her family to be added as beneficiaries at a later time) and can only distribute to beneficiaries within a nominated class as set out in the terms of the Foundation’s Regulations.

Beneficiaries 

Persons who are to receive a benefit from a PIF are called Beneficiaries. You as the Founder may be a beneficiary though not the sole beneficiary. (Unless you’re setting up a Purpose Foundation) there must be at least one beneficiary nominated from the outset.

There are essentially two ways that you can approach the issue of who to name as Beneficiaries (and when). The first (more traditional) method is to clearly describe to your Foundation Registration Agent (or the Professional person who is setting up the Foundation for you) the names of the persons (which may include you and eg your partner/children) that are to ultimately benefit from the PIF. Some people feel more comfortable if they can see, from the outset, their names appearing as beneficiaries.

Note: in this instance you will need to list the parties which are to be the beneficiaries of the foundation either by name or reference to another party (i.e. the children of XYZ).

You can also provide for your foundation to benefit any future unborn children. If so, in your formation instructions, you would need to clearly specify the full names of the parents or prospective parents (e.g. “the children of my son in the event that he has any children”). You can also give details if you wish to add any age requirements or other conditions for benefits to be distributed.

Discretionary or Potential Beneficiaries

The second, more creative approach is to set up a Discretionary Foundation and to maximize the “Discretionary” nature of the structure to avoid any person’s names appearing anywhere eg in the Regulations or Order form.

One of the key features of Discretionary Foundations is that the Council/lor retains the power to add or substitute further beneficiaries after the PIF has been formed. What you can do in this instance is nominate (in the section of the Order Form asking for details as to beneficiaries) an internationally recognized charity such as Oxfam or Unicef or The Red Cross etc to be the primary beneficiary from the outset.

If you are setting up a Seychelles Foundation this may not really be necessary however as under the Seychelles law there is no deemed entitlement for beneficiaries. Hence if you name yourself/your spouse/family members as beneficiaries it should not give rise to tax consequences onshore (ie unless or until the Foundation actually pays or resolves to pay you/the beneficiaries a Distribution).

Switching Beneficiaries

If your wish is for the Foundation Council/lor to add or substitute beneficiaries at a later time all that needs to be done is to tell your Foundation Registration Agent (or the Professional person who is setting up the Foundation for you) the names of those persons and when, (after formation of the PIF) you would like to see those persons added as primary beneficiaries. By taking this approach if the Foundation’s Corporate document were accidentally found by persons acting on behalf of your creditors (or the Revenue Authorities) they should still be unable to establish whether you (or your partner or family members) are beneficiaries of the PIF.

As with any such structure local laws can have an impact. Hence you should seek local legal, tax and financial advice before committing to establish an entity or structure such as that described above.

When setting up an Offshore Company if privacy is a priority for you (and/or if you want to minimise the chances of having to endure a tax audit) then the ideal is to incorporate your tax free Offshore Company in a country which does not have a TIEA (ie Tax Information Exchange Agreement) with your country of tax residence. (See below which explains what a TIEA is).

But what do you do if, after offshore incorporation, your home country signs a TIEA with the country where your nil tax Offshore Company is incorporated???

For the discerning Offshore Company Owner a key question to ask (as part of the process of choosing an Offshore Company Jurisdiction) is “does this jurisdiction allow its companies to migrate/redomicile???”

The good news is many if not most tax havens allow you to redomicile an IBC to or away from the jurisdiction.

The migration/redomiciliation process is fairly straight forward:

First up the IBC/Offshore Company’s board of directors passes a resolution authorising the change of domicile from country A to country B.

Once that’s done a number of corporate/legal documents need to get drawn up including a board resolution and Articles of Continuation (ie a one page document signed by the Board formally authorising a change of home jurisdiction).

Certain documents then must be delivered to the Company’s new  Offshore Manager/Registered Agent to formalize the process of redomiciling the  company from one jurisdiction to another include the following:

1. Signed board resolution authorizing the change of domicile
2. Articles of Continuation

3.           Original notarized set of documents from previous jurisdiction, containing:

a)            Copy of the Certificate of Incorporation

b)            Copy of the Memorandum & Articles of Association

c)            Copy or original certificate of good standing

Depending on how cooperative the Company’s Registered Agent (Offshore Manager) is the process can take anywhere from a week to 3 weeks. Cost can be anywhere from $500 to $1,500 depending on how old the Company is, what the jurisdiction is and the outgoing Registered Agent’s requirements.

What is a Tax Information Exchange Agreement?

A Tax Information Exchange Agreement (TIEA) provides for the exchange of information on request relating to a specific criminal or civil tax investigation.

Let’s assume that you set up a Tax Free Offshore Company in a country which has a TIEA with your home/taxing country.

How it works in practice is, if your home state becomes suspicious of your connection to or involvement with an Offshore Company (ie if they think an Offshore Company is being used by you to avoid domestic tax obligations), the Tax Authorities of your home country can request of the Tax Haven country Government, as of right, (ie if there is a TIEA entered into between the 2 countries) that they give up the name and address of the “underlying beneficial owner” of the company in question.

Although the information isn’t publicly filed this information must/will be kept by the Tax Free Offshore Company’s local Registered Agent who is obliged by law (as a condition of its International Corporate Service Provider’s License) to hand over this information upon request by/to the local Financial Services Authority (who then pass ownership details to the Tax Haven’s Attorney General’s Office who then pass it down the line to the requesting country).

I am often asked how does one move money to an Offshore Company?

In a 14 + year career specializing in International Corporate Structuring I have seen this done in a number of different ways:

1. You could set up a dual structure (eg a Tax Free Offshore Company the shares of which are held by an Offshore Private Foundation) and have the Foundation set up as a Charitable Foundation. Once the Foundation is registered you could then make regular donations to the Foundation (which would then transfer that money to the Tax Haven Company eg as share capital).

2. You could set up 2 International Business Companies Offshore (ie “IBCs”) ie an Investment Company and a Trading Company. The first IBC you would enter into a speculative (eg high risk/potentially high return) general (long term) investment with. This IBC would then invest money with your trading IBC. The investment with the first IBC could be structured in such a way as to ensure that you won’t be paid a return on that investment for quite a while eg it could be a capital focussed investment. Meanwhile if anyone asks where the money went and why you’ve received nothing back you could truthfully say I’m not yet entitled to a return. Moreover no one can see where the money went to once it landed offshore and no one (eg as can happen in an insolvency claim) should be able to claw back the money from the 2^nd IBC.

3. You could convert your local money into bitcoins then transfer ownership of the bitcoins to your Offshore Tax Free Company (“IBC”). The IBC could then convert the bitcoins into hard currency which the IBC would then use to invest in whatever. The transfer of your local money into bitcoins would be beyond the view of local courts/authorities.

4. You could engage a lawyer to Due Diligence on the Offshore Company you intend to send money to. Whilst the Lawyer’s making inquiries to confirm that the company exists and has been properly incorporated etc, (as you might do prior to a real estate purchase) you could park the money you intend to invest in the IBC in the Lawyer’s Trust/Client/Escrow Account. Once the Lawyer has completed his/her inquiries you would instruct the Lawyer to send the funds from his/her Trust/Client/Escrow account to the Offshore Company’s Bank Account

5. You could “Gift” the money to a family member (or close friend) overseas and then have that family member transfer the money to your Offshore Company

6. If you are holding funds in your own name you could set up a personal account Offshore {eg in/at a Bank located in a country that (a) does not have a Tax Information Exchange Agreement with your home country and (b) which has not agreed to be part of the OECD Bank Account Information Sharing Treaty Network} and then transfer the money from your Onshore bank account to your Offshore Bank Account. Same could be done in the case of funds being held in a Company account onshore (ie you set up an Offshore Privacy Haven Account in the name of your local Company and have funds transferred from the Company’s Onshore account to your Company’s Offshore account. If you open the account in the right place onshore predators will really struggle to find out where the money went once it landed offshore.

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.

The UK is considered by many professional tax planners to be an Offshore Tax Haven for non-UK nationals, and the “best kept secret in Offshore Financial Planning”.

Before we discuss the various features and advantages of using UK companies in international asset and offshore tax planning, readers and users must be reminded that all UK companies are liable to UK Corporation Tax (CT) on all sources of income and capital gains. That means UK companies are subject to CT on their worldwide income.

All UK companies are deemed to be tax resident in UK. However, with proper advice and planning, a UK company can function as tax-efficiently as an IBC from a nil-tax Offshore Jurisdiction.

POTENTIAL ADVANTAGES OF A UK CORPORATION

The following is a summary of the core attractions of using a UK company in Offshore Tax Planning.

Tax Treaty Network

The UK has the largest network of double tax treaties (over 100) in the world rendering UK companies a very efficient vehicle for minimizing withholding taxes on dividends received.

In some cases, if the UK company owns at least 10% of the share capital of an overseas company, the rate of withholding tax experienced on non-UK dividends can fall to nil or as little as 5% of the gross dividend.

The UK company can also benefit from the EU Parent/Subsidiary Directive, whereby withholding taxes on intra-EU dividends is eliminated altogether.

The following are the rates of withholding tax on dividends, royalties and interest paid to a UK parent company from various jurisdictions. In all cases, use of a UK company avoids the domestic rate.

COUNTRIES                Dividends           Royalties          Interest         Domestic Rate

China                               Nil                        10%                    5%                     33%

New Zealand                 15%                     10%                    10%                   30%

EU Countries                 Nil                         Nil                       Nil             About 25%

Singapore                      Nil                          10%                   10%                  15%

United States                5%                        Nil                        Nil                    30%

Low Cost of Maintenance of a UK Company

Although the costs of maintaining UK companies cannot be compared with the cost of maintaining IBCs, they are amongst the lowest in developed jurisdictions with comparable reputation, international respectability and protection.

Share Capital

There is no minimum paid up share capital requirement and no capital tax on authorized or issued shares.

Audit of Accounts

There is no audit requirement for companies with turnover below GBP1,000,000 AND net assets of less than GBP1,400,000, unless the company is part of a larger qualifying group.

Ease of Establishment

Shelf companies are available. If required, tailor-made companies can be set up within 24 hours.

International Respectability and Protection

UK companies are often used to acquire assets in certain foreign locations to minimize risks of expropriation by foreign governments.

TAX ADVANTAGES

(a) Reduced corporate tax rates–Profits of GBP10,000 or less are tax free. The next GBP40,000 are taxed at a rate equivalent to 23.75%. Profits between GBP50,001 and GBP300,000 are taxed at the “small companies rate” of 19%. Profits in excess of GBP300,000 are taxed at a rate equivalent to 32.75%. Profit in excess of GBP1,500,000 are taxed at the standard rate of 30% on the whole profits. Note that pure investment companies cannot benefit from the small companies rate.

(b) Exemption from capital gains tax on disposal of shareholding in a trading group– tax exemption is available for capital gains from the disposal of substantial shareholdings” (shareholdings of 10% or more) in a trading group.

(c) There is a qualifying shareholding period of 12 months. The disposal should not result in the UK company ceasing to be a member of a trading group.

(d) The exemption from capital gains tax from the disposal of ‘substantial shareholdings’ also applies to sole trading companies, provided they own at least 10% of another company.

(e) Exemption from Capital Gains Tax on disposal of assets situated in the UK by non-residents –The selling of a UK holding company’s shares does not attract any tax in the UK.

(f) Tax on dividends and royalty–There is no withholding tax on dividends received from other companies and companies in EU countries if the EC Parent/Subsidiary Directive applies. On distribution by UK companies of dividends to shareholders, there is no withholding tax on such dividends payable to non-resident shareholders. With proper planning, there is no withholding tax on royalty payments made by a UK company to a foreign shareholder.

(g) Losses carried forward and backward–Company losses can be set off against income from the previous year or carried forward for many years against profits of the same trade.

(h) Various relief is available on tax on foreign dividends received–Various credits and deductions are available for UK companies receiving foreign dividends to set off against their liabilities to UK corporation tax, as follows:

• Non-UK withholding taxes paid on dividends received by the UK company, and foreign taxes paid on profits from which the dividends are paid can be set off against UK corporation tax liabilities provided the UK company owns not less than 10% of the share capital of the dividend-paying company. Therefore in cases where the UK company owns a 10% stake in an overseas company, foreign taxes incurred on overseas trading profits are fully deductible against corporation tax in the UK.
• Foreign tax paid in excess of UK corporation tax, with certain limitations, can be surrendered between group companies (pooling arrangements).
• Foreign tax paid in excess of UK corporation tax, can with certain limitations, be carried forward indefinitely or carried back to be used in the three immediately preceding years.
• Alternatively, foreign tax can be deducted as an expense in arriving at the foreign income or capital gain liable to UK corporation tax. This will be advantageous if no UK taxes are payable, say, because of the tax losses carried forward from previous years.

Tax Sparing

Taxes may sometimes be forgiven by a developing country to foreign investors in order to attract investment into the country. That is, the tax rate applicable to a foreign investor will be less than the tax rate for locals. To encourage UK corporations to invest in developing countries, the UK has entered into tax treaties with “tax sparing” clauses under which taxes forgiven by the developing countries will be treated as actually paid. Amongst the 30 countries, the most important for Asians are China, Singapore, Malaysia, Portugal, Spain, and Thailand.

The follow is an example to illustrate the operation of the clause:-

Foreign subsidiary’s profit                                                                                 100

Foreign corporation tax payable, calculated according to local tax rate   35

Less: Full exemption by foreign government                                                   35

Tax payable                                                                                                          Nil

UK Corporation tax computation:

World-wide profits                                            100

Corporation tax at 30%                                     30

Less: Foreign tax paid (deemed to be paid) 35

Tax payable                                                      NIL

EXAMPLE OF THE USE OF A UK HOLDING COMPANY: 

                                                         Seychelles Company

                                                        UK Holding Company

              EU Trading Company “A”                              Mauritius Trading Company “M”

                                                  China Manufacturing Company

In the above example:

• For trading company A situated in the EU, the UK holding company can benefit from the EC Parent Subsidiary Directive and there are no withholding taxes on payment of dividends to UK company.
• For Mauritius trading company M, the effective tax rate is 3% (or 80 % tax credit on 15% income tax)
• Withholding tax on payment of dividends to UK company is 10%, utilizing the Double Tax Treaty between Mauritius and the UK.
• Withholding tax on payment of dividends to UK company by the China Company is Nil. China company pays 15% of tax on its profits. However, the official rate is 33%. When these dividends are received by the UK company, they are chargeable to UK tax. However, relief is given for all underlying tax paid in EU on profits, from which dividends are paid and for the official tax payable (in full rate of 15% and 33%) in Mauritius and China respectively The resulting tax credit will leave little or no UK tax liability.
• Dividends from the UK company can be paid to the Seychelles company without any withholding tax.
• There is no capital gains tax on the disposal by the UK company of shareholdings in any of its subsidiaries, provided that the UK company owns the subsidiaries for over one year and the disposal does not result in the UK company ceasing to be part of a trading group. Even if, on a disposal, the UK company ceases to be a member of a trading group, with appropriate tax planning the gains can remain tax exempt in the UK.
• Dividends received by the Seychelles company do not attract any income tax in the Seychelles.

Local conditions can impact on the use of such a structure. Hence UK & domestic legal, financial and tax advice should be sought prior to committing to embark on such a venture.

For most clients looking to defer tax on Offshore earnings the preferred solution is to have one’s Tax Free Offshore Company owned by an Offshore Private Foundation wherein the client + his/her spouse/family are named as beneficiaries.

But for clients who are either:

(a ) concerned about potential tax consequences that may arise onshore from being named as an immediate beneficiary; or

(b) wanting as much privacy as possible

there is a solution.

The solution is to set up a Discretionary Hybrid Foundation. That is a Foundation which can (a) benefit both a charity and natural persons and (b) which can, utilizing the Councillor’s “discretion”, change beneficiaries at any time.

Typically what the client does is (a) he/she nominates a tax free International Charity to be the beneficiary in the first instance and (b) he /she provides the Foundation Council with a Letter of Wishes setting out guidelines as to how and when in the future the client’s spouse/family might be substituted as beneficiaries.

I know of a client who set up one of these dual structures and then ten years later shifted his tax residence to a country that didn’t have income or capital gains tax. Once he’d moved the Foundation beneficiary was changed from a Charity to the client… whereafter the client promptly drew down the capital from/of the structure all of which was receipted/ banked tax free!

To change the beneficiary of a Foundation is easy. Here’s the steps:

1. You send the Council:

(a) a written request (called a Letter of Wishes) addressed to the Councillor advising who you want added as a beneficiary and why

(b) proof of ID and residential address as regards the new beneficiary

2. The Foundation Council then passes a Council resolution authorising a change.

3. The regulations get amended to note the new beneficiary.

4. The register of beneficiaries (usually stored at the Foundation’s registered Office) gets amended to note the changes

Local condition can have an impact. Hence you should always, before enacting such a plan, seek local legal/tax/financial advice.

Nil tax Offshore Companies are commonly used by persons working as Ship Captains or on Offshore Oil Rigs as a private, tax effective way of collecting payment for services rendered.

Generally speaking how it works is as follows:

1. You set up a nil tax Company “IBC”).
2. The Company ideally should be set up with a Nominee Director and Nominee Shareholder as part of the Corporate structure so that, for tax purposes, the Company is seen to be managed and controlled from offshore (because a Company seen to be managed and controlled from Onshore can be taxed onshore)
3. The Company enters into a contract with your current employers for the provision of services. The agreement will need to be carefully worded to ensure that several things are catered for including:

(a)   That you are able to perform the work on behalf of the Company

(b)   That the situs of the agreement as stated in the Contract is somewhere “Offshore” – from the IBC’s perspective the source of the income must be the contract itself not your labours. Hence the bargain will need to be seen to be struck and the contract signed Offshore ie in a nil tax environment.

4. Income received by the IBC will be received/banked free of tax in the first instance.

5. The IBC will contract or employ you. Ideally the IBC should pay you just enough to cover your living expenses. Whatever it pays you if you are working in territorial waters (eg UK waters, Norwegian waters etc) you may need to declare and pay tax on that money onshore. The remainder of the income can be held and or reinvested Offshore potentially tax free.

6. If you are considered resident for tax purposes (ie liable to pay tax) in a country which has CFC laws (see below which explains what CFC laws are) you would be wise to include a Foundation as part of the Corporate Structure. See below “Why Set up a Foundation” for more info. (FYI most developed countries have CFC laws)

People in the Shipping/Offshore Oil Rig industries are often attached to and hired out by an Employment Agency. If you want your Offshore Company set-up to look as commercially realistic as possible you might want to characterize the IBC as an Employment Agency (eg when you incorporate your IBC you might want to name it something like “International Oil Rig Recruitment Services Ltd” or “International Ship Captain Recruitment Services Ltd.”). See below “How To Use an IBC as a Recruitment Agency or Labor Hire Company” fmi.

What is a Controlled Foreign Corporation Law?

A Controlled Foreign Corporation (or CFC) Law is one which purports to tax onshore income or capital gains made by Companies incorporated Offshore but which are controlled from onshore.

Essentially how a CFC law works is if an individual owns or has the capacity to own the overriding majority of shares in an Offshore Company (the percentage of which varies from country to country) the that person is required to declare in his local tax return profits made by the Offshore Company.

How CFC laws came about was around 30 years ago the big western countries began to realise that certain of their citizens were using nil tax Offshore companies to avoid having to pay tax at home on their non-local sourced (ie international) income. In particular the CFC laws target the use of Nominee Shareholders and Directors. If you live in a country which has CFC laws (regardless of whether you are the director/shareholder of the Company or not) if you have the capacity to own and control the company by reference to shareholdings then you would be required to declare and pay tax at home on your Offshore Company’s earnings.

There are several ways to get around CFC laws. Historically clients used commonly to deploy an Offshore (Discretionary) Trust to own the shares of the Offshore Company. However with more and more “Onshore” tax systems claiming tax from any Trust with an onshore resident beneficiary discerning clients these days choose to establish Private Foundations (in particular Seychelles Foundations) as the ultimate holding entity as such entities should not caught by CFC laws or by CFT (Controlled Foreign Trust) Laws. For more detail click on these links:

https://offshoreincorporate.com/private-interest-foundations/

https://offshoreincorporate.com/seychelles-foundations/

https://offshoreincorporate.com/seychelles-foundations-fact-sheet/

Why set up a Foundation?

If an IBC alone is used you will still be liable to declare and pay tax at home on your IBC’s earnings if/when you live in a country which has a Controlled Foreign Corporation (“CFC) law. Failure to so declare in many countries would constitute tax evasion.

What you might do then is set up a Private Interest Foundation to own the shares of the Offshore Company.

Offshore Trusts used to widely used for such purposes back in the noughties but the problem there is that you have someone (ie a Trustee) holding property for the benefit of 3^rd parties who are inarguably beneficial owners of that property and probably/potentially entitled to the income/capital of the Trust (which can have tax consequences onshore).

A Foundation is very similar to a Trust in that it’s set up by a Founder (like a Settlor in the case of a Trust) and managed day to day by a Councillor (like a Trustee in the case of a Trust) who manages the Foundation property for the benefit of the beneficiaries of the Foundation. A key advantage of a Foundation is that it’s a separate legal entity in its own right (ie the Foundation actually owns the assets held by the Foundation – unlike a Trustee who holds property for someone else ie the beneficiaries) and generally speaking the beneficiaries are not entitled to the income or capital of the Foundation until it’s actually received.

What this means as a beneficiary is that you should be able to defer paying tax at home on the income of investments held by the Foundation enabling you to reinvest 100% of that income not just the after tax component. (One jurisdiction ie Seychelles has even taken this a step further by specifically stating in their law that the legal and beneficial owner of any asset held by the Foundation is the Foundation itself).

Seychelles Foundations

If you are a resident or citizen of a country which has the ability to track Offshore Bank account beneficiary details and you would like to keep private details of your Offshore earnings (or if you plan to set up a very sensitive business eg one that might illegal if owned/operated from where you live) again a Seychelles Foundation can help:

How so?

It all comes back to the legal structure/operation of the Seychelles Private Interest Foundation.

Bottom line is notwithstanding that individuals (or a class of beneficiary) may be named as beneficiaries in the Regulations:

1. The beneficiaries have no legal or beneficial interest in property owned by the Foundation (unless or until such time as that property is transferred to them – per section 71 of the Seychelles Foundations Act).
2. The Foundation is a legal entity in its own right not a mere Trustee (Per section 23)
3. The Councillor of the Foundation owes no Fiduciary duty to the beneficiaries (Per section 63)

As such there is no “beneficial owner” of the Foundation. The beneficial owner of any property/asset owned or held by the Foundation is the Foundation itself.

How To Use an IBC As A Recruitment Agency or Labor Hire Company

Given we are now living in the Global Village, and as more opportunities exist now than even before for qualified professionals and trades/skilled persons to work as Consultants to (or to take up contracts offered by) non-local Companies, more and more clients are setting up (and hiring out their services via) a nil tax jurisdiction based Recruitment Agency or Labour Hire Company.

It might work something like this:

1. You would incorporate a new company which might be called something like International Professional Recruitment Services Ltd  (hereinafter, “IPRS Ltd” or the “Employment Agent”)
2. This business would be characterized as and appear to the outside world to be a Professional Recruitment Agency or a (Specialist) Labour Hire Company
3. You would tell anyone who wants to hire you eg your existing employers (or contract counterparty if you are on a contract) that, as IPRS Ltd can offer you (a) consistent employment + (b) jobs the world over, and as they are experts in finding contracts for your Profession/Trade/Occupation, you are contracted exclusively to IPRS Ltd and anyone who wants to hire you has to sign an agreement with, and must pay, IPRS Ltd.
4. Your existing employers (or contract counterparty if you are on a contract), assuming they wish to keep you employed/engaged, would then have to sign a labour hire agreement with IPRS Ltd.
5. Your existing employers (or contract counterparty if you are on a contract) would thereafter pay your wages (or contract fees as applicable) to IPRS Ltd.
6. IPRS Ltd would keep a percentage of these payments as Agency commission (it would be anywhere from 2.5% to 50%).
7. The remainder of monies (ie after IPRS Ltd has retained its agency commission) would be paid to you by IPRS Ltd
8. The monies received by IPRS Ltd should be receipted free of tax and could be held and or invested Offshore potentially tax free.

For the above to work the agreement between your employers (and the agreement between you) and IPRS Ltd would need to be (and be seen to be) commercially realistic.

As always local conditions can impact on your ability to deploy such a structure as described above. Hence local legal, tax and financial advice should be sought before embarking on any such venture.

Offshore Foundations and Offshore Trusts are similar in that each is:

(a) set up by one person (in the case of a Trust a “Settlor”, in the case of a Foundation, a “Founder”)

(b) managed by a 2^nd person (in the case of a Trust a “Trustee”, in the case of a Foundation, a “Councillor”)

(c) for the benefit of a 3^rd group of persons (ie the beneficiaries).

It is usual at the time a Foundation (or Trust) is established, and at certain key junctures (see below), for the Founder of the Foundation (or Settlor of the Trust as the case may be) to provide the Trustees/Councillors with a Letter of Wishes with regard to the administration of the Foundation/Trust.

What is a Letter of Wishes?

A Letter of Wishes to is an important document, particularly in the case of a Discretionary Foundation/Trust,  as it is effectively your instructions to the Trustee/Foundation Council as to how you would like your Trust/Foundation to be administered (and/or funds/capital to be distributed) particularly after your death.

The following points should be considered when completing Letters of Wishes:

1. As opposed to a Will, the Trustees/Foundation Councillor/s usually have a discretion as to who shall benefit from the Trust/Foundation. The Trustee/Councillors will need guidance in this respect.

2. Although a written Letter of Wishes is not binding upon the Trustees/Councillor/s, they would be expected to give careful consideration to the wishes of the Settlor/Founder. As a matter of Law if a/the request as set out in a Letter of Wishes is in the best of the beneficiary/ies the Trustee/Councillor/s should act on the said Letter of Wishes.

3. The Settlor/Founder should remind the Trustees/Councillor/s as to the reasons for setting up the Trust/Foundation and generally who is to benefit. Often at the commencement of the Trust/Foundation it will be the needs of the Settlor/Founder that will be paramount and such wishes should be expressed including a statement as to whether or not assets personally owned are to be considered when the Trustees/Councillors are considering “needs”.

4. On the death of the Settlor/Founder (or the survivor of the Settlor/Founder), mention should be made of who then is to benefit. If children are to have priority, is equality to be maintained or is recognition to be given to an individual’s special circumstances and needs?

5. Is education to be a priority for the children? And if so, what type of education would the Settlor/Founder like to see preferred? For example, private as opposed to public and the option of tertiary and post-tertiary education and at what sort of institutes? Is assistance to be given to children to enable them to buy or build homes or provide support in careers or business activities?

6. At what point should the Settlor/Founder be giving consideration to partial or total distribution to the beneficiaries and is resettlement of a child’s notional share of the Trust/Foundation estate on to another Foundation or Trust for the benefit of that child and his or her direct lineal descendants allowed or appropriate?

7. In carrying out any of the Settlor/Founder’s wishes with regard to the children are the Trustees/Councillors to confer with any particular child to ascertain that child’s wishes?

8. In the case of death or incapacity of a child, are the needs of that child’s children to be considered?

9. Are there specific circumstances relating to a beneficiary such as a drug or gambling addiction which need to be included in the Letter of Wishes?

10. Has the Settlor/Founder any particular thoughts as to the need to keep the Letter of Wishes, or any part of the Letter of Wishes, confidential?

It should be noted that a Letter or Statement of Wishes is a document of a confidential nature (which in the right setup should also be protected by legal professional privilege) and therefore not capable of disclosure.
A Letter of Wishes should not only be in place at the outset but should be reviewed on a regular basis and updated where necessary to record if there is any change in the circumstances of any of the beneficiaries of the Trustee/Foundation or special needs which must be met.

When a certain beneficiary/s is in need of financial assistance it is also appropriate that a Letter of Wishes be provided at the time to the Trustees/Councillors putting the case for why a Distribution should be paid to that person or persons.

Having an offshore account is a fundamental step in diversifying yourself internationally. It is an excellent way to protect yourself from sovereign risk, currency risk, and more.

It’s especially important in today’s environment where governments will find any excuse – from terrorism to money laundering to economic downturn – to impose de facto capital controls. Having a portion of your assets out of your home country makes it more difficult, if not impossible, for your home government to freeze or confiscate your assets.

There are a number of important factors to consider when opening your Offshore Account.

These include:

• The Offshore jurisdiction’s openness to foreigners

• Taxation of interest income

• Range of services including currency options

• Stability of the Offshore jurisdiction

• Deposit insurance

Let’s take deposit insurance. In places like the United States or the European Union, deposit insurance is almost an afterthought. (Unless, of course, you’re a small European country needing a bail-out and thought to be holding money for the Russian mob – then you’re in trouble).

However, each Offshore Banking Jurisdiction has its own bank insurance policy that you should examine before opening an account. Places like Singapore take an attitude that deposit insurance is somewhat of a moral hazard and have much lower insurance maximums than other developed countries.

Singapore, for one, also does not insure deposits in foreign currencies, which again matches their goal of protecting smaller, domestic depositors who need the money, not foreigners looking to diversify their assets.

While most of the developed world does insure bank deposits, a few Offshore Jurisdictions do not. Andorra, for example, has a deposit insurance scheme which is hard to understand and it is unclear how the fund would actually repay depositors of a failed bank.

Of course, you should again evaluate the stability and history of any Offshore Banking Centre where you plan to put your money to make sure you won’t get Cyprus-ed in the future (For those of you who aren’t aware Cyprus passed a law a year or two back authorizing the Cyprus government to seize a sizeable percentage of all funds held in Cyprus Banks).

Many Offshore jurisdictions worldwide are open to accepting foreign customers, although some have many hoops you must jump through. An unfortunate part of the global “war on terror” is the OECD’s heightened “Know Your Customer” requirements, (which means it takes longer now to open an Offshore Account  than what it used to).

Some Offshore banks, require you to visit them to open your account (eg Hong Kong Banks, Singaporean Banks and most Swiss Banks). However, there are plenty of Offshore Banks that open accounts remotely.

Along those lines, an important consideration to make is which type of Offshore Bank you feel most comfortable with.

You may prefer a more liquid, local bank over a huge multi-national. It should also be considered that it may be easier for your government agency, court, or plaintiff’s lawyer in your home country to access funds in a bank which maintains a presence there: It will be easier to get the “Offshore” Bank to hand over your funds if the bank also does business in your home country and could be sanctioned for not doing as they’re told.

Another important factor is taxation. While many International Offshore Financial Centers boast a territorial tax system (ie where income earned outside the jurisdiction isn’t subject to tax), income earned in their banks certainly meets the “local source” test. Some of these jurisdictions do tax interest, others do not. Those that do tax interest may require a local tax ID number to be obtained and/or a return to be filed.

Finally, you should consider the range of services each Offshore Bank offers. If you are moving money to another jurisdiction to avoid sovereign risk, you may well want to hold your foreign deposits in another currency.

Obviously, each country has its own currency which will be the default currency that most people there hold their assets in. You may or may not be comfortable holding your deposit in that currency, however, and may want to choose a bank that offers an array of currencies to choose from. The good news is most, if not all, “Offshore” Banks offer multi-currency accounts (ie the ability to hold monies in a range of currencies).

When opening an Offshore account in a foreign currency, you should consider the stability of the currency, its exchange rate history, and other factors that may come in the future. A number of countries are looking to devalue their currencies, which you should take into account.

For example, is the currency backed by resources in the country? Is it pegged to another currency?

The Hong Kong dollar, for instance, is pegged to a tight range of the US dollar. However, some commentators believe that the Hong Kong authorities will be forced to re-peg the value against the dollar, causing an immediate change in value, or peg it to the Chinese yuan. You should do your homework to understand any currency you choose to hold your assets in.

At the same time, foreign currencies whose countries haven’t set interest rates at zero may also offer higher interest rates. Many emerging Offshore Banking jurisdictions offer high – even sky high – interest rates out of need for foreign capital and to generate an ability to loan money at uber-usurious rates. Places like Australia simply haven’t joined the global race to the bottom because they haven’t needed to. But again, always do your homework.

The media and government want you to believe international banking is illegal. It’s not. Millions of expats from around the world live outside their home country and maintain bank accounts in their places of residence.

You, too, can achieve global diversification and take advantage of a better banking environment elsewhere in the world. For many, it’s amazing to think that a number of Offshore Banking Centres have never experienced a bank failure in their history (and many haven’t had one for decades). Suffice it to say you can hedge against this risk also by holding Offshore Accounts at several different Offshore Banks.

Offshore Banking (particularly when funds are held by a tailor designed Offshore Corporate structure) and multi-currency accounts are a great way to protect yourself against sovereign risk (ie the risk of government confiscating your money), predatory law suits (ie Courts in your home country ordering you to hand over your money) and sudden currency devaluations (as happened recently in Switzerland when the Swiss Franc was devalued significantly overnight).

As always speak to your tax adviser and or your lawyer before committing to embark on such an endeavor.

Clients often ask me “Can you set up a Private Offshore Account for me with a global bank?”

In 14+ years of specializing in Offshore Company, Offshore Trust and Private Foundation formations, and having built up a sizeable list of banking contacts, (including with major players such as HSBC, UBS, Barclays Bank, Standard Chartered Bank etc) I’ve been happy to accommodate such requests.

But with the ever widening reach of globalisation it is really hard for me to continue to do so.

Allow me to explain why…

One of the key reasons people Bank Offshore is risk reduction through international diversification. Some people mistakenly believe that to protect themselves from their country going down the tubes, they ought to move ALL of their money to ONE other country.

That’s not how it works. No country is totally resistant to all shocks or the potential shocks of a government that decides to go rogue.

Having said that, it makes sense that to obtain diversification you have to escape the system you’re in back home. With the likes of HSBC & Barclays Bank etc, it’s hard to do that.

A number of influential Tax Lawyers suggest that the achievement of perfect internationalization (ie creating a lifestyle where you are no longer beholden to any one country) includes working with banks that have no connections in the country you live in or hold citizenship in. That rules out pretty much any multinational bank such as HSBC, Barclays Bank, Standard Chartered etc.

The reason is that these banks are just as closely tied to your home country as they are the more tax-friendly locations such as Hong Kong, Singapore etc.

Even though HSBC UK is a totally different bank from HSBC Hong Kong, and their local registrations do put up some barriers, more of those barriers work against you than for you.

For example, I can only deposit a paper cheque payable to my firm’s Business Account (which is with HSBC Hong Kong) at a branch of HSBC in Hong Kong. I can’t deposit the check at a branch of HSBC in the UK or any another country.

Likewise, when an account a friend opened at a Czech Republic bank was quickly opened and then closed with him never getting the account number, he couldn’t walk into that bank’s branch in Slovenia to get the number. He had to go to the Czech Republic.

Additionally, there is increasing evidence to suggest that your government could call up HSBC in another country and say “hey, this guy owes us taxes; please freeze his account”.

Domestic bank accounts you own are an easy target for your government. For example I know of an Associate who woke up one morning in California to find that a bank account for a non-California LLC had been levied by California… for taxes he’d already paid! All it took was some empowered bureaucrat in Sacramento to push a few buttons.

Sadly, banking with multinational banks can subject you to the same provisions. I’m not saying you should dodge the tax man or skirt the law knowing that some local bank in Andorra will protect you. I’m not suggesting you do anything illegal or even immoral.

What I am suggesting is that multinational banks like HSBC will throw you under the bus in two seconds if someone with a shiny badge comes and knocks on their door asking for money. Do you think HSBC is going to risk its good standing in the United States to keep you and your $100,000 happy? Of course not. Especially not after a money laundering dispute that cost the bank a ton of money to settle.

HSBC Premier accounts are worthwhile for expats and perpetual travelers who want access to their bank in multiple countries. Many travelers experience ATM and foreign transaction fees when traveling with their home bank debit and credit cards, and having an HSBC account can prevent that in some cases.

In addition, HSBC Premier does have several airport lounges for bank customers, and I am told they are building more as the high-end banking space becomes more competitive.

However, if you are planning to move money from a high-yield online savings account to HSBC, be advised that you’ll earn essentially zero interest. In Hong Kong, a current account is paying 0.01% – if that – these days.

While HSBC does offer cheaper accounts, Premier accounts are the easiest for frequent travelers or those banking from home, and requires at least US$100,000 be tied up at zero interest.

Having said that, there is little “premier” about HSBC Premier service. My experience with HSBC Premier branches in several countries has been that you can’t even get a fresh cup of coffee while you wait for your banker. Then there’s the fact that you have to wait for your banker…

Ask anyone at the branch what the benefits of being Premier are and they’ll hem and haw and give you no real answers. My experience with the one-on-one relationship managers in large banks in the UK, Seychelles and Hong Kong has also been rather poor.

As an entrepreneur, I know the value of slick marketing and used to joke with employees in past businesses that we’d make them a “Vice-President” if they’d take less money. That’s based what HSBC, Barclays etc does… hires a bunch of grunts in monkey suits and calls them “private bankers”.

If you want one bank that you can use without the need for privacy or diversification, but rather for simplicity, HSBC can work for some people. I don’t hate HSBC, but I am a stickler for service and there are better options if you have a six-figure sum to deposit.

Ditto if you are looking to protect your cash from sticky fingers.

Further to that I’ve/we’ve recently identified some 50+Offshore Banks in over 18 countries who, we’re reliably informed, offer better services than HSBC, Barclays etc, including banks that offer excellent debit cards for expats and travelers, as well as banks with Premier accounts where you’re offered fresh fruit and champagne while you wait for your banker! We have contacted, and are in the process of setting up introduction relationships with, each such bank. Watch this space for details…

Occasionally I’m asked How can I close down my Seychelles Foundation?

There are several ways to close down a Seychelles Foundation.

One way is to let the registration lapse. In this option if you simply fail to pay the renewal fee after a period of time (max 18 months) the Foundation will be struck from the Register.

If the Foundation continues to operate past its due registration date and you don’t renew its annual operating license you would however become personally liable for any debts or liabilities that the Foundation may incur. Additionally ownership of any asset held by the Foundation could revert to you personally which may have tax consequences.

To avoid these risks and/or if you are owed money by the Foundation and want to claim priority for repayment you would be well advised to go through a formal winding up.

Winding Up

To wind up a Seychelles Foundation there is a procedure you must go through, ie as follows:

1.       Initiating the dissolution process

The dissolution is initiated through a resolution of councillors. Relevant consents for the dissolution should be obtained if the charter or regulations so requires. E.g. consent of Founder or supervisory persons (protectors)

Reason for the dissolution

The Seychelles Foundations Act section 92(1) specifies that a Foundation shall be dissolved where:

(a)    it is established for a definite period of time and that period expires;

(b)   its object is fulfilled or becomes incapable of fulfilment as determined by a resolution of councillors and, if so required under the charter or regulations, with the consent of the Foundation’s supervisory person, if any;

(c)    any term of its charter or regulations so requires;

(d)   it is unable to pay its debts as they fall due;

(e)   this Act provides that it shall be dissolved; or

(f)     the court orders that it be dissolved.

2.       Appointment of Liquidator (S92(2))

The councillors, through a resolution, should appoint a liquidator to supervise the dissolution process (or the liquidator is appointed in accordance with the charter or regulations)

The duties and powers of the liquidator are as set out under S92(3) and S93. It is recommended that publications are done by the liquidator. 

3.       Notice to the Registrar

The registered agent shall give the Registrar written notice upon receipt of the resolution (and applicable consents).

4.       Statement by liquidator

The liquidator shall give to the registered agent a written statement once he has completed the winding up and dissolution of the affairs of the foundation

5.       Filing of liquidator’s statement to the Registrar

The registered agent shall file with the Registrar a certified true copy of the liquidator’s statement

6.       Certificate of dissolution

The Registrar shall strike the Foundation off the Register and issue a certificate of dissolution certifying that the Foundation has been dissolved.

7.       Publication by the Registrar

The Registrar shall cause to be published in the Gazette, a notice that the Foundation has been dissolved and struck off the Register.

These are the relevant documents that need to be generated:

1.       Consent of Protector (if applicable)

2.       Consent of Founder (if applicable)

3.       Declaration of liquidator

4.       Resolution of Councillors

5.       Statement by liquidator – template

6.       Relevant section of the Foundations Act – including the duties and powers of the liquidator 

Note that the Foundation needs to be in good standing in order to start the process.