For various reasons clients often prefer that their names not be visibly associated with an Offshore Company.
In particular, it can be problematic on several fronts if, at the end of a paper trail, your name appears in an Offshore Company’s Statutory records as the “beneficial owner” of the Company.
Regulators the world over are forever looking to implement new ways to learn who, at the end of a Corporate Family Tree, the ultimate owners of a Company are. No doubt, if you’re looking to set up an Offshore Company, you won’t want your name to be exposed as the ultimate beneficial owner of said Offshore Company. Well that can still be achieved….
For many years we used to Offshore (Tax Free) Discretionary Trusts as the preferred vehicle for clients who wanted or needed to ensure that, at the end of the paper trail, their names did not appear as the “beneficial owner” of the Company.
(For those not in the know) A Trust is an arrangement whereby one person (commonly called a “Settlor”) makes arrangements for/with a second person (called a “Trustee”) to hold/manage certain assets (that would otherwise be owned/held by the Settlor) for the financial gain of others/third parties (called “Beneficiaries”).
But with much of the developing world having passed Controlled Foreign Trust Rules and or Transferor Trust Rules (rendering many Offshore trusts liable for tax onshore regardless of who the beneficiaries are) the deployment of an Offshore Discretionary Trust has become somewhat problematic, particularly for clients for whom privacy is of paramount importance.
Enter the birth of Discretionary Foundations!
The Private Foundation is in essence Europe’s version of a Trust. Just like a Trust a Foundation is a 3 headed creature:- it’s set up by one person (called a “Founder”), managed by a second person (Called a “Councillor”) and, just like a Trust, a Foundation typically has beneficiaries, that is, persons who are designed to benefit financially from the establishment of the Foundation.
Unlike a Trust however a Foundation is a separate legal entity, ie it can sue and be sued. Moreover (under European Common Law) a Foundation is presumed to be both the legal AND beneficial owner of any asset that it holds (one Jurisdiction – ie Seychelles – has taken this a step further by stating specifically in its Foundations Act -section 71 – that any Foundation domiciled in Seychelles is deemed to be both the legal AND beneficial owner of any asset it holds).
What does this mean?
What it means is this: Usually when we open a bank account for a Company the bank asks us “Who is the beneficial owner of the Company”? But if the shareholder of the Company is a Seychelles Foundation we can say to the bank, “Hey Mr Banker by operation of law (that is section 71 of the Seychelles Foundations Act, see copy attached) the legal AND beneficial owner of this Company is the shareholder. Why? Because the shareholder is a Seychelles Foundation.”
That said I/we can foresee the day when you/we may have to declare to a bank or your local authorities if you are the “beneficiary” of an Offshore Trust or Private Foundation.
What you can do here is (when you first set up your Foundation), in the Foundation’s establishment documents you can provide for the Foundation Councillor to have a broad discretion in terms of who to install as beneficiaries and when. This would enable you to deploy a tax-free charity or a tax exempt/incomeless person (eg your minor children) as the initial beneficiary/s of your Foundation.
Potentially (and in particular if the Councillor etc of the Foundation is based in a nil tax jurisdiction) this can enable you to create a situation whereby:
(a) you should only have to pay tax at home when your Offshore Foundation or Company pays you “income”; and
(b) your name should not be revealed/reported as beneficiary of, or beneficial owner of, any Offshore Company.
And if you want to be extra careful you can even make yourself “Protector” of the Foundation meaning the Councillor would have to seek your permission before changing beneficiaries (but more on that another 60 seconds).
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