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 multiple pieces of international real property (ie Real Estate).
Investing in Offshore Real Estate is an activity that lends itself well to an Offshore Corporate Structuring Plan.
How it typically 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).
(c) You open a bank account in a country that does not tax interest paid on bank deposits
(d) You advance funds to your OC
(e) The OC then purchases the Property/Real Estate Investment. Any purchase contract is concluded/signed “Offshore” by the Nominee director
(f) The piece of Property/Real Estate is held by your OC for some time, commonly for the long haul. Eventually, you may decide to sell the investment having (hopefully) made a substantial capital gain. Sale proceeds in this instance would be paid into your OC’s tax free bank account
(g) Depending on where you buy, Capital Gains Tax (“CGT”) may be payable on any Capital Gain realized upon sale. (Where CGT applies) CGT may be payable 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) Usually however CGT is payable in/to the country in which the real estate is located. Whilst CGT can sometimes be as much as 25% of nett gain a lot of countries (eg the UK) offer CGT concessions to non-locals to foster foreign investment
(i) CGT payable (and tax that might otherwise be payable on property rents) might be substantially lessened (and access to the market enhanced) if you were to set up a local Company to own the real estate. In this scenario the Property would be owned by a/the local Company but the local Company would be owned by a nil tax Offshore Company. The Offshore Company would advance funds to the local Company for the purchase and a mortgage over the real estate bought could be afforded to the Offshore Company.
(j) If you were to pay taxes as a local on the nett rental profits and or on Capital Gain realized tax could potentially be 30% plus. But where a local Company is owned by an Offshore Company and the nett profits are distributed as dividends or interest payments then WHT ie Withholding Tax (ie instead of Corporate Tax or Personal Income Tax) would be applied.
(k) Whilst WHT is typically around 20-30% this rate can often be lessened to as little as 5-10% by interposing a low tax Holding Company (incorporated in a country which has a favorable DTA ie Double Taxation Avoidance Treaty with the country wherein your real estate is located) between the local Company and the ultimate owner ie your nil tax Offshore Company (“OC”). In this scenario the local Company that owns or owned the Real Estate pays the nett profits (ie after deduction of the say 5-10% WHT) to the Offshore Holding Company.
(l) The Holding Company (which would be set up in a country that does not levy WHT on outgoing dividends) would then pay all of its profits as dividends to its owner ie your nil tax Offshore Company (“OC”). The nett result? The Holding Company pays no tax. And your OC pays no tax. That is you’ve received potentially 90-95% of your rental profits and Capital Gain/s tax free (ie you should only have paid max 5-10% tax on profits made on your Offshore Real Estate purchase).
Provided (i) 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 (ii) 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).
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