The Indian government has (very publicly) announced a proposed crackdown on the use of Offshore Tax Havens by Indian nationals/residents (check my previous blog posting for details).

 

If you are Indian and you are using (or planning to use) a Tax Haven Offshore Company and you want to minimise the chances of being investigated (or sent to jail) by the Indian authorities there are 4 boxes you will want to tick: 

 

• You will want to ensure that your tax free Offshore Company is incorporated in (or migrated/redomiciled to, ie in the case of an existing IBC) a country which has NOT signed a TIEA (ie Tax Information Exchange Agreement) with India (check the following link which explains what a TIEA is : https://en.wikipedia.org/wiki/Tax_information_exchange_agreement )

 

• You will want to ensure that you include a Nominee Shareholder and or Director as part of the IBC’s Corporate Structure. For more information on that and how Nominee Services can work for you please check out these links:

https://offshoreincorporate.com/faq/should-i-engage-nominees-or-should-i-direct-and-hold-the-shares-in-my-offshore-company/

https://offshoreincorporate.com/faq/how-can-i-protect-my-underlying-ownership-of-my-offshore-company-where-a-nominee-is-engaged-to-act-as-director-or-shareholder/

 

• You will want to ensure that you set up your nil tax Offshore Company’s Bank Account in a country which has NOT agreed to be part of the OECD Bank Account Information sharing initiative. (See below which explains what that is and which countries have agreed to participate).

 

• You will want to set up a Private Foundation to hold the shares of your Tax Haven Offshore Company. This one is key as it shifts legal and beneficial ownership of your Offshore Company/Assets to a 3^rd party (ie the Offshore Private Foundation) which should provide an immediate and robust defence to any claim/charge of tax evasion.

 

Where to Incorporate or Domicile Your Company

 

India has signed TIEAs with Argentina, The Bahamas, Bahrain, Belize, Bermuda, Cayman Islands, Gibraltar, Guernsey, Isle of Man, Jersey, Liberia, Liechtenstein, Macau, Monaco, San Marino, Seychelles and BVI.

 

There are 7 nil tax Offshore Company jurisdictions that have NOT signed TIEAs with India. Please contact me and I will supply you with details.

 

Why set up a Foundation?

 

We used to use Offshore Trusts 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 privacy/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.

 

Moreover under the general law the legal and beneficial owner of any asset or IBC (or bank account) held by the Foundation is the Foundation itself not the Foundation beneficiaries. (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). Hence on the IBC’s bank records your name should not appear as beneficial owner of the Company because at law the legal and beneficial owner of the Company is the Foundation.

 

For more information on Seychelles Foundations please visit these pages:

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

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

 

For more information on Panama Foundations please visit these pages: https://offshoreincorporate.com/panama-tax-free-foundations/

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

 

What is the OECD Account Info Sharing Initiative?

 

In May 2014 a number of countries committed in principle to the OECD Bank Account info sharing initiative. Under the initiative, a range of OECD and other countries have agreed to pass new domestic laws that will allow them to collect information on any foreign bank account holder (or any non-local underlying beneficial owner of a Corporate bank account holding entity) and then automatically exchange that information with other participating countries. The list of countries who have committed in principle to the initiative include:

 

Albania

Anguilla

Argentina

Aruba

Australia

Austria

Belgium

Bermuda

BVI

Canada

Cayman Islands

Chile

Colombia

Costa Rica

Curacao

Cyprus

Czech Republic

Denmark

Estonia

Faroe Islands

Finland

France

Germany

Ghana

Gibraltar

Greece

Guernsey

Hungary

Iceland

India

Indonesia

Ireland

Isle of Man

Italy

Jersey

Korea

Latvia

Liechtenstein

Lithuania

Luxembourg

Malta

Mauritius

Mexico

Montserrat

The Netherlands

New Zealand

Norway

Poland

Portugal

Romania

San Marino

Seychelles

The Slovak Republic

Slovenia

South Africa

Spain

Sweden

Switzerland

Turkey

Turks & Caicos Islands

The United Kingdom

The United States

 

Local knowledge is key. Hence you should seek advice from your local/Indian Tax & Legal Adviser before committing to deploy any of the strategies set out above.