DO YOU WANT TO GO OFFSHORE?
There has been a lot of publicity about Offshore Corporations and Foreign Asset Protection Trusts. Here is some general information that may help you decide if "Offshore" may be advantageous for you.
Business Owners and Individuals consider offshore alternatives because they may offer greater Asset Protection Opportunities, Business Flexibility, Tax Minimization Potential and Privacy Protection than using strictly domestic options.
"Offshore" in the context of new business entities generally means foreign (not necessarily over water) as opposed to domestic (the country where you reside). While it can be used to describe any foreign country, it is frequently used to describe a select number of countries (legal jurisdictions) that offer a legal and service structure that promotes business formation, financial transactions or asset protection opportunities. Sometimes these countries are considered "Offshore Financial Centers" as their laws support activities that ultimately are viewed as promoting the commercial financial structure of the jurisdiction, encouraging the formation of banks, investment companies and other related service businesses.
Provisions of the laws of these countries deal with the organization of corporate entities (the most common of which is the International Business Company or "IBC") or certain types of trusts (sometimes referred to as Foreign Asset Protection Trusts or "FAPT's"). The local laws are drafted with the objective of promoting privacy, flexibility, and financial alternatives compared to jurisdictions that are more restrictive or have a more aggressive tax structure. Sometimes IBC's are referred to as "Exempt Companies" if they are prohibited from doing business within the local country, but can conduct their activities everywhere else in the world other than the host country. Sometimes FAPT's are referred to as " Asset Protection Trusts" or "APT's." These Offshore Financial Centers have statutory provisions that may attractive to Partnerships, Limited Liability Companies (LLC's), Insurance Companies, and Offshore Banks.
The body of law that covers new business formation and trust law is frequently written or updated to provide a globally competitive environment to conduct business with greater levels of privacy and a friendly tax structure. There is rigorous competition between popular jurisdictions for offshore activities, with legislation changing frequently to provide greater flexibility and increased value to those seeking offshore company and asset protection alternatives. Therefore, it is advantageous to consult with an attorney who is familiar with the provisions, advantages, and disadvantages of the laws of multiple jurisdictions.
Frequently there is no or minimal corporate income tax for business entities incorporated in the most popular jurisdictions (and not doing business locally). Having that feature is nice, but may not by itself eliminate the need of the beneficial owners to reporting income from these entities or filing the necessary tax returns in their home country.
Popular jurisdictions that are "friendly" to these activities include: Nevis, Turks & Caicos Islands (B.V.I), Anguilla, Panama and Belize. Historically these jurisdictions typically included the Cayman Islands, the Bahamas, the British Virgin Islands, and others. Over the last few years, efforts by high tax jurisdiction countries (primarily European Countries with the aid of the USA) have been successful at limiting the privacy of corporate and bank records in these jurisdictions, so the ultimate confidentiality of the client and the client's affairs has been partially compromised. Much of impetus for these changes were accelerated or at least given greater weight after the terrorist attacks of the last few years. As a result, although most of these countries have high developed banking and legal systems, we feel there are better places for clients to form new businesses. The Cook Islands and Nevis are popular for Asset Protection Trusts. Although you can establish an "Offshore Company" in most countries, the recommended jurisdictions are characterized by their privacy laws, established financial structure, government interest in developing commercial transactions that support business growth and friendly tax environments.
The jurisdictions that provide these benefits generally generate income through a series of government fees and license requirements. Each jurisdiction regularly licenses a limited group of "Offshore Service Providers" (sometimes local attorneys, accountants or trust companies) that must be used to establish the desired legal entity. For US residents, a local (US) attorney should advise the client on the structure of the offshore entity, helping choose the jurisdiction that will provide maximum benefit in light of the objectives and contracting with reputable licensed service providers in the foreign jurisdiction to implement the offshore portion of the structure. The US attorney may combine this offshore portion of the structure with any applicable domestic (including Family Limited Partnerships, Corporations or LLC's) or additional foreign components to achieve the client's objectives.
There are typically annual license fees that are paid to the local government to maintain the validity of the corporation and recurring fees to retain a registered office in the jurisdiction. Beyond those costs the Offshore Service Providers charge for additional requested services such as Nominee Directors, filing annual registrations with the local government, registered offices, accounting, re-invoicing, mail forwarding, opening bank accounts or establishing other local business links. The difficulty for the first time offshore participant is developing a plan that makes the best use of what the various jurisdictions have to offer and combine it with the requisite level of control, confidentiality, immunity to creditor attack, and investment flexibility the client requires. This is why it is advisable for a US attorney familiar with multiple jurisdictions to provide advice and counsel in these areas.
Fees for establishing Offshore Entities are normally payable in advance with Certified Check, International Money Order, wire transfer or equivalent.
Establishing and maintaining Offshore Entities is generally more expensive than comparable domestic entities. As an example, in the United States the annual maintenance of a domestic corporation may run several hundred US dollars. An equivalent "offshore company" may run a thousand dollars or more, especially if the more common ancillary services such as Nominee Directors are required. The prospective offshore participant should fully understand the costs involved at the outset, yet recognize that these increased costs are yield higher levels of confidentially, minimized local reporting requirements, generally no local corporate taxes and increased business flexibility.
Although some approach offshore entities with the expectation of US tax benefits, most business formations solely for this purpose do not yield those results. US citizens should note that there are specific US reporting requirements for interests in foreign corporations, trusts and bank accounts. US citizens and others filing Internal Revenue Service returns are not immune from requisite declaration of ownership interests in foreign entities. Accordingly, you should consult with your personal tax advisor before implementing any specific plan utilizing offshore structures. However, depending on the nature of the business and offshore structure, some companies may realize an enhanced tax position for their owners and the related corporate entities.
Frequently, Asset Protection is an objective of going "Offshore". Sometimes this goal is met by using a combination of structures, both foreign and domestic. Qualified legal advice should be sought before committing to any Asset Protection Structure as effective use of these devices generally require highly customized plans. Frequently an Asset Protection Trust is employed in combination with an Offshore Corporation, Limited Liability Company or Family Limited Partnership. Favorable legislation that supports this type of protection can be found in both the Cook Islands, Nevis, and other "Offshore Financial Center" jurisdictions. Sometimes "Asset Protection Trusts" along with their captive investment companies are combined with a domestic corporation or limited partnership. These combinations offer unique asset protection features, although they require highly customized planning to avoid tax and control "pitfalls."
This article is designed to introduce you to the importance of asset planning and the need to protect your wealth. It is published as part of general information series for visitors to our web site. If you need to pursue an asset protection strategy, make sure you do it with the assistance of a professional.
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