До свидания, оффшор! До свидания?

Земельный департамент Дубая недавно объявил о том, что в настоящий момент (по состоянию на 1 января 2011 года), упразднена регистрация недвижимости в Дубае на имя оффшорных компаний или компаний, не зарегистрированных на территории ОА Э. Единственным исключением являются оффшорные компании, зарегистрированные в СЭЗ «Джебель Али» (Jebel Ali Offshore Company). Уточним, что данное правило не распространяется на индивидуальных владельцев недвижимости, а касается только иностранных оффшорных компаний, зарегистрированных вне территории ОА Э.

Приведенные далее ответы на часто задаваемые вопро-сы помогут разобраться иностранным покупателям и инвесторам в недвижи-мость в ближневосточном регионе в послед-ствиях внедрения Земельным департа-ментом этих новых правил, а также в том, как данные изменения влияют на последую-щую процедуру регистрации собственности на имя оффшорных компаний.

Для чего человеку использовать оффшорную компанию при покупке недвижимости в Дубае?

Существует ряд причин, объясняющих растущую популярность использования оффшорных компаний при регистрации недвижимости. Наиболее очевидная –желание избежать непривычного местного законодательства при наступлении ситу-ации наследования. Компания никогда не умирает. Если ваша собственность заре-гистрирована на бюджетную оффшорную компанию, вы (а также члены вашей семьи или партнеры) могут владеть акциями ком-пании в соответствии с долевым участием или исходя из предпочтений. Таким образом, вместо вашего имени (физического лица) на официальном документе о владении собственностью (Title Deed), будет указано название компании (юридическое лицо). Это самый простой способ для совместных инвестиций, который в то же время добав-ляет дополнительной конфиденциальности при владении недвижимостью.

Получается, на сегодняшний день, единственной оффшорной компанией, на которую я имею возможность заре-гистрировать недвижимость, является оффшорная компания «Джебель Али»?

Совершенно верно. Однако это касается только Дубая. Например, вы можете приоб-рести недвижимость в Абу-Даби, зарегистри-ровав её на имя компании в оффшорной зоне БВО (Британские Виргинские острова). Согласно решению Земельного департамента Дубая от 1 января 2011 года, недвижимость, приобретенная на территории Дубая, может быть зарегистрирована на имя оффшорной компании в «Джебель Али».

Может ли иностранная компания владеть оффшорной компанией «Джебель Али»?
Да. Вы можете, например, использо-вать компанию на БВО, или траст для вла- дения акциями вашей компании в СЭЗ «Джебель Али». Однако вам необходимо будет предоставить требуемый минимум информации на владельца компании и недвижимости, включая сертификаты акций и копий паспортов.

Как проходит процедура регистрации, если недвижимость еще не сдана в эксплу-атацию? Если договор купли-продажи был подписан до января 2011 года от моего лица, могу ли я перерегистрировать право собственности на имя компании?

Земельный департамент Дубая имеет два реестра: первый – временной реги-страции собственности, и главный –реестр учета недвижимости, уже сданной в эксплуатацию. В момент регистрации в главном реестре (что происходит после сдачи недвижимости в эксплуатацию), можно будет изменить имя собственника с физического лица на оффшорную компа-нию в «Джебель Али», предоставив соот-ветствующее подтверждение о не смене владельца, т. е. свидетельство, подтвержда-ющее факт, что бенефициаром компании выступает владелец недвижимости.

Должен ли я буду оплачивать допол-нительный взнос за перерегистрацию собственности, если в настоящее время договор купли-продажи оформлен не на имя оффшорной компании в «Джебель Али»?

Для совершения процедуры пере-регистрации прав собственности на имя компании, застройщик должен выдать «Сертификат об отсутствии возражений» (NOC) на перевод недвижимости на имя оффшорной компании в «Джебель Али». Как отмечалось ранее, застройщику необходимо предоставить доказатель-ство того, что лицо, указанное в дого-воре купли-продажи, является факти-ческим владельцем новой компании.Стоимость сертификата обычно не пре-вышает 3500 дирхамов ОАЭ.

Если сертификаты об отсутствии воз-ражений предоставлены застройщиком и СЭЗ «Джебель Али», процедура пере-регистрации проводится без взимания дополнительной оплаты, опять же по предоставлению доказательства того, что лицо, указанное в договоре купли-продажи, является фактическим владель-цем новой компании.
Что делать, если моя недвижимость уже зарегистрирована на имя оффшорной компании на БВО?

Изменения в регистрации недвижимо-сти относятся только к случаям, имевшим место до 1 января 2011 года, и не затраги-вает существующие структуры владения собственностью.
Позволяют ли оффшорные компании в «Джебель Али» владеть недвижимостью по всей территории Дубая?

В соответствии с циркуляром СЭЗ «Джебель Али» от 2006 года, оффшорные компании в «Джебель Али» могут владеть недвижимостью в любом проекте Дубая, при-надлежащем таким застройщикам, как Dubai World, Dubai Holdings и Emaar Properties.

В принципе, хотя и не существует никаких ограничений на регистрацию недвижимости на имя оффшорной ком-пании в «Джебель Али», владельцу ком-пании необходимо получить «Сертификат об отсутствии возражений» от СЭЗ «Джебель Али», для того, чтобы зарегистри-ровать собственность в Земельном депар-таменте Дубая. По состоянию на сегодняш-ний день мы не сталкивались с отказом в выдаче «Сертификата об отсутствии возражений» на недвижимость вне пере-численных выше проектов.

Как проходит регистрация офф-шорных компаний в СЭЗ «Джебель Али»? Сколько это будет стоить инвестору?

Процедура регистрации довольно про-ста, требования по предоставлению доку-ментации на владельца компании стандар-тна. Когда сооветствующие документы пре-доставлены, регистрация занимает около 4-5 рабочих дней. От акционеров компании требуется единовременное посещение СЭЗ «Джебель Али» для подписания учреди-тельных документов (или предоставление доверенности на третье лицо). Стоимость регистрации компании составляет US$ 4500, ежегодное продление лицензии – US$ 2050.

Компания Sovereign Corporate Services является одним из первых агентов, зареги-стрированных в СЭЗ «Джебель Али». Услуги по регистрации и сопровождению компаний осуществляется квалифицированным персо-налом в составе 25 человек.

Расскажите, как проходит процудура продажи недвижимости, которая зарегистрирована на имя компании (юридическое лицо)?

У вас есть два варианта: вы можете либо продать имущество компании, просто под-писав соответствующие документы от имени её директора, или продать акции компании (предполагается, что компания владеет только одним активом – недвижимостью).

Земельный департамент Дубая должен быть уведомлен о внесении изменений в структуру компании, для этого в него необходимо предоставить копии соответствующих заверенных доку-ментов. Мы будем рады помочь со сбором и предоставлением документов.

На все последующие вопросы специалисты компании Sovereign Corporate Services с удовольствием вам ответят. Пожалуйста, обращайтесь:

Анастасия Белова, менеджер по развитию бизнеса
abialova@sovereigngroup.com
+971 4 448 6010
+971 50 785 9180

Sovereign supports rising team

NEWS RELEASE

Sovereign supports rising team

IT’S all change for basketball team Manzur this season with a new sponsor, a new name and a combined force of players going into division two of the Yorkshire Guernsey league.

Last year the side had an A team and a B team playing for divisions two and three but a strategic decision to combine top players meant the side sits neatly in division two.

Changes to league means the side will also have the opportunity to play against division one teams in a combined division knockout tournament so the team will be exposed to a highly competitive level of basketball.

This coincides with a new sponsorship deal with Sovereign Trust, which has agreed to support the side.

Now named Sovereign Trust, the basketball team includes two Most Valuable Players (MVPs) from last season. Coach Matthew Sarl was voted as the best player in division two and in division three it was Liam Doherty, who also finished highest on the scoreboard.

Mr Doherty, trainee compliance officer at Sovereign Trust, said it was a huge opportunity to pit themselves against more experienced players.

‘A lot of the players in division one frequently travel off island to play national games so the standard is just much higher. Getting to compete at that level is really exciting for us and will no doubt improve our basketball. I have high hopes. I’m obviously biased but by pooling our talent I think we could do really well this season,’ he added.

Managing director of Sovereign Trust, Rob Shipman, said: ‘Liam approached me earlier this year about getting involved with the team. We’re always keen to support staff and the community in general so were happy to assist. I look forward to seeing how they progress in this division and wish them good luck,’ he added.

Exclusive IFAS Programme introduced by Sovereign Trust

Exclusive IFAS Programme introduced by Sovereign Trust

For the exclusive use of IFAs Sovereign Trust (Channel Islands) Limited “Sovereign Trust” has introduced the International Financial Adviser Support or ‘IFAS’ Programme, a unique technical support programme to provide a one-stop shop for information on international pensions.

The technical expertise is provided by Isle of Man based PenTech Limited, specialist Pension Technicians, which has signed an exclusive deal with Sovereign Trust. Sovereign Trust, which already enjoys a sizeable share of the international pensions market, both QROPS and QNUPS, is part of an international group that provides financial services but is independent of any bank, law firm or IFA group.

The PenTech designed IFAS Programme is a unique web-based service that provides IFAs with access to live data and fast responses to queries about existing UK or international pensions schemes for the benefit of their clients. To access the service IFAs simply need to register and create their own profile.

Once approved, IFAs are able to log on to a secure, confidential service portal through which they can ask questions and track and review all of their cases. Each request is handled by experienced and qualified Technicians and all correspondence is recorded and can be revisited at any time. The comprehensive and unique service also includes provision of basic critical yield reports and, if required, the production of an all-important independent Pension Transfer Report (‘TVAS’).

Sovereign Trust’s managing director Rob Shipman said: ‘UK and international pensions are increasingly complex due to ever changing legislation. The Sovereign sponsored ‘IFAS Programme’ is a fantastic resource for IFAs wanting to give the best advice to their clients.’

Director of PenTech Peter Davis added: ‘The service has been far more successful than we could have ever anticipated. We are continually updating it as our clients’ needs evolve. It is completely live and offers total technical support for IFAs.’

Contact Sovereign Trust for more details of how to access this unique facility.

ENDS

Enquiries to: Rob Shipman
ci@SovereignGroup.com
Sovereign Trust (Channel Islands) Limited
Tel: +44 (0)1481 729965
www.SovereignGroup.com

Santa in Gibraltar for Christmas

Santa in Gibraltar for Christmas

Santa Claus shivered as he emerged into the weak winter sunshine at Gibraltar’s southernmost tip. When he booked a Mediterranean Christmas break, he remembered reading about the re-development of Europa Point. Surely Gorham’s Cave had been given a makeover too? After all, wasn’t Gibraltar Woman found there – the one that would have been more famous than Neanderthal Man (for she was older) had it not been for clever marketing by those pesky Prussians or whatever they were.

But no, sad to report, Gorham’s Cave seemed to be as cold and inhospitable as it was during his first visit in 2009. He was past caring whether Gibraltar Woman was the oldest European human ever discovered – he thought there just might be another one stuck down there judging by that curious stench.

So what was this much loved Christmas figure up to by visiting Gibraltar in December? It was all due to his age. He blamed H.M. The Queen – 85-years-old and she’d just done a tour down under. And in 2012, not just the Olympics but her Diamond Jubilee too. “Face it,” he said to himself, “she might be much loved and all that, but she’s made us older chaps feel really guilty about retiring.”

Then there was Rudolph to consider. He wasn’t getting any younger and the cold was getting to his antlers. So Santa decided that this year, he would outsource all his seasonal duties to some out of work investment bankers – who’d set up a grotto in his name in the City. Santa decided wisely to pack it all in and spend “the holidays”, as Christmas now seems to be called, here in Gibraltar.

But after hundreds of years, what’s a chap to do at Christmas if not dispense good cheer and bonhomie? He was bored, but remembered his old friends The Rock Family. He reminded himself all about “The Rocks” by looking up the December 2009 edition at www.thegibraltarmagazine.com. He went off in search of them.

It had all changed quite a bit, what with King’s Wharf and the other new developments on the west side. And what about the new buses? They might be free but he wasn’t allowed on. Anyway Rudolph gets a bit upset as he has the monopoly on Santa transport but the sleigh is a difficult vehicle to manage in the Upper Town. They settled on a pair of the new Gibibikes and out stepped our hero to see what the Rock family wanted for Christmas.

“Ho-ho-ho” went the doorbell that had been adjusted for the season. The festive lights flickered as the neighbours’ own lights went out altogether. Santa had read about all the new buildings putting a demand on the electricity but all he’d done was ring the bell, honest.

After what seemed an age, Mrs. Rock duly appeared at the door, albeit after some none too discreet curtain twitching. She didn’t seem over keen to greet the visitor but smiled at him weakly. “If you’re coming in, wipe your reindeer’s paws, vale?”

Santa breezed in as Rudolph trailed rather mournfully behind. The whole family was at home – Mr. Rock Senior (miserable as sin, as always), Number One son, daughter-in-law and baby, and the 20-year-old rascal that passed for Number Two son. Santa smiled – for that is what Santa does – and told them he wanted to gift them finance-related presents for Christmas.

Old man Rock just wanted some crisp £20 notes – “and not any of those that were taken out of circulation in the summer if it’s all the same to you”. He explained that he’d been given one in his change in the bar the day before and was lost as to what to do with it. The problem was that his bank account was empty and they wouldn’t give him an overdraft. That’s because his credit card was full – or “maxed out” as his second son called it. He was going to be in for a very austere time if Santa didn’t come to the rescue with some readies.

Mrs Rock had other things on her mind. She didn’t want pounds because she was going to Spain to get her Christmas shopping. Loyal shopper in Gibraltar she wasn’t. Could Santa please do something about the exchange rate? “So I can get more euros for my pounds,” she said. Santa looked at Rudolph who rolled his droopy eyes under his antlers. “How many more times Mrs. Rock?” pleaded Santa. “The plural of euro is still euro, not euros.” She really didn’t care – it was all Greek to her! She was sure there was a joke in there somewhere, if only she could understand it.

She tried another tack. “Alright then, what about a higher interest rate for my savings?” Santa explained that this was another thing altogether but that because of the economic situation, she was unlikely to see the rate rising any time soon. “It’s all to do with no money being around you see?” She told him she didn’t see at all and disappeared into the kitchen.

Santa turned to the next generation. “And what would you like by way of a financial present this Christmas?” he asked Number One son and his wife. They pondered for a second – and the baby pouted. They do a lot of pondering these days now that all their money goes towards the little one’s upkeep. They explained that what they really wanted was low interest rates so their mortgage payments would remain affordable. Exactly the opposite present to the one demanded by Mother Rock who wanted higher rates for her savings.

Santa explained that the “base rate” was likely to stay at very low levels for quite a while longer. The banks are free to set whatever rate their clients would accept – if they were prepared to lend in the first place. Then there was the “arrangement” fee that can add a fair amount on to the real effective interest rate.

So rates for savings were low and rates for mortgages can work out to be comparatively high, if you can get the loan in the first place. Not really what the young family wanted to hear. Santa felt his despair coming on again. The same feeling he got last year when he spent Christmas spending money with the Greek Prime Minister – but that was quite another story.

Then Number Two son piped up. “OK then clever Santa,” he sneered, “what’s all this about quantitative easing, then?” Santa was startled. It turned out that the lad was studying economics. “Crikey,” thought Santa. “A know-all; just what this family needs”.

He thought about his answer for a moment, wondering whether he should even start attempting to explain that it was when governments issue new debt by paying for it themselves thereby increasing the amount of money in circulation, when old Mrs Rock returned and chimed in. “Quantitative easing? Isn’t that what cousin Cloti had last year, dear? You remember; when she was suffering from her trouble. She got some ointment and that sorted it though.”

Rudolph raised his eyes again, pointed at his watch and brayed, “Come on Santa, we’ve got to go”. Santa looked round at the family and had to agree. They all want something different but they can’t all be satisfied because if one person is happy that can only mean that the others are not – economics just doesn’t allow it.

Santa decided to send them all an M&S voucher – they’re very nice they are – and he went back to the Cave with Rudolph for the rest of the holidays. Actually it wasn’t too bad there, after all. As he settled down to his Christmas dinner whilst Rudolph went to play with the apes on the Upper Rock, Santa reflected on the year just past. As he took out the new jumbo Su-Doku book that his favourite reindeer had bought him for Christmas, he grinned as he contemplated a few days away from worrying about the economy. If it’s all going to pot, he thought to himself, this here Gibraltar is just about the best place until it’s all sorted.

He looked at his Christmas cards and picked up the one from that odd bloke at Sovereign Trust who keeps writing about things. What did it say again? Ah yes.

A very Merry Christmas from all the staff at Sovereign Trust, Gibraltar – and a Prosperous and Happy New Year 2012.

He felt jolly once again.

Comparing Gibraltar is one thing – but can it compete?

In recent columns, I have written about the reasons one might consider Gibraltar as a good place to invest, work and live. I have covered issues such as the legal framework in the jurisdiction itself, regulation and, perhaps most importantly, the new corporate tax legislation that came into force in January of this year.

Then what happened? After the last column a lady reader stopped me in the street to say: “That’s all very well, but do you really have such rose-tinted spectacles?” She went on to ask if I was so enamoured of Gibraltar that I could simply ignore the competing jurisdictions. The conversation made me think.

As you can see from my mug shot overleaf, I obviously do wear “specs” – and have done since the age of five. But honestly, they’re not rose tinted. Of course everything isn’t perfect in Gibraltar but then who can show me a jurisdiction where such a utopia exists? Life would be pretty boring wouldn’t it?

So in answer to my lady critic, I thought I might take a quick look at one or two “competing” jurisdictions to see how Gibraltar measures up. What follows is necessarily a general view of just a couple of places that I genuinely consider to be our “competitors”. As always these are just my own personal thoughts so don’t shoot the messenger. If you disagree with anything that follows, do get in touch and let me know.

I decided to limit myself to considering the most obvious places against which Gibraltar is most often compared. Bring on my first problem. Being involved in the corporate services and trust business, the Channel Islands and Isle of Man were my first choices.

Other finance professionals in Gibraltar will differ; those more closely involved with the funds or insurance industries might consider Luxembourg or Switzerland. The Chief Minister is likely to say London. And to an extent we’re all right. What I wanted to consider though were the places that are already close to each other in other ways – legal system, language, etc. In that way I felt we could make a more accurate “comparison”. After all, how does one match tiny Gibraltar with a country such as Switzerland with a population of several million?

So for this article I decided to consider only the Channel Islands and the Isle of Man. After all, I can always look at other places in Europe or further afield in future columns.

First though, a word about my personal position in all this. As my surname suggests, I am not from around these parts. I am instead a proud Jerseyman although I left the island over 25 years ago. I rolled up on Gibraltar’s shores when I took up my appointment with Sovereign in November 2004 so am still considered by some, no doubt, as very much a new boy.

Having said all that, my first visit here was almost 30 years ago and during my time as a banker I was here very frequently. So I’ve seen a few changes. I am settled here and celebrated National Day last month with everyone else so, of course, I am a keen fan of what one might call “Gibraltar plc” and everything the territory and its people stand for.

When considering the Channel Islands and Isle of Man, how do we compare and can we compete? Is it realistic for us in the finance industry to make such bold claims? Naturally I think we can and now I’ll try to answer why that is.

Firstly of course, Gibraltar is not an island – that much is obvious. As in the cases of the other three, we suffer our fair share of weather related issues at the airport. However, it’s rare for Gibraltar to be totally cut off and there are always options such as using Málaga. You can’t leave the islands so easily in bad weather so being joined to mainland Europe can certainly be an advantage.

I then considered some bare facts. For sheer size and population, Gibraltar is by a very long way the smallest of the four – although remember what they say about good things coming in small packages. Gibraltar’s population of almost 30,000 is half that of Guernsey and not much more than a third of the totals in both Jersey and the Isle of Man. Covering around 220 square miles the Isle of Man is many times the size of Gibraltar, and at 46 and 25 square miles respectively, Jersey and Guernsey also dwarf our small country in terms of size.

For all four jurisdictions, financial services are vital parts of the local economy. The percentage of the workforce employed in the industry varies but is significant in each place. The Channel Islands were first off the block in terms of providing what became known as “offshore” services in the ‘sixties although both the Isle of Man and Gibraltar soon followed. It’s when one considers the broader financial infrastructure and legislative framework that have evolved subsequently that one begins to appreciate how close Gibraltar now comes to the other three in almost all respects. Let’s look at a few concrete examples.

We may not have as many banks as the islands, but a number of Europe’s finest banks are represented here, not to mention a growing number of hedge funds and investment firms. We host most of the major accounting firms and although the large City law firms may be absent, many of our local lawyers have built world class reputations in such diverse areas as Experienced Investor Funds and maritime law, to name just two.

Moreover, in recent years, financial services have played an important role in the creation of a Gibraltar gaming sector that has left its competitors in Guernsey, the Isle of Man and indeed elsewhere far behind.

Looking at corporate and trust services, our firm has important offices in Guernsey and the Isle of Man, as well as here in Gib where we employ more than 60 staff. Each jurisdiction has its own specialities – for example Guernsey is particularly well regarded as a QROPS jurisdiction. But in general, Gibraltar can claim to compete across the board.

I have written about corporate taxation in recent columns. Gibraltar companies pay 10% corporation tax on the accrued and derived principle; this has been accepted at EU level and our new system is now operational. At present, with just a few exceptions, Channel Island and Isle of Man companies pay no corporate tax at all. This option is being challenged in some quarters so it may be that those rules might need to change.

There is one area, however, where Gibraltar not only competes with its peers but can also be considered to have a serious competitive advantage. Gibraltar is a full member of the European Union, although not part of the Customs Union – there is therefore no VAT. This presents unique opportunities for EU companies that benefit from operating in a VAT-free environment. There is no VAT in Guernsey either, while Jersey levies a Goods & Services Tax (GST) – the present rate being 5% – and the Isle of Man VAT is charged at the UK rate, currently 20%. But none are part of the EU.

The second unique advantage that Gibraltar offers by dint of its EU membership is the ability for licensed, regulated firms to “passport” that status to other EU countries. This means that firms regulated here may offer services to clients in any one of the 27 EU states. Passporting is enormously valuable to banks, insurance and investment companies. This is simply not an option in the other three jurisdictions.

So in conclusion, with or without my “rose tinted specs”, can we really compare ourselves with the Channel Islands and the Isle of Man? You bet. More importantly, is it realistic for Gibraltar to claim that it can compete effectively with these places? Again, the answer is a resounding “yes”.

Clearly, there is enough good quality, international business to keep the good practitioners busy in all four jurisdictions. I believe that we should always be aiming to grab a larger slice of the pie here. Gibraltar-based professionals are travelling ever further afield in order to spread that message. Let’s hope that this trend continues and that we develop our offering still further, to the benefit of all of us who live and work here.

The advantage of a Trust owning your property

Intro:

Most people prefer not to think about what will happen to their property on death. However, failure to make proper plans can create real problems and cause great expense (including tax liabilities) for next of kin, problems that they will be forced to sort out at a time when they are emotionally upset and most vulnerable.

Making a will is a sensible way for an individual to put his or her affairs in order. However, the administration of a deceased’s estate can be costly (often around 4% of the total value of the estate), result in long delays (normally at least one year, even for a simple estate) and very often involve a large tax bill (inheritance tax or estate duty rates are often extremely onerous).

One alternative to making a will is to set up a trust during one’s lifetime. With careful planning this can eradicate delays, costs and taxes and provide other benefits such as protecting assets from future creditors or providing anonymity. For many reasons the use of trusts as a means of holding and passing on family wealth, even for modest estates, has increased dramatically in recent years.

So what is a TRUST?

The concept:

Unlike a company, a trust is not a legal entity. It is best described as a relationship; an arrangement whereby property is transferred from one person (the settlor) to another person (the trustee) who holds the property for the benefit of specified people or objects (the beneficiaries). A trust deed sets out the terms and conditions upon which the trustees must hold and administer the trust assets. The trust deed also sets out the rights and interests of the beneficiaries.

A trust can also be created by a will but if assets are "transferred" to trustees during lifetime they should be unaffected by the subsequent death of the settlor. Another word for "transfer" is "settle"; hence the transferor of the assets is called the settlor and the trust is often referred to as a "settlement".

Those unfamiliar with the trust concept may be concerned about transferring ownership of their property to a trustee. However, the duties of trustees have been developed over centuries through English equity and common law and are now in many cases codified in statute law. This law distinguishes between legal ownership (trust assets are held in the name of trustees) and beneficial ownership (only the beneficiaries may benefit from the assets). Further, even greater duties are imposed on professional trustees who, in reputable and well-regulated jurisdictions such as Gibraltar, for example, are required to be licensed.

Where can I set up a Trust?

Virtually all low tax or zero tax common law jurisdictions have some form of trust law. Gibraltar is at the forefront of best practice development in the area of trusts and was one of the first jurisdictions to introduce the regulation and supervision of trust companies. Professional trustees must be licensed under the Financial Services Ordinance 1989 and are regulated by the Financial Services Commission (FSC).

Gibraltar trust law is derived from English common law and the rules of equity, supplemented by certain legislation. Gibraltar’s Trustee Ordinance is based on the Trustee Act 1893. "Asset protection trusts" are also permitted although all trusts provide some element of asset protection.

CONFIDENTIALITY

Regulations require trustees to know the identity of the settlor and ultimate beneficiaries of a trust. This information is kept completely confidential. Disclosure to third parties is only required in very particular circumstances and must be accompanied by a court order.
In the case of asset protection trusts, the register maintained by the Registrar of Dispositions to record the transfer of assets to asset protection trusts is closed and its contents privileged.

TAXES

The vast majority of Gibraltar trusts are set up as discretionary trusts so that beneficiaries only have a contingent interest. The beneficiaries can therefore avoid any tax liability until assets are distributed to them.

Trust income is exempt from tax in Gibraltar if the trust is established by a non-resident, has no Gibraltar beneficiaries and derives no income locally (other than bank interest). The terms of the trust must expressly exclude Gibraltar residents from being beneficiaries.

ASSET PROTECTION TRUSTS

Asset protection trusts (APTs) are permitted in Gibraltar. These must be registered with the Register of Dispositions and require that:

the settlor is an individual
the settlor is not insolvent at the time of the disposition
the settlor does not become insolvent in consequence thereof
the disposition is registered.

If these requirements are satisfied the disposition will not be voidable by any creditor of the settlor and the application of the Fraudulent Conveyances Act and the Bankruptcy Ordinance are excluded.

Only professional trustees licensed by the FSC can act as trustees of APTs and an application fee of £300 is payable upon registering the trust and £100 is payable annually to maintain the registration.

So what are the main advantages of a TRUST?

Trusts can be very useful means of tax planning. They can be very flexible, even the settlor can continue to benefit from the trust assets, and have many other advantages including:

Asset protection

All trusts provide some element of asset protection but specifically see APTs above.

Tax planning

A properly established trust may produce substantial savings in income tax, capital gains tax and inheritance tax/estate duty.

Avoiding the expense and delays of probate

In common law jurisdictions the need to obtain a grant of representation (probate or letters of administration) before a deceased’s estate can be wound up and distributed can cause delay, expense, unwanted publicity and upheaval.

Confidentiality

There is no public register of trusts or trustees. The ownership of trust assets can remain entirely confidential in most circumstances.

Avoiding forced heirship

Forced heirship is a particular problem in continental Europe and other civil law jurisdictions, as well as in countries of Islamic tradition. A trust can be used to overcome forced heirship claims.

Estate planning

Many settlors prefer to make complex arrangements for the distribution of their assets. They may wish to provide a source of income for a spouse or make provision for the education of children. A trust is a very convenient and flexible method of making such arrangements.

Protecting the weak

A trust allows a person to provide for those who may be unable to manage their own affairs such as infant children, the aged or persons suffering from certain illnesses.

Preserving family assets

Preserving family assets against mismanagement or spendthrifts is a common motivation for establishing a trust. An individual may wish to ensure that wealth accumulated over a lifetime is not dissipated or divided up but is preserved as one fund. The fund can then accumulate further with provision for payments to members of the family as necessary, preserving some assets for later generations.

Continuing a family business

A settlor may want to ensure that the business he has built up will continue after his death. If the company shares are transferred into a trust prior to death the unnecessary liquidation of the family business can be prevented.

If family members have little business experience, the trustees could be instructed to retain the shares, keep the company running and provide payment to members of the family from dividend income.

Flexibility

A discretionary trust can provide a structure that is capable of rapid change as circumstances demand.

Property Holding

A portfolio of international property can all be held under one single Trust. In some circumstances, depending on local laws, a "local company" may be required to sit under the trust (i.e. it’s common for a Jebel Ali Offshore company to hold Dubai property, and have a Trust acting as a shareholder of the company).

For further details of the benefits of holding real estate through a trust and offshore company structure please ask for Sovereign’s property holding information sheet.

Trust services are principally provided by Sovereign Trust International Limited which is licensed as a professional trustee by the Financial Services Commission of Gibraltar – licence number FSC00143B, and Sovereign Trust (TCI) Limited which is licensed as a professional trustee by the Financial Services Commission of the Turks & Caicos Islands – licence number 029. Both companies are regulated and are covered by our professional indemnity insurance. Fees for establishing a suitably drafted trust and for the provision of trustee services will be quoted on a case-by-case basis. Please contact your nearest Sovereign office for a copy of our trust brochure and/or an exploratory discussion.

Whilst every effort has been made to ensure that the details contained herein are correct and up-to-date, it does not constitute legal or other professional advice. We do not accept any responsibility, legal or otherwise, for any error or omission.

Obligatory revaluation of all properties from next Jan 1st

If your property has been revalued since Jan 1st 2004 then breathe easy. If not, read the following notice from Sovereign Group's eagle-eyed Algarve team. In fact read it anyway as it is another bureaucratic nightmare in the making.

"Together with the proposed 2012 Portuguese Budget is a document proposing rectification to the 2003 general property reform.

The 2003 changes established a 10 year period to achieve a general revaluation for tax purposes of all property in Portugal. In addition the Memorandum of Understanding concerning the economic assistance promised earlier this year to Portugal by the EU and IMF established a promise that the conclusion of the general revaluation should be achieved by the end of 2012.

Thus the Government has made various alterations to the IMI Code (CIMI) in order to regulate the general revaluation of urban property including alteration to the body responsible for achieving this.

As from 01.01.2012 the old rules established to value existing property will be revoked and there will be a general revaluation of all properties that have not been revalued since 01.01.2004 and that, at 01.12.2011, are not undergoing revaluation under the CIMI scheme.

This revaluation will be led by the Finance Department (DGCI) assisted by other authorities and the local Câmaras who will be obliged to send property plans either electronically, or in paper format, to the Finances to assist with valuation. It will not be obligatory for the property to be visited to be revalued and the new values obtained will come into effect on 31.12.2012 for payment of IMI in 2013.

There will be some changes to the existing formulas used to value property and the levels of those will be established by 30.11.2011.

Notification of the new values will be made electronically where possible and by registered post where not.

There will be a period of 30 days in which an appeal can be lodged and a second valuation requested at a cost to the taxpayer of not less that €204. This second valuation must be made within 60 days of original notification of the valuation.

Sovereign comment:

Many properties that have been registered with the same title holder for many years including those held by companies could see a dramatic increase in the tax value and consequently in the municipal tax payable. In addition, the “capping” system introduced in 2003 to prevent a tax payer suffering large increase in municipal taxes payable, will no longer apply.

Whilst every effort has been made to ensure that the details contained herein are correct and up-to-date, this information does not constitute legal or other professional advice. We do not accept any responsibility, legal or otherwise, for any error or omission.

Are you aware of the role of offshore companies in property investment?

Introduction:

Dubai Land Department have recently announced, (as of January 1st, 2011) that it is has banned the registration of Dubai property in the name of virtually all “offshore companies” or companies not registered onshore in Dubai. The one exception to this “offshore company ban” is the Jebel Ali Offshore Company. This new rule does not effect individuals, only foreign or “offshore” companies looking to purchase property.

The following Q&A is to inform non GCC purchasers and investors, of the implications of the Land Department’s new rules, and how the recent changes will affect foreign companies purchasing and registering property in Dubai:

Why would one use a company to purchase a property in Dubai:

There are a number of good reasons why the use of Offshore Companies has become so popular when buying local Dubai property. The most obvious reason would be the avoidance of complicated inheritance procedures. A company does not die. If your property is held in a low cost offshore company, you (and your partner or partners) can own the shares of the company as you see fit. So rather than have your individual names on the title of the property, you have a company name. This is a very easy method for joint investment, for confidentiality, and for organising ones assets under a manageable structure (and in many cases, in a Common Law structure).

So the only “Offshore Company” that I can currently use to buy property in Dubai, is the Jebel Ali Offshore Company?

Correct. This applies only in Dubai. For example, you can still buy property in Abu Dhabi through a BVI company.

The Dubai Lands Department decision of Jan 1st 2011, has confirmed that it will NOT register property title to any foreign company, unless that company is registered offshore with the Jebel Ali Freezone.

But can a foreign company own the Jebel Ali Offshore Company?

Yes. You can for example, use a BVI company, or a common law Trust, to hold the shares of your Jebel Ali Offshore Company. You will still need to clearly show the Lands Dept evidence of the ultimate individual owner(s), with attested share certificates and passport copies.

What about if my property is not yet delivered? I have signed the purchase agreement before January 2011 in my personal name, can I now switch to a company name?

The Dubai Lands Department have an interim property register, and main property register. Until your property is listed on the actual main property register (which happens after handover), then it is possible to change the title from an individual name to a Jebel Ali Offshore Company, providing you can show that there is no change in the beneficial ownership (i.e. the same individual on the initial agreement, is the same owner behind the company).

But will there be an additional transfer fee, if the sale and purchase agreement is not currently in the name of a Jebel Ali Offshore company?

In order for the registration of title to take place, the developer of the property must issue a No Objection Certificate consenting to the registration in the name of the Jebel Ali Offshore Company. As mentioned above, normally the developer will want to see clear evidence that the person named on the sale and purchase agreement, is the same person as the beneficial owner behind the new Jebel Ali Offshore company. The developer normally charges an administration fee, which should not be more than Dh3-5,000, to issue the No Objection Certificate.

If the developer and Jafza both issue NoCs to the Land Department authorising the registration in the name of the Jafza offshore company, it is normal that the registration can be completed without charging an additional transfer fee, again provided that the ultimate beneficial owners of the new Jafza offshore company are the same as those mentioned in the original sale agreement.

What if my BVI company already holds the title deeds to my property in Dubai?

The recent changes to the policy only apply to registrations of titles taking place from January 1, 2011, and do not affect any that took place prior to that date.

Does Jafza allow offshore companies to own property anywhere in Dubai?

From the 2006 Circular that Jafza issued, it stated that Jebel Ali offshore entities could own property in any project in Dubai that were owned by Dubai World, Dubai Holdings and Emaar Properties.

Whilst we understand that there is no restriction on any freehold property, Jafza offshore companies must still obtain a “No Objection Certificate” from Jafza, in order to register title at the Land Department.

To date, we have not ever had a refusal for an “NOC”, when clients are looking to own property outside the projects listed on the 2006 circular.

How is the Jebel Al Offshore Company set up, how much will it cost me?

Set up is fairly straightforward, with the normal due-diligence required on all proposed Directors and Shareholders. It will take about 4-5 days in incorporate, and requires the shareholders of the company to visit the freezone and sign (or provide a Power of Attorney to someone to act on their behalf).

The cost at set up is USD$4,250, and annually there is a registered agent fee of $1950. Sovereign Dubai is one of the oldest registered agents with Jafza, and we have a dedicated corporate services department of 25 people who are there to assist with all company formation enquiries.

What if I want to sell my property, and it is owned by the company, how do I do it?

You have two choices here, you can either sell the property OUT of the company, by simply signing the sale documents as a Director of the company, or you can sell the shares of company, (assuming the company only holds one asset, which is the house). The Lands Dept WILL need to be notified of the change in beneficial ownership of the company, with certified documents to be provided from Jebel Ali Freezone (all of which we can assist with).

QNUPS: the secret to escaping inheritance tax?

Many UK expatriates do not realize that they remain UK domiciled and therefore subject to UK inheritance (IHT) on their worldwide estate at a rate of 40% after allowances. This can come as a major shock to a family after the death of the breadwinner.

What can be done about this? There are options. Long term expatriates may have the chance to establish a foreign domicile. If they can do that they lose their liability to IHT on foreign assets. I will write more about this and the recent changes to the procedures for establishing a foreign domicile in a later article.

Transfers of wealth on death between husband and wife are exempt from IHT but only if the spouse is also domiciled in the UK (or both are non- domiciled). This catches out many expatriates who have married a foreign passport holder who is likely to be domiciled elsewhere. Even then the IHT is only delayed rather than avoided because on the death of the survivor the tax will be payable on the passing of the family assets to the next generation.

IHT is avoided on any assets given away to another an individual at least seven years before death. This is rarely an attractive option as any attempt to continue to enjoy the assets will normally result in the Reservation of Benefit rules applying and the tax being charged on the donor's death. And persons rarely know when they are going to die and will rarely be content to rely on their relatives to maintain them so generally this is a non-starter for the majority.

It is possible to transfer assets to a Family Investment Company and give away the capital value whilst retaining control and the income. Again, I will write more about this in a later article.
Another option, and one which is finding increasing favour, is the recently available Qualifying Non-UK Pension Scheme (QNUPS).

QNUPS have not yet been widely used because the legislation enabling such schemes was only recently made effective. The enabling legislation, which also created the better known QROPS, was passed in 2004 in response to the EU pension's directive 2003 which was designed to further the EU principle of free movement of capital. The legislation became effective in 2006 but QNUPS could not be used until HMRC passed the accompanying regulations. They only got round to doing that in 2010. As you might imagine, HMRC were not massively keen on allowing UK persons to create offshore pensions over which HMRC have little or no control and no ability to tax.

A QNUPS can invest in a wide range of assets, much greater than a normal UK pension. A QNUPS can invest in residential property and make loans to its members to purchase personal assets rather than having the constraints of trying to borrow from a bank. This can be very attractive in the current climate as banks normally only lend if you can prove you don't need the money and are even stricter now. An UK pension can do neither, or at least not without a significant penalty charge.

A QNUPS is exempt from UK IHT on the member's death and this is the biggest advantage. The coalition government have recently abolished IHT for approved UK pension schemes. However they have replaced this 40% tax with a new special tax charge of 55% imposed before the benefits are paid out to the beneficiary. The charge applies irrespective of where the member was resident before death and where the beneficiary receiving the benefit is resident. A QNUPS fund is exempt from the new 55% charge.

The advantage of a normal UK approved pension over a QNUPS is that contributions attract tax relief. Contributions to a QNUPS do not attract relief. But that relief is now capped at maximum of £55,000 per year so all UK resident individuals should have both a QNUPS and a UK approved pension. They should maximise their relief by transferring £55,000 of their income into an approved scheme (before tax has been suffered) and then transfer as much as they like of their taxed income into a QNUPS to obtain the long term advantages noted above. It is pointless putting this taxed income into a UK pension.

There can be problems if the only reason for setting up a QNUPS is to avoid UK IHT. There is a danger that, where the member is in ill health and sets up the QNUPS with the sole objective of avoiding IHT, HMRC could seek to attack the arrangement. They would do this by trying to claim the pension was essentially a sham and was no different to a normal trust. This could lead to the member suffering a lifetime IHT charge on the transfer into the QNUPS and a further charge on his death if he were to die within 7 years which is likely in such circumstances. But there are so many other advantages in setting up a QNUPS that it should be easy to point to, and have well documented, these alternative and additional motives and thereby rebut this suggestion if it were ever made.

In order to be a QNUPS the scheme must fulfil certain conditions. The scheme must have the same retirement age as applies in the UK; it must provide an income upon retirement; it must be open the local population in the jurisdiction where it is established and recognized for tax purposes in that jurisdiction.

The UK government has shown that it is not beyond raiding UK pensions when it needs money to prop up its own finances. At the moment it needs money arguably more now than at any time since the Second World War. This is not unique to the UK government. Most of the EU governments are in the same boat. UK taxes are unlikely to go down and any UK pension is at the mercy of the UK government. It would seem eminently sensible to try and remove pension assets from the UK tax system and to get them outside the influence of the UK government. There is no suggestion that these schemes are not going to be around for the long term but why wait? This facility is available now and there is no guarantee that it will be available later. Anything which puts assets into a friendlier tax climate allows more flexibility in their administration and draws down and carries substantial IHT tax advantages would seem to be a very attractive proposition which everyone should grab with both hands.

So to summarise. UK expatriates who have an existing UK pension should transfer it to a QROPS scheme as soon as possible. UK residents should continue to setup a UK pensions for the first £55,000 per year to take advantage of the tax relief on the contributions. Those who wish to contribute more than £55,000 should set up a QNUPS. UK expatriates who remain UK domiciled set up a QNUPS especially if they may return to the UK as then they will not only get the UK IHT advantage but also the underlying income and capital gains will be exempt from UK tax. If a UK expatriate is not planning on returning to the UK then the family investment company may be the preferred option as it is simpler and cheaper and more flexible. Every UK expatriate should do one or the other as to do nothing will prove very, very expensive.

KISS CONFIDENTIALITY GOODBYE

A nasty little employee of the one of the major Lichtenstein banks recently sold details of all their account holders to the German and UK tax authorities. Employees of various Swiss banks have done something similar. I can imagine its very lucrative work. The US and the UK have persuaded the Swiss authorities to roll back their banking secrecy and allow details of account holders to be passed to them. The offshore financial centres (OFC’s) have signed Tax Information Exchange Agreements (TIEAs) with many onshore countries. Those OFCs controlled by any European Union country now automatically exchange details of accounts earning income with the home country of the account holder. So what is going on? What has happened to the right to privacy and banking secrecy?

The onshore countries now have a legal means to obtain information about any offshore account or offshore trust or company structure. If they do not have a legal means than it seems they are quite prepared to purchase the information from a thief. What happened to reach this situation?

In 1996 the OECD commissioned a report which was delivered in 1998 and listed all “tax havens” who engaged in “harmful tax competition”. The OECD threatened these tax havens (now called OFCs) with all sorts of nasty stuff because their low tax rates attracted investment away from the OECD member states. The implication was that anybody who had a tax rate lower than the OECD norm were being unfair. Boo hoo! Another source of irritation was that the OFCs wouldn’t reveal who was doing what in their jurisdiction.

Many argued that nations shouldn’t be trying to dictate tax rates to others and in 2001 Paul O’Neil the then US treasury secretary of all people put a big dent in the project by stating “The United States does not support efforts to dictate to any country what its own tax rates or tax system should be, and will not participate in any initiative to harmonise world tax systems. The US simply has no interest in stifling the competition that forces governments - like businesses - to create efficiencies. ………….The work ………must be refocused on the core element that is our common goal: the need for countries to be able to obtain specific information from other countries upon request in order to prevent the illegal evasion of their tax laws by the dishonest few.”

The illegal tax evasion he was referring to doesn’t take place offshore. There is nothing to stop someone setting up an offshore company or trust. That person may well have an obligation to report the existence of that company or trust on their home tax form and their home laws may well attribute the undistributed profits within that structure to them and trigger a tax charge. If so a simple offshore structure will not achieve any tax advantage provided the correct reporting is made.

The OECD’s main complaint was that some of their tax payers were “forgetting” to submit the required information on their tax forms. The secrecy found offshore encouraged them to think they could get away with this. Even now some offshore practitioners still rather irresponsibly promote this idea of hide it and don’t declare. How will they find out is still a common question. Some suggest that you should keep all records hidden in a bank vault, not make phone calls to your offshore service provider and other such nonsense. It’s this type of stuff which gives offshore practitioners a bad name. What these numpties should be advising on is how to achieve the desired tax saving with a structure which legitimately and legally avoids or defer taxes onshore. It is nearly always possible.

The OECD threatened sanctions against any jurisdiction which did not agree to sign up to an exchange of information programme. Hong Kong was left off of the list of tax havens– not because it didn’t correspond to the OECD’s definition but probably because the OECD didn’t feel that it could bully China. Those funny little offshore islands were a different matter. They were easy to take down. All OFCs have now committed to signing TIEAs under which information about ownership of offshore structures could be exchanged on request. Quietly over the last few years Cayman, BVI and all the other recognised OFCs have signed TIEAs with most onshore countries. The OFCs haven’t exactly advertised they have been doing this but the TIEAs are there and in place.

Next came the EU savings directive under which EU member states agreed that they would force banks within their jurisdictions, or jurisdictions under their control (so that included most OFCs ) to automatically pass information back to the home tax authority of any other EU resident who banked within their borders and earned income on the account. Switzerland reluctantly signed up. The result is that many EU residents have switched their banking to Hong Kong or Singapore en masse and the private banks in both have flourished as a result.

But how does this exchange of information work in practice?

Anyone who has set up an offshore company or trust will be familiar with the amount of “due diligence” paperwork required by the service provider. As a matter of law the Corporate Service Provider (CSP) must confirm your identity, residential address, source of funds and fully understand the intended business of the structure. Normally that requires you to provide a certified copy of your passport, an original utility bill or bank statement, documentation proving the source of funds injected into the structure and a detailed explanation of the business to be undertaken.

Service companies can provide you with nominee shareholders and professional directors, trustees, dummy settlors or whatever but they must still correctly identify the beneficial owners of a company and the “client” and beneficiaries of any trust. This information must either be lodged with the offshore agent who forms the structure or under certain circumstances the Hong Kong firm can instead undertake to provide the information upon request. For example, if you instruct an Hong Kong firm to form a Cayman Island company (Cayco), they must obtain the due diligence and pass it to the Cayman firm or undertake to give it to them upon request. There is no way round this. The Cayman firm risks losing their licence if they fail to get the information or the undertaking.

Now presume Cayco purchases a property in the UK which it later sells for a profit. If Cayco was owned by an UK domiciled tax resident the gain would normally be attributed to the owner and be taxable on him-even if he doesn’t receive the profit so the UK Revenue may be very interested to know who owns Cayco. If any UK resident has been involved in the property purchase or sale by, for example, instructing estate agents, lawyers or arranging finance the UK can ask Cayman to confirm if that person owns Cayco. The “Competent Authority” in Cayman will ask the Cayman service provider if Joe Sixpack from the UK owns Cayco and they must tell and Cayman then tells the UK.

If the owner happened to be an UK tax resident they would cross reference the gain made by Cayco to that individual’s UK tax return and ensure that he has correctly declared. If he hasn’t then they would investigate, audit, fine, imprison or generally be quite unpleasant to him.

So that’s the way it is or will be very shortly. There is no confidentiality offshore any more. If you have made arrangements offshore which you wouldn’t want revealed or wouldn’t stand up to scrutiny, think again and seek advice.

Now Hong Kong is being asked to sign up for similar exchange of information. In Hong Kong’s case this would be achieved by relevant clauses in tax treaties. Various commentators have suggested that Hong Kong can increase it’s competitiveness by having a range of tax treaties and that we are losing business to Singapore who have 50 treaties whereas we only have 5 comprehensive ones. If an Hong Kong resident invests abroad then he is likely to be faced with withholding taxes which could be eliminated or reduced by a treaty but it is normally possible to obtain that same reduction by routeing the investment via a suitable treaty jurisdiction. I can see little advantage to Hong Kong in negotiating further treaties apart from appeasing the OECD and G20 members who are putting increasing pressure on Hong Kong to accede to their desire for information.

Do you need to worry about this? The answer is probably not if you live in Hong Kong and intend to stay here. It is unlikely that you are using offshore accounts to avoid or evade taxes as the profits on these accounts would not be taxable in Hong Kong. If, however, you intend moving back home then this will all become very relevant and you had better make sure you’re planning works, is compliant and legal. Hoping your new home tax authority will not find out would be rash in the extreme. They can. They are doing.

Family Affairs

Nobody likes to think about their own mortality. It is a surprising statistic that in the UK two thirds of the population die without leaving a will. I would presume that the figure in similar in other countries. In the majority of cases this is not the biggest problem in the world because there is not much of an estate to bequeath and what there is automatically goes to the next of kin- which, if they should care, is probably exactly in line with their wishes. For wealthier people, as typified by those who play golf or read golfing magazines, this is likely to be a major problem but such persons normally take a little more care over their wealth and how it is passed on.

The alternative to a will is a trust. Trusts can have huge advantages. They allow the distribution of the wealth to be controlled so that children get looked after but do not necessarily get a huge lump sum of cash which might cause them to go party mad and disincentivise them from having a career or job. Frequently wealthy bread winners want their spouse to be well looked after but they do not want to risk the spouse re-marrying and the new partner running off with all the money. They want the bulk of their capital to be preserved for the children or even grandchildren. All this can be achieved through trusts. Setting up a trust also forces the settlor to put his affairs in order early by transferring the assets to the trustees so that on death there is little or nothing to be done thereby saving those left behind the heartache, worry, expense and delays which are necessarily involved in administering an estate. Even a simple estate can cost up to 6% of its value in fees to administer and take a minimum of two years to get sorted. This is not attractive for anybody-apart from the lawyers. Trusts provide a means of avoiding all that.
The disadvantage of a trust is that it involves… well… a level of trust. Assets have to be passed over to trustees and the settlor loses control. In a previous article I wrote about the joys of private trust companies. These provide a method of setting up a trust and retaining a good degree of control. They remain attractive and are being used increasingly by the sophisticated client.

There is another option. This is being increasingly used by UK domiciled persons who are restricted in their ability to transfer assets into trust by the 20% lifetime inheritance tax charge which applies to substantial transfers. These entities will be attractive to a whole range of persons because they are simple and easy to understand and relatively simple to set up and administer. They are known as Family Investment Companies (FICs) in the UK. We also refer to them as common law foundations as they are similar to the civil law foundation found in Lichtenstein and elsewhere but are much easier to understand by those brought up by in a common law system.

FICs are a company. The usual form of a company is limited by shares. A share has three important characteristics being: a)The right to vote and therefore control the company; b)The right to receive income in the form of dividends; c) The right to the capital and the underlying assets owned by the company. Usually a share will carry all three rights but it is quite possible for it to carry only one or two of these three. By splitting the rights and obligations we can create interesting results.

For example, let us assume that Mr. A is an UK national living in Hong Kong. He does not intend to spend the rest of this life in Hong Kong so is almost certainly UK domiciled and subject to UK IHT on his worldwide estate. His first preference would be to pass the assets into trust to avoid UK IHT but he cannot do so as the transfer to the trust would attract the 20% charge. If he gives assets away to another individual seven years before his death then he avoids UK IHT and the 20% charge entirely but that would leave him without assets to look after himself and therefore reliant on his beneficiaries. He would also lose control of those assets. Neither is attractive. Instead we set up an FIC. Mr. A is issued with all the voting shares and therefore keeps total control. He also jointly retains, along with his wife, the income producing shares because although he does not envisage spending the capital he does want to ensure his lifestyle and spend the income. The capital shares can be given away to his wife and children whilst he is in good health. This structure means that all his assets are conveniently bundled together in one package so his executors do not have to try and find them, take control and administer them according to the will. UK IHT is massively reduced as he has given away the capital seven years before death. Clearly the income producing shares do have some value but it is minor compared to the capital shares. Sweet and simple.

This type of structure would be effective for most persons who are in danger of being subject to inheritance tax or estate duty in their home country or anywhere else in the world. There is no estate duty in Hong Kong but just because you are resident in Hong Kong does not mean you are exempt from estate duty everywhere else in the world. Assets are frequently charged to estate duty in their country of location irrespective of who owns them. If they are owned by a company then, because a company never dies, local estate duty is eradicated. Hong Kong residents will often have estate duty considerations in their own county of birth and anywhere they have invested but this type of structure can remove those liabilities.

The structure above will also be of relevance to those who have parents back in their home county with wealth to pass on. We frequently get asked about whether we can help reduce estate duties on their estate. Funnily enough the beneficiaries are often more concerned about this! For those living in the UK a trust is going to be unattractive because of the 20% charge. Giving away assets seven years before death is going to be unattractive because of the reasons I gave above i.e. loss of control and having to rely on relatives for future upkeep. There is nothing to stop a UK resident from setting up one of these structures. For most it will not give income or capital gain tax advantage without further planning but that is not the aim. It is a way of eradicating or considerably reducing estate duties.

The plan can further be refined by using a company limited by guarantee or a company limited by both guarantee and shares. Most people will be familiar with companies limited by guarantee even if they do not know it as this is the basis of most clubs and societies. When you join a club you become a member, rather than a shareholder , of a company limited by guarantee. That membership is retained only for as long as you are alive or for as long as the club (company) committee decides you are worthy and suitable and abide by the club rules. This type of company can be sued as an FIC. Using an FIC avoids the need for a will and probate on the underlying assets as they are all owned by the company. A probate is still required to pass on the voting and income producing shares. So if the votes and income rights are held by members rather than shareholders those rights would expire on the death of the owner and then new members could be elected with those rights thereby transferring them without the need for further procedure and the avoidance of probate entirely. Hybrid companies are able to issue both shares and memberships so the various rights and obligations can be mixed and matched between the two to create whatever result is required and suits the circumstances of the family.

This type of structure is the latest big news in UK estate planning but can be used by anyone anywhere else in the world to good effect. It doesn’t remove the need for a will as there will always be personal assets outside the structure but it does provide a convenient and relatively cheap and simple method of dealing with the majority a person’s estate.

Ask the expert: Setting up a trust

Sovereign Corporate Services shows how you can protect your property for your next of kin when you are no longer there

Most people prefer not to think about what will happen to their property on their death. However, failure to make proper plans can create real problems and cause great expense, including tax liabilities, for next of kin. They will be forced to sort out such problems at a time when they are emotionally upset and most vulnerable.

Making a will is a sensible way for an individual to put his or her affairs in order. However, the administration of a deceased's estate can be costly. One alternative to making a will is to set up a trust during one's lifetime. With careful planning, this can eradicate delays, costs and taxes and provide other benefits such as protecting assets from future creditors or providing anonymity.

What is a trust?

Unlike a company, a trust is not a legal entity. It is best described as a relationship; an arrangement whereby property is transferred from one person (the settlor) to another person (the trustee) who holds the property for the benefit of specified people or objects (the beneficiaries).

A trust deed sets out the terms and conditions upon which the trustees must hold and administer the trust assets. The trust deed also sets out the rights and interests of the beneficiaries.

A trust can also be created by a will, but if assets are "transferred" to trustees during lifetime, they should be unaffected by the subsequent death of the settlor. Another word for "transfer" is "settle"; hence, the transferor of the assets is called the settlor and the trust is often referred to as a "settlement".

Those unfamiliar with the trust concept may be concerned about transferring ownership of their property to a trustee. However, the duties of trustees have been developed over centuries through English equity and common law and are now in many cases codified in statute law.
This law distinguishes between legal ownership (trust assets are held in the name of trustees) and beneficial ownership (only the beneficiaries may benefit from the assets). Further, even greater duties are imposed on professional trustees who, in reputable and well-regulated jurisdictions such as Gibraltar, for example, are required to be licensed.

Where can I set up a trust?

Virtually all low-tax or zero-tax common-law jurisdictions have some form of trust law. Gibraltar is at the forefront of best practice development in the area of trusts and was one of the first jurisdictions to introduce the regulation and supervision of trust companies. Professional trustees must be licensed under the Financial Services Ordinance 1989 and are regulated by the Financial Services Commission (FSC).

Gibraltar trust law is derived from English common law and the rules of equity, supplemented by certain legislation. Gibraltar's Trustee Ordinance is based on the Trustee Act 1893.

"Asset protection trusts" are also permitted although all trusts provide some element of asset protection.

Are there concerns regarding confidentiality?

Regulations require trustees to know the identity of the settlor and ultimate beneficiaries of a trust. This information is kept completely confidential. Disclosure to third parties is only required in very particular circumstances and must be accompanied by a court order. In the case of asset protection trusts, the register maintained by the Registrar of Dispositions to record the transfer of assets to asset protection trusts is closed and its contents are privileged.
What about tax liability?

The vast majority of Gibraltar trusts are set up as discretionary trusts so that beneficiaries only have a contingent interest. The beneficiaries can, therefore, avoid any tax liability until assets are distributed to them.

Trust income is exempt from tax in Gibraltar if the trust is established by a non-resident, has no Gibraltar beneficiaries and derives no income locally (other than bank interest). The terms of the trust must expressly exclude Gibraltar residents from being beneficiaries.
Asset protection trusts (APTs) are permitted in Gibraltar. These must be registered with the Register of Dispositions.

Only professional trustees licensed by the FSC can act as trustees of APTs and an application fee of £300 (around Dh1,785) is payable upon registering the trust and £100 is payable annually to maintain the registration.

What are the main advantages of a trust?

Trusts can be a very useful means of tax planning. They can be very flexible; even the settlor can continue to benefit from the trust assets.

Trusts offer asset protection and confidentiality. There is no public register of trusts or trustees, so the ownership of trust assets can remain entirely confidential in most circumstances.
They help avoid forced heirship. They also facilitate estate planning, protecting those who may be unable to manage their own affairs such as children, the aged or persons suffering from certain illnesses.

If a company's shares are transferred into a trust prior to the owner's death, the unnecessary liquidation of the family business can be prevented.

In some circumstances, depending on the local laws, a "local company" may be required to sit under the trust (for instance, it's common for a Jebel Ali offshore company to hold Dubai property and have a trust acting as a shareholder of the company).

While every effort has been made to ensure that the details contained herein are correct and up to date, this information does not constitute legal or other professional advice. We do not accept any responsibility, legal or otherwise, for any error or omission.

Jargon busting – after a long summer

Jargon busting – after a long summer

Oh dear, September is here and that means it’s back to work for many Gibraltarians after the lazy, if not necessarily crazy, days of summer. We can look forward to National Day but the main holidays are over for another year. How was the summer for you? Let me tell you about mine.

Reading the financial press every day, I became ever more disturbed as the summer went on. It may surprise readers to learn that this wasn’t because of the generally woeful economic news – although it was pretty dreadful across the board. No, I was more concerned to read countless articles containing words that seem to have no other purpose that to sow seeds of confusion among the readership.

I am referring to that scourge of the modern age – jargon. In many articles I read this summer, it was just unadulterated balderdash and blether, and I am convinced that there exist out there a whole bunch of finance professionals who simply thrive on jargon. The cynic inside me (surely not?) would say that this means they can charge more for their opinions and advice.

Some of the recent stuff I have read in the financial press would confuse anyone. Has Greece defaulted, or not? Who cares? And why? And what on earth is meant by increasing the US debt ceiling? Have they gone in for DIY over there or what? I thought the readership of The Gibraltar Magazine deserve better than that, so here are a few answers to some of the burning world economic issues of the day. You are entering a jargon busting zone – for a bit anyway.

Firstly, we all depend on the strength of the general economy. So let’s remind ourselves what is meant by gross domestic product – or GDP. And the difference between “growth” and “recession” – for there is not much difference between these two concepts even though we love the first and have learnt to steer well clear of the second if at all possible.

Gross domestic product (GDP) is the total market value of all goods and services produced within a country in a given period. The standard of living is often referred to as GDP per capita (i.e. per person) and is often considered a good measure of one country’s performance measure against another – bearing in mind that no two countries have exactly same number of residents.

Typically GDP figures for a country are published every three months, i.e. every quarter. If the reported figure is positive – and they are always measured as a percentage – then the country is said to be growing. Naturally, the reverse is true if the figure is negative when the overall economy is said to be contracting. Technically speaking, a recession is said to occur if the figures in two successive quarters – that is a six-month period – are contracting. It can be a very fine line but the consequences can be far reaching.

Another bit of jargon we have heard far too much about this summer has been all this talk of possible “sovereign default” – especially by Greece. So has that country defaulted or not? And what are the implications for the rest of Europe and indeed the wider global economy?

Simply put, a sovereign default is the term used to describe the inability of a country (a “sovereign state”) to repay its debts in full. One could add “or on time” which amounts to pretty much the same thing. And there’s the rub. The latest EU discussions concerning Greece and its second bailout in as many years had two main objectives. Firstly, the EU sought desperately to avoid the impression that Greece had defaulted and, secondly, it was trying to defuse the seemingly inexorable market pressure on other troubled EU economies that might follow suit. The already-bailed-out Ireland and Portugal were the main two preoccupations, but then further worries re-surfaced about the much larger economies of Italy and Spain.
“Too big to fail” is an overused expression but for many reasons that phrase is true of the larger countries. The consequences of a default by one of these would be catastrophic – let us not even imagine the affect any default by Spain would have on our small economy here in Gibraltar. Let us simply hope that this hypothetical question remains just that – a theory and no more.

As I write this, an even more worrying scenario appears to have been averted, but only just. A default by the largest economy of them all – the United States. Again, the problem is that the US has simply run out of money. The talk all along was of an increased debt ceiling. So what is one of those, then?

A debt ceiling is basically an overdraft limit. In the case of the United States, the maximum total overall debt is fixed by law. In the same way that all of us know the majority of our outgoings in advance, the country’s finance chiefs were aware that on Tuesday, 2 August, the debt would have surpassed the limit that was US$14.3tn. After much debate and not a little grandstanding by several politicians, it was agreed to increase this limit by US$2.4tn – but with swingeing cuts to government spending in order to reduce the deficit.

The eagle eyed will have noticed that tiny abbreviation – “tn”. Surely that’s a misprint. I mean “bn” for billion, right? Wrong: “tn” is short for trillion or 1,000 billion. So the new debt limit will be – wait for it – US$16,700,000,000,000. More jargon and something worth explaining.

When I was a kid doing my maths homework, a billion was a million millions and a trillion was a billion billions. Ludicrous numbers that I never expected to use in real life. Since then, the world has adopted the US version where a billion is a mere 1,000 million and a trillion is 1,000 times that. Sounds a lot more reasonable, doesn’t it? Until you read the debt figure above written there in all its horror – with 12 zeros. It doesn’t really matter what we call it. The figure is astounding.

Finally I wanted to look at one last bit of jargon – credit ratings – and why they are so important. A credit rating measures the credit worthiness of a debt issuer. This could be a company but during the summer we have heard more about the ratings of specific countries – put simply, the chances of the debt issuers’ default. Credit ratings are determined by specialist agencies and recently we have seen a succession of downgrades of European debt. The steepest declines have been in places such as Greece, but even Spain has not been immune. Despite the massive increase in the US debt discussed earlier, its credit rating has not been downgraded – yet.

Credit ratings are used by bond purchasers to determine the likelihood that the government concerned will actually pay its bond obligations. If not of course, the bond purchaser might lose some of his investment – the so called “haircut”. This is why ratings are so important. Any downgrading can severely affect sentiment and the whole merry-go-round starts all over again.

I have always admired the Plain English Campaign which has worked tirelessly for over 30 years to rid Britain of gobbledegook and confusing information that could be misunderstood. I think there is a good case for financiers to adopt the same approach. The danger of course is that the general public will make a startling discovery. Rather like the story of the Emperor’s clothes, perhaps some finance “professionals” and journalists in particular might be found severely wanting once the veneer of their jargon was removed.

So here is my clarion call: “Plain business speak please!” With a little more of that, we might all understand better the extent of the world global crisis we are living through. And we might be less willing to tolerate the messes that our financial institutions and governments get us into.

Executive aircraft – toy or tool?

Since the implementation of the Córdoba Agreement in 2006 – when restrictions were removed to permit direct flights from Spain – Gibraltar residents may have noticed an increasing number of small, private aircraft using the airport. We have certainly seen an increase in corporate jet activity and I expect to see this increase when the new terminal opens. I understand there will be services dedicated to the business aviation industry based from the terminal, so that is another reason to look forward to its completion.

But how, in these economically strained times, can such “toys” be justified? Surely this is yet another example of the type of corporate excess that should have been consigned to history. A number of large companies certainly seem to think so – they have either sold or downsized their aircraft fleets in recent years. But is there any place for expensive business aircraft in the post-crisis economic world in which we now find ourselves?

In my opinion, there is. Executive aircraft come in all sorts of shapes and sizes and there are many ways to own or operate them from full to fractional ownership, or simply chartering on an ad hoc basis. Under the right circumstances, the sensible use of a private jet – however this is done – can not only be economically justified, it can be a very attractive option both to business people and the companies they represent. Read on.

Consider this example. Imagine you are in Gibraltar with five colleagues and you need to get to Nice for a meeting. There are no direct flights from here and although Málaga is only a hundred miles up the coast, surprisingly there are no direct flights to Nice from there either. Our party of six business executives is now faced with a dilemma and at least two flights – first to London or Paris, then an onward connection. How much more simple it would be to charter a business jet for a direct flight from Gib to Nice – and presumably back again, although of course that may not be necessary.

The advantages speak for themselves. The party simply turns up at the airport very close to departure time and, in this example, the round trip could easily be achieved in just one day. Naturally the formalities remain but they are generally easier to complete and there’s no need to arrive up to two hours before departure as with commercial trips. A direct flight straight to the airport closest to where you want to go could be just what your company needs. There will be a considerable saving of down time and any of the usual difficulties one can encounter when using scheduled airline services – cancellations, overbooking, delays – will be avoided. In addition, confidentiality is assured and, because the fellow passengers are likely to be colleagues or associates, the flight time can be spent more profitably.

What is the likely price for such convenience? As always this can vary widely but, as an example, local private charter firm GibJets (www.gibjets.com) charges around £2,500 per flying hour. Divide that between the six passengers that its aircraft might typically carry, and one can start to appreciate the commercial sense of using this option. Add to that the fact that executive jets can use a much greater range of airfields than those available to commercial airliners, then the expense becomes even easier to rationalise. Business jets can land at airports with limited facilities and very often – depending on the type of aircraft – they can be operated by just a single pilot.

So much for the theory. In these days of economic austerity what is the state of the market for business jets? They range in price from the so called “Very light Jet” or VLJ (sometimes referred to as “Entry Level Jets”) to airliners such as the four engine Airbus A340 used by a very select band of billionaires and royalty for their private, or executive, use. The price tags match this wide range, starting at a couple of million dollars but easily rising to US$100m or more for the airliner-size versions.

My colleagues at Register An Aircraft.com, Sovereign’s aviation division, report that the sector has certainly seen a noticeable downturn since the onset of the global economic crisis. The use of business jets as a corporate tool was much criticised at the height of the crisis; who can forget the outcry over bankers and automakers flying to Washington in their private jets to testify at congressional hearings into the massive government bailouts they were receiving?

As the economic situation stabilises, at least in certain countries, the use of corporate jets is once again becoming more acceptable for many international businesses (and more importantly their shareholders). The business case for such use has not changed – the time and money saved, together with more confidentiality and better use of time spent flying. What has changed is the perception of the press and the public in relation to the “Jet Set”.

The business jet charter market is certainly recovering; we are seeing a number of these aircraft landing at Gibraltar on a more regular basis. And it is interesting to note that, while new aircraft sales in Europe are still slow, business has been increasing in other parts of the world. In particular, dealers are reporting higher levels of interest in the Middle East, India, China and South America – especially Brazil where a local manufacturer, Embraer, has developed into a world leader.

So as we all look forward to using our own brand new airport terminal later in the year, I hope to see even more of these remarkable aircraft flying into and out of the Rock. Next time you see one, rather than seeing it simply as a toy for spoiled executives, consider instead that it might just be a serious business asset that is adding to the bottom line in clear and demonstrable ways.

Aircraft landing and taking off at Gibraltar will of course fly over the marinas where super yachts seem to be perpetually moored. Pleasurable these vessels undoubtedly are; practical, sometimes, maybe. But one cannot drift on an executive jet. They are designed to get one from A to B far more efficiently than commercial flights. That is the difference and the reason why I, for one, believe that given the right circumstances they can be ideal business tools. This is also why I am looking forward to welcoming them to Gibraltar in ever greater numbers. And the wealthy people they carry, of course!

Written by Ian Le Breton who is based in the Gibraltar office.