UK- NEW LEGISLATION ON TAXATION OF OFFSHORE COMPANIES WHICH OWN UK PROPERTY

In May last year the consultation document entitled “Ensuring fair taxation of residential property transactions” was published. As always, whenever the UK Treasury or HMRC refer to “fair taxation” what they really mean is considerably increased taxation. The resulting draft legislation was published on 11th December 2012 outlining the new taxes and charges which will have to be paid by offshore companies which own property in the UK worth over £ 2 Million. There were some significant changes from the consultation paper. Next, the actual legislation was included in the Finance Bill 2013 and again showed changes from the draft not least in the name of the new annual charge.

The main features of the legislation will only affect properties which either are, or will become, valued at more than £2 million and which are owned by “non-natural persons” - this being a reference to companies, partnerships, funds and the like, not to persons with strange personal habits.
Previously many buyers of UK property chose to register their properties in the name of an offshore company in order to eradicate UK inheritance tax (IHT) which would otherwise be charged at 40% on the whole value of the property , after allowances, upon the death of the owner. If a company owns the property the asset becomes the shares of the company, which is a non UK asset and therefore not subject to UK IHT as long as the owner is not UK domiciled. Owners who are UK domiciled are subject to IHT on their worldwide assets so pay IHT on the shares. Company ownership also facilitated the avoidance of stamp duty (SDLT) as any subsequent sale of the property could be effected by a transfer of the shares in the company leaving title to the property in the UK unaltered. This allowed the purchaser to avoid SDLT and/or allowed the seller to charge more, or a bit of both.
 
Offshore companies which own property worth over £2 million will now be faced with an annual charge of a minimum of £15,000 and a maximum of £140,000 depending on value. The new tax was to be called the Annual Residential Property Tax (ARPT). In the legislation it was called the Annual Tax on Enveloped Dwellings (AETD). I wonder which committee came up with that one? The companies will also pay 28% Capital Gains Tax (CGT) on resale.

Corporate trustees are not subject to these new taxes. There is also an exemption for bona fide business assets owned by companies. This would apply where the property is rented out exclusively and entirely to third parties. Those who have purchased property purely as a buy to let investment may well be able to rely on this and ignore the new legislation. Those who do, or may, live in their property will be effected.

The best structure going forward will depend on a variety of factors including the tax residency and domicile of the owners and any intended beneficiaries of the trust or even occupiers of the property but let us consider the example of Mr Guiseppe Sixpack (GS) an Italian resident and domiciled individual who intends to move to the UK during the current tax year (i.e. between 6 April 2013 and 5 April 2014). GS, through an offshore company, holds the freehold of a residential property in London which he will live in. The property was acquired in November 2001 for £1,400,000 and is currently valued at £4,000,000. It is not currently rented out and there is no mortgage.

As the property was beneficially owned by a company on 1 April 2013, the company will be subject to ATED (1). The property’s value as at 1 April 2012 will determine the liability to ATED (2). The Company is currently liable to pay a charge of £15,000. The first chargeable period runs from 1 April 2013 to 31 March 2014. The Company must file a return for the first chargeable period by 1 October 2013 and pay the charge by 31 October 2013 (3). This is a transitional measure and the return for the second chargeable period, commencing 1 April 2014, must be filed by 30 April 2014. The tax for the second chargeable period must be also paid by that date. The property will need to be re-valued on 1 April 2017 to cover the ATED returns for the five years starting on 1 April 2018. However until 30 April 2018 the charge should be limited to £15,000 payable by the 30 April each year. To correctly calculate the charge the property must be independently valued by a professional such as a chartered surveyor.
  
It is possible for a company to obtain relief where it does not hold the property throughout the whole chargeable period. This is known as interim relief and must be claimed (4). Broadly, the charge is reduced to reflect the number of days in the chargeable during which the property was not held in the company (5). For example if the property were to be sold to a third party individual on 30 September 2013, the seller Company could reclaim 50% of the original charge (6). The precise procedure for claiming the relief and the contents of the ATED Return will be fleshed out by HMRC in supplementary Regulations to be published in the summer.
 
Capital Gains Tax (CGT)

The legislation provides that a company which holds a property on 1 April 2013 that is within the scope of the ATED charge is deemed to have acquired the property for its market value on 5 April 2013 (7).
 
The property was acquired in November 2001 for £1,400,000 and it is assumed that it had a value of £4m on 5 April 2013.

Shadow Directorship issues

If GS were to occupy the property in the future rent free there is a danger that he would be subject to an annual benefit in kind tax charge as he would be treated as a shadow director. The case of Dimsey v Alan established that the benefit in kind provisions do extend to shadow directors.

For these three reasons, it is likely to be more tax efficient to consider moving the property out of the Company. Mr GS has a number of options to mitigate the applicable taxes.

If the property were gifted to GS there would be no SDLT as there is no mortgage. There should be no charge lifetime IHT (8) as the asset would still form part of the beneficial owner’s estate. However there would be CGT to pay- if the property at the time of value was worth more than the £4,000,000 April 2013 value. Here there is a nasty trap. If GS was resident when the company sells the property the whole of the gain since acquisition could be attributed to him under s 13 TCGA 1992
Advantages of individual ownership

1. There would be no ATED charge from 6 April 2014 onwards provided the transfer was made to the individual before that date.
2. There would be no UK CGT on a future disposal provided GS used the property as his main residence throughout the entire period of his ownership (9).
3. There would be no shadow director issues which can arise with corporate ownership.

Disadvantages

1. The property would be subject to UK IHT of 40% on GS’s death.
2. The ability to mitigate the charge with debt or even bank finance has been severely restricted (10).

Option 2: Share Sale to a new Dry Trust
This plan would involve GS’s family member establishing a new dry trust (i.e. a single asset holding trust) with a nominal cash sum. GS would sell the Company shares to that trust. The consideration would be a loan note equal to the market value of the property on the date of the share transfer. The Company would be liquidated by the trust. The liquidation would not cause a SDLT issue as there is no mortgage.
Advantages

1. The property would be outside the charge to UK IHT.
2. There would be no CGT on a future sale by the trustees.
3. There would be no ATED from 1 April 2014.

Disadvantages

1. There is a ten yearly charge of up to 6% on the net asset value of the trust’s UK assets. However the charge should be mitigated by the value of the loan the trust owes to GS on the tenth anniversary (11).
2. The trust would need to avoid selling the property, thereby realising a potential gain, when GS is UK resident. Otherwise GS would be subject to UK CGT to the extent that the value of his rent free occupation could be matched with the gain made by the trust on the sale. The liability would be significant but can be avoided provided GS is not UK resident in the tax year of the disposal and is not caught by the 5 year rule noted above.

Non UK domiciled purchasers should henceforth use a similar trust structure to the above. Domiciled purchasers should consider purchasing via a QNUPS structure.
From the above it will be apparent that is a highly technical area and expert advice is, as always, strongly advised.
Howard Bilton is a UK and Gibraltar barrister, Professor of Law at Thomas Jefferson School of Law, San Diego and Chairman of The Sovereign Group.

1. Refer to Part 3 of the Finance Bill 2013
2. FB 2013, Section 99(2)(b)
3. Refer to the FB 2013, Schedule 33, Part 2, para 4.
4. FB, s97
5. FB s158(4) sets out the procedure for making the interim relief claim
6. This must be paid by 31 October 2013.
7. The FB has inserted a new CGT code into TCGA 1992 to account for ATED related gains. The calculation of the base cost is found in the new Schedule 4ZZA in TCGA. Refer to paragraph 3(2).
8. Under IHTA 1984, s 94
9. Under TCGA 1992, S10A
10. It has inserted a new s175A IHTA 1984 which severely restricts the deductibility of debt on death
11. This position needs to be carefully watched. It is possible that the debt may not be deductible under s.162A which is to be inserted into IHTA by the Finance Act. As yet it appears section 162A would not deny a deduction but it may be subject to further amendments before it hits the statute books.

The Price of Hidden Costs

As I write this, we have just celebrated the May Day public holiday in Gibraltar and the UK is about to close for the early May Bank Holiday. Having the day off here in the middle of the working week made for a nice change of course but it also set me thinking about the cost of the one-day shutdown.
May Day is of course marked in several other European countries, as well as North America, as a commemoration of the traditional Spring festival, and in many other countries around the world it is also celebrated as International Workers' Day. It may be very popular to have these days off – particularly as the weather turns warmer here in the southern Mediterranean – but there is a cost to business, and therefore to the economy, that may not be immediately obvious.

First, I thought I’d take a closer look at the number of public holidays. I am often told we get too many here, but is this really correct? It’s certainly true that in 2013 at least we are getting four more days than the UK – Commonwealth Day, Worker’s Memorial Day, the Queen’s Birthday, as well as Gibraltar Day itself.

But in comparison with other countries, we seem to be about right. By my calculation we enjoy 12 public holidays annually. True, this is somewhat less than Spain but then each autonomous region adds its own “fiestas” on top. A report by ABC News last year named the lucky Argentines as being the most fortunate as they had a total of 19 days off last year.

In the UK and Gibraltar we don’t call them “bank holidays” any more. When I was young, I used to be told that bankers were the top of the pile so when they had a day off, so did we all. It was one of the arguments sold me when I joined a bank all those years ago. Not quite the same today, methinks!
All of this is in addition to paid time off, which also varies from country to country. It has always struck me as odd that the US is one of the countries one associates most with leisure time but it remains one of the most stingy when it comes to paid time off. Two working weeks annual leave is still very common.

But think of an organisation close to you and consider for a moment the cost of even one extra day off to that business. In my case, Sovereign employs around 80 people locally so if taking a five-day working week that is almost four working months. Crikey, I’m beginning to sound like our Finance Director but it does all add up to a lot of time – and money.

This can be of even more concern to smaller firms where cash flow is very tight – a start-up perhaps. I went on to think about other hidden costs that a business might consider and what, if anything, can be done to mitigate them.

Here in Gibraltar, as summer approaches, staff working in government – and some private sector firms too – start looking forward to summer hours, It’s a great idea in theory but of course there’s another side too. Leave aside the obvious shorter working week – it’s to be assumed that any organisation or firm allowing reduced working hours during the summer takes account of this when setting pay levels. The “hidden cost” applies also to other businesses – such as ours – who have to work with the fact that government offices are simply not open from mid-afternoon during the summer.

There is a definite cost to this and of course the potential for some clients or customers who have a choice to simply look elsewhere – i.e. away from Gibraltar. Don't worry dear reader, this is a personal column and of course I am not going to start a campaign here. It would be a brave politician indeed who would dare to tackle this and of course there is another more positive side to the summer hours arrangement for families and local business. I’m just pointing out that it does cost us all, that‘s all.
Staffing is only part of the issue. There are many other costs involved in day to day business. This is true for any company “selling” something, be it any kind of service, a widget or indeed a bar or restaurant. At Sovereign, I am always stressing the importance of considering the “client acquisition cost”. There is no point selling something – anything – for £10 if it has cost £12 to produce. My friends in retail will immediately say “ah, a loss leader you mean”. They would define that as selling something at a loss to encourage someone to buy more from you somewhere else. As my economics tutor taught me – “focus on the word loss boy”. Not a bad thought, that.

The wide range of hidden costs that goes into producing and selling anything can be quite daunting – especially for a new business. It may upset those salesmen we all know or “business development managers” as they’re likely to be called these days. But the price you secure from your end-user client must cover everything and should still leave a surplus if you are to stay in business. So what costs am I concerned about here?

There are some obvious things. Let’s assume the widget or service being sold is either already made or finely tuned so we have something tangible to sell. What costs are involved in getting to meet your customer? Drive into Spain for 100km (and back), pay some tolls, buy some lunch on the way and the costs soon mount up. Fine if you’re selling something expensive but be careful that the dangling carrot of the sale doesn’t tempt you into spending too much in an effort to pluck it from the tree (I know carrots don’t grow on trees but you know what I mean).
 
Then consider what in my view is the most commonly overlooked “hidden” cost of all – that incurred by you, or your business development manager, whilst out seeking that elusive carrot. To carry on the metaphor, consider the tomato growing just over there that you did not secure – because you were dealing with the carrot. The economist will call this the “opportunity cost” or to quote the dictionary “the loss of potential gain from other alternatives when one alternative is chosen”.

I have often come across situations where a colleague (or maybe a competitor!) spends more time on what may appear to be an easier “sale” – rather than stretching themselves to secure that elusive but perhaps more demanding and therefore lucrative business. The point about opportunity cost is that if one spends time today doing something – anything – then the opportunity to do something else is of course lost for ever. The hidden cost could be significant.

Other costs may not be “hidden” but, if they are not considered at the outset, can be just as detrimental to the bottom line. I could cite several examples but perhaps one of the best is insurance. I don’t mean the obvious things such as fire and theft protection but such areas as public liability or directors and officers insurance. The cost adds up – but of course the implications of not protecting a business in this way could be catastrophic.

There can be any amount of hidden costs to consider, especially when setting out in business for the first time. Some can be mitigated by outsourcing if one can realistically get certain functions performed at a lower cost elsewhere. But the cost in pounds and pence should not be the only consideration. For example, there is no point in outsourcing something if in doing so you are cutting yourself out permanently of the same business.

As always when considering new ventures, my advice is to take professional advice from the outset. Our firm has whole departments dedicated to assisting businesses – both here and around the world – looking at such issues. But whether or not you decide to approach a specialist corporate service provider or not, do take soundings from others. Look at the costs you know about and keep looking for those hidden costs; it is managing those effectively that will make all the difference in the world to whatever venture you are contemplating.

http://www.sovereigngroup.com/offshore-news/press-room/gm/gm_201306.htm

Sovereign acquires The JLJ Group, a specialist provider of China Entry and Growth Services

Hong Kong, 25th April 2013 - The Sovereign Group, the independent, international wealth management and corporate services provider, has acquired The JLJ Group, an integrated services provider that accelerates international companies' ability to understand and operate in the China market.

JLJ, which has offices in Shanghai and Beijing, will be combined with Sovereign's existing operations in China. The new Shanghai office will employ 20 staff, while another five employees will be based in the Beijing branch.
The JLJ Group was formed in 2003 and has wor
ked with over 600 clients, including government organisations and companies of all sizes – from Fortune 500 multinational corporations and global brands, to a variety of small and medium-sized enterprises.

JLJ services include market research and consulting, company formation and accounting outsourcing, which make it a perfect addition to Sovereign's global business.

Howard Bilton, Chairman of The Sovereign Group, said: "Setting up a business in China is particularly fraught with difficulties and can involve enormous bureaucracy. We have been working with JLJ for some time and recognised their considerable expertise in this area. This acquisition allows Sovereign to offer its worldwide clientele an efficient and high quality service for those wishing to do business in China and strengthens the Sovereign global offering.”

Timothy Lamb, Managing Director of The JLJ Group, said: "We are excited about the opportunities this acquisition brings us to expand our service offerings while being part of a global company of dedicated professionals.”

In 2012, 44% of global Foreign Direct investment (FDI) inflows were hosted by only five countries. China attracted the lion's share of USD 253 billion (or 18% of total) followed by the United States (USD 175 billion), Brazil (USD 65 billion), the United Kingdom (USD 63 billion) and France (USD 62 billion) – Source: FDI in Figures, published by Investment Division, Secretariat of the OECD Investment Committee, April 2013).

Ends.

About The Sovereign Group

The Sovereign Group's core business is setting up and managing companies, trusts, pensions and other compliant structures to meet the specific personal or business needs of its clients. Typically these would include tax planning, wealth management, succession planning, foreign property ownership and facilitating cross-border business.

The first Sovereign office opened in Gibraltar in 1987 and the Group now has offices in over 25 international finance centres worldwide. This enables us to provide local expertise on an international scale and gives clients access to a global service from a local point of delivery. In all jurisdictions that require us to be licensed we have applied for, and been granted, the appropriate authorisations.
We work with public companies, charities and professional law and accountancy firms, but the majority of our clients are individuals – expatriates, entrepreneurs, consultants, private investors and high net worth individuals and their families.

To serve our client base better we have further developed a wide range of supporting services that includes international pensions, asset management, specialist tax advice, ship and yacht registration, insurance, immigrant investor programmes, as well as trademark and intellectual property registration and protection.

For more information, please contact:

Tiffany Pinkstone, Asia Tel: +852 2542 1177 Email: TPinkstone@SovereignGroup.com
Ian LeBreton, Europe Tel: +350 200 76173 Email: ILeBreton@SovereignGroup.com

Or visit the site: www.SovereignGroup.com

For more information on The JLJ Group, please visit www.JLJGroup.com or contact info@JLJGroup.com

Expats and tax: own company could help contract worker

Short-term contract worker

Personal status:
family man who travels for work on his own
Expat Status:

short-term contract worker, usually for four to six months and in the UK one to three months between contracts
Financial status:
contract terms vary, approx. £80,000 tax-free

Our intrepid contract worker is UK-resident under both the existing residency test and the new Statutory Residency Test (SRT), which has just been introduced.

His family lives in the UK and he spends, on average, four months a year in the UK in-between contracts. He is not employed – because he is self-employed – so cannot fall within the full-time work overseas exemption.

It is possible for a person who is a contractor to become non-UK resident if their work is performed overseas in a way that is equivalent to someone working full-time overseas. But our contractor's work is sporadic and he spends too many days (more than 90) in the UK. So he is counted as UK-resident, despite carrying out all his work overseas.

It is quite likely that his income would also be taxed in the country in which the work is performed. If the income were taxable in both countries, for example in the UK, as the country of residence, and France, as the country where the work is performed, a double taxation agreement (DTA) could determine which country has the right to tax his income.

Unless the contractor has a fixed place of business, say an office, in the other country, his country of residence would normally have the exclusive right to tax his income.

UK tax could be mitigated by making contributions to a UK-registered pension scheme such as a self-invested personal pension (SIPPS). Contributions to a registered scheme attract full UK income tax relief as long as they do not exceed £50,000 per annum (reducing to £40,000 from next year).

Tax-efficient structuring could be achieved by setting up a company. It would be possible to use an offshore company but this would have to be managed and controlled from offshore, which would necessitate him employing overseas directors. He would also be subject to various anti-avoidance rules so would need to carefully structure the ownership of the company to avoid these. The expenses of both are unlikely to be justified for this level of earnings.

He would, however, benefit from incorporating a UK company to contract with the various firms he works for. The company would pay tax of only 20pc on profit. From the gross income, the company could deduct all reasonable expenses according to normal UK rules including any payments made to his SIPPS.

He would obviously need some money to live on and so would need the company to pay him a salary. This could be kept relatively low to take advantage of the lower tax rates. He could also arrange for the company to pay dividends to top up his total income as and when required.
As long as his total income was below £41,000 per annum there would be no further tax payable on dividends received. This arrangement would give him great flexibility to be paid what he wanted when he wanted and take advantage of differing and lower tax bands. Any income he left within the company would suffer no further tax.

Arrangements similar to this can be caught by IR35, which is an anti-avoidance provision to stop what were essentially employees being paid through a company to avoid tax. Readers may recall the stink when it was revealed that many senior BBC figures had set up corporate structures through which they took their income. IR35 would not apply to our contractor, as he is bona fide self-employed, so incorporating would give him tax savings and much flexibility.

The Gentle Art of Finance

I am generally office bound at work, but occasionally I am let out for a day or two! In February, I represented the Sovereign Art Foundation at ARCOmadrid, which is one of Europe’s most important art fairs. The event was well attended by buyers and collectors from around the world, and it was a hugely rewarding experience for an amateur art enthusiast like me.

The fair took place just after Picasso’s “Femme assise près d’une fenêtre” sold for £28.6m at Sotheby’s in London, where a further 18 sale lots raised more than £1m. The pieces at ARCOmadrid may not have been in quite the same league as those executed by Málaga’s favourite son, but I was struck by the “full” prices being demanded. It set me thinking as to why the art market should be thriving even at a time of financial stress.

In Gibraltar we enjoy a very well-established art scene and can boast an impressive number of first class artists. Several art groups – including Gibraltar DFAS with which I am associated – cater to the ever-growing public interest. Despite the downturn, I know several local collectors who continue to acquire art, much of it locally produced. Whilst it’s true that many artists around the world live from hand to mouth, it’s also clear that, here in Gibraltar at least, there is a living to be had from art.

Whilst the economic crisis has affected millions of people globally, there remains a great deal of cash available – if you know where to look for it. Much of this is corporate money, stashed on balance sheets around the world, but rich people – many of whom buy art – are still rich. Some have seen their wealth seriously eroded in recent years but others continue to do very well. Art offers a potentially attractive investment for a proportion of that wealth.

Interest earned on traditional bank deposits remains pitifully low – and some say this is likely to be the case for years to come. Equities are volatile – although several world “bourses” or stock markets have notched up impressive gains in recent months. When you ponder the possible choices available to a wealthy investor, it becomes rather easier to see why art might make an attractive alternative investment.

In a Gibraltar Magazine column a couple of years ago, I set out a few reasons why one might consider entering the art market as an investment. For the wealthy, successful entrepreneur, a lot of what I said then till holds true today – maybe it always has done so. But what about ordinary people like me who are interested in art but don’t have millions at their disposal. Is there scope for us too to combine that interest with investing?

There are some obvious areas to consider at the outset: the artist; the subject; the medium; the cost (not be confused with value); and the extent to which you have market knowledge and a discerning eye. All this may lead you to seek the advice of an art professional. Collecting should be fun but if you are also intending it as an investment, caution should be exercised.

So how do I go about it myself? My budget is limited so the question I ask before adding to my modest collection is always the same. Can I imagine having the piece hanging on my wall for many years to come? A year ago, I was passing the rather excellent Gibraltar Art Gallery and there was a piece in the window that simply had my name on it (not literally of course) or, to be more accurate, my partner’s name. Sure enough, after a couple of days’ deliberation we decided we just had to have it and soon another picture was hanging on our walls. So why did we do it? Was it because it might be worth considerably more in years to come? No. We bought it because we liked the piece and, as the Gibraltarian artist who painted it knows very welI, we have since come to love it.

That’s not to say that amateurs cannot be lucky. Two decades ago at a Fuengirola rastro (or street market), I bought a piece from a struggling artist who has since gone on to find critical acclaim and commercial success. The piece that I purchased for hardly any money – my weekly grocery bill cost more – is today worth the price of a small car. But am I likely to sell it? No fear. It’s part of the family now. Although it could be described as a “marmite” work – you either love it or hate it – everyone who visits us comments on it and we can’t imagine being without it.

So when acquiring art perhaps the first consideration should be “why”? If it’s to enjoy and hang on the wall, then forget the idea of selling it for a quick profit. If on the other hand, one imagines that a particular artist is going to sell very well in the future then acquiring one or more pieces early on in their career is likely to be a good move.

The second consideration should be where to put it. Storage might be the only option but I would always say “on display” for people to enjoy. And if not just for you and any visitors to your house, then you could consider reaching a wider audience in a gallery or on loan to a private or public collection. The latter may of course also help to enhance the provenance and value of the work as well as the reputation of the artist, however you should be careful to ensure that your ownership is watertight before undertaking such a move. Insurance is equally important. Protection from fire or any other catastrophic event is of course necessary, but so is the security risk.

There are also ways to get involved in the art market without necessarily buying the pieces themselves. In the same way that one can get invest in the gold market without purchasing “physical” metal, there are several specialist funds that invest in art. An individual investor is in fact buying into the fund which is itself undertaking the art purchase. I have even come across funds that allow investors to temporarily “borrow” pieces from the fund. It’s obviously not the same as owning the piece outright but, like car clubs, it may give you an opportunity to enjoy something that would usually be beyond your budget and which you can change when the mood takes you.

So is art a sensible investment to consider in uncertain times? As regular readers will know I can only express my personal opinion. Under the right circumstances, art is well worth considering as an alternative asset class, particularly for large investment portfolios. Exposure to the art market may also provide useful diversification.

As an art enthusiast, I’ve always felt that art can teach you so much about the world – a bit like the stamp collecting of my childhood. Owning a piece – any piece – can be a joy in itself. Acquire something you like; if the value increases over time, so much the better. If you are like me you will simply grow to love the pieces and never want to part with them, so the investment side becomes less critical.

A wealthy Hong Kong-based friend is a passionate collector. Even with more than one home, he has run out of space to house his collection. Once I asked, “why not dispose of some pieces?” His withering look by way of reply taught me that even sophisticated connoisseurs get to love their art. There is something out there for everyone on the art scene; I encourage you to take a closer look.

Offshore Solutions

Sovereign was established in Gibraltar in 1987 and now the company has offices in all the major international finance centers. It has a total of 27 offices till date with offices in Bahrain, Dubai, Gibraltar, Isle of Man, Cayman Islands, British Virgin Islands, etc. Sovereign currently manages over 7,000 structures for a wide variety of clients worldwide. The majority of the clients are individuals, expatriates, entrepreneurs, freelance consultants, private investors, or wealthy persons and their families. Sovereign have developed a wide range of supporting services embracing asset management, corporate finance and fund raising, specialist tax advice, ship and yacht registration, insurance broking, credit cards, as well as trademark and intellectual property registration and protection. Offshore Companies are often demonized in the media, which paints a picture of investors illegally stashing their money away in banks located on an obscure Caribbean island where the tax rate is next to nothing. While it’s true that there will always be instances of shady offshore deals, the vast majority of offshore investing is perfectly legal. In fact, depending on your situation, offshore Companies may offer you many advantages. Such as:

Minimizing Taxation: Offshore companies established in low or zero tax jurisdictions may reduce, delay or even completely eliminate the tax burden on the company.

Holding Company: The offshore company can easily hold shares in Bahraini Companies (As WLL or SPC), and in other companies outside Bahrain at the same time. So it can act as A Holding Company for an individual`s shares in different entities. The following diagram illustrates the example.
Asset Protection: Placing your personal assets into a separate legal entity is generally a good idea whether you place them in a traditional company within your home country or you place them in an offshore company. Offshore centers are popular locations for restructuring ownership of assets. Through trusts, foundations or through an existing corporation individual wealth ownership can be transferred from people to other legal entities.

Simplicity: One often overlooked aspect of offshore company incorporation is the relative simplicity of the process. Offshore company formation in many jurisdictions is a quick and seamless process and Sovereign aims to make your offshore incorporation as simple as possible. Additionally, ongoing requirements for offshore companies are often more relaxed than for “onshore” companies.
Confidentiality: Many offshore jurisdictions offer the complimentary benefit of secrecy legislation. These countries have enacted laws establishing strict corporate and banking confidentiality. If this confidentiality is breached, there are serious consequences for the offending party. An example of a breach of banking confidentiality is divulging customer identities; disclosing shareholders is a breach of corporate confidentiality in some jurisdictions
 
Which are the most popular offshore jurisdictions? British Virgin Islands (BVI), Ras Al Khaima (UAE), Hong Kong, Seychelles, and Cayman Islands. What makes the British Virgin Islands such prime location for offshore banking? British Virgin Islands (BVI) are a British dependency located in the Eastern Caribbean; the government is stable and promises to remain that way. There is a good commercial and professional infrastructure and the government is actively encouraging the development of the offshore finance business. BVI became the clear market leader for corporate services in the Caribbean after the introduction of the International Business Companies Act in 1984 which created the International Business Company (IBC). This IBC became the industry preferred offshore company.

BVI Company Characteristics - Shareholder: A minimum of one shareholder is required, any nationality.
- Directors: A minimum of one director is required, can be the shareholder.
- No Taxation
- No cash capital required
- No Physical Office required
- Incorporation time 48 hours
- Business activity can be one or more at the same time.
- Very useful tool to hold shares, open a bank account, set-up a representative office in Bahrain, own assists, property, yacht, piece of art etc.
- Total incorporation fees including first year government fees in around: BD700 with no hidden costs

Safeguarding Wealth

Making a will is often a sensible way for an individual to put his or her affairs in order. But the administration of a deceased’s estate can often be costly, can result in long delays and very often involves a large bill, especially in the UAE. Setting up a trust, on the other hand, can eradicate delays, costs and protect assets from future creditors as well as provide anonymity.

What is a trust and how does it work? Setting up a trust is a better alternative to making a will during one’s lifetime. A trust is a financial tool whereby property is transferred from one person (the settler) to another (the trustee), who holds and administers it for the benefit of specific beneficiaries. The assets are managed by the trustee or the team of trustees, as per the terms and conditions of the trust deed, which also lays down the rights and interests of the beneficiaries.

What are the merits of setting up a trust? With a trust, you can make any number of arrangements for the distribution of your assets in a very convenient and flexible way. You may wish to provide a course of income for your spouse or make provision for the education of your children. A trust can also be used to overcome forced inheritance claims, a particular problem in countries of Islamic tradition.

How far does a trust assist in asset protection? A common motivation for establishing a trust is to preserve family assets against mismanagement and spendthrifts. An individual may want to ensure that the 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 the members of the family as necessary, preserving some assets for later generations.

How is the trust structure relevant for family business? Setting up a trust may ensure that the business built by the settler will continue after their death. If the company shares are transferred into a trust prior to the death of the settler, the unnecessary liquidation of the family business can be prevented. In case family members have little business experience, the trustees can be instructed to retain the business, keep the company running and provide payment to members of the family from dividend income.

Will a trust assist in holding international property? A portfolio of international property can be held under one single trust. In some circumstances, depending on local laws, a ‘local company’ may be required to set up under the trust (i.e. it’s common for a Jebel Ali Offshore company to hold Dubai Freehold property, and have a Trust acting as a shareholder of the company).

How does one determine the credentials of trustees? Reputable and well-regulated jurisdictions such as Gibraltar have been found at the forefront of best practices in the area of trusts. Professional trustees are required to be licensed, use the Financial Services Ordinance 1989 and are regulated by the Financial Services Commission (FSC). Sovereign Trust International Ltd is one such licensed professional trustees. The company is regulated and covered by professional indemnity insurance. Vikrant Pangam is a Trust and Estate Planning Specialist and Managing Directory at Sovereign Group’s office in Abu Dhabi. The opinions expressed by the author are his own.