. IN Fiduciary Services | Frequently Asked Questions

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Frequently Asked Questions

International structures can be used for a number of reasons. The most important one is “Asset Protection”. Other reasons include financial management and planning, business management, intellectual property holding, estate planning, superannuation management, insurance management and tax planning.
Asset Protection may assist people using it to protect their assets against claims by third parties such as creditors, government departments, (ex) family members and others. In brief it gives people using it the freedom to spend their funds as and when they want to without undue interference from third parties.
Owning assets offers third parties the possibility to seize them. To avoid this, it may be of interest to only control them. Full control is almost the same as ownership but it provides an excellent form of asset protection. That is why many of our clients place their funds in a structure which is not owned by them but controlled. Naturally, in some countries “management and control” is an issue. This can be resolved by having discretionary control with a third party.
Since September 2001, the international world has seen many developments affecting international business and structures. Governments have taken many actions to cut the flow of funds to international terrorists. The tax departments in many countries have joined in on this. As a result, even the mention of an off-shore structure (BVI, Cyprus, Jersey, Samoa, Labuan, etc.) already creates an aura of illegality, tax evasion and money laundering. This is so even though the majority of off-shore structures and their uses are perfectly legal. Because of this stigma, we generally prefer to use on-shore companies and other structures as the fronting part of international structures (i.e. companies and structures based in OECD or other well developed countries).
International structures are structures outside the country of residence or domicile of the person using them. In general, governments have a strong grip on the people inside their jurisdiction. By moving assets to another jurisdiction people can achieve more freedom than they would usually have in their own country. Obviously international structures are also needed in case of international business and investment.
Most countries apply a system of taxation on worldwide income. By creating a properly constructed structure, one can achieve that income will only be taxed in the country where it is actually earned. Many jurisdictions do not charge on income earned outside their country. Consequently it is of interest to create a structure in a country with a low (or in some cases even zero) tax rate. In many countries authorities do not like tax avoidance, let alone evasion. In our opinion it is a legitimate business interest to reduce the cost of running a business. As tax is a major cost in most jurisdictions, tax payers should be allowed to use all legitimate means to reduce that cost. International business and investment structures may be an ideal way to achieve that objective.
International structures can be used to transfer assets on to the next generation without going through the process of a last Will and Testament and probate. Assets can be transferred intra vivos in such a way that the transferor keeps control during his life time. When he / she passes away the transferee will take over as of right. This can be a most suitable way of inheritance management. Some countries charge substantial estate duties. By using these structures estate duties can be legitimately reduced or avoided.
Many countries have a regime, where they include income earned in Controlled Foreign Corporations (CFC) and Foreign Investment Funds (FIF) in the domestic income. Structures can be used to keep such income outside the domestic taxing base.
Many governments require the declaration of all income as earned by their tax payers and / or assets held by them. By using a structure people can avoid disclosing assets in their own name to other interested parties. The use of structures also allows them therefore not to have to lie when asked about foreign assets and/or income.
International structures can be used for (captive) insurance. In many countries insurance premiums are tax deductible while, if received off-shore, such income may be free of tax or taxed at a lower rate. International structures can be used to organise such insurance
International companies can also be created to streamline international business as central purchasing or sales companies. Within the limited of the international transfer pricing rules, there are possibilities to leave attractive margins in these companies thus reducing the taxation. Other benefits may be possible in the area of transaction costs, finance and administration.
International structures can be used as finance companies. By doing so, borrowers can pay principal and interest to a company in another country. Provided it is properly organised, interest may be tax deductible in the country of the borrower while it may be taxed at a lower (or even zero) rate in the hands of the recipient.
The use of international structures has many advantages but it may also have some disadvantages. The main disadvantage is that the owners of the assets or funds loose some control. This problem can be partially resolved but the quality of the structure may be jeopardised as a result. One cannot have one’s cake and eat it. If a person wants to have the benefits of an international structure he may have to accept some of the disadvantages too.
An international structure may be very attractive to hold intellectual property and to receive royalties. Royalty payments in most countries are subject to withholding tax. If they are paid into an international structure in a low or zero tax environment then the withholding tax may be the final tax. Naturally the royalties so received could be used to finance operations in other countries.
International structures can also be used for the financing of real estate. Generally, profits relating to real estate are taxed in the country where the real estate is situated. However, there are possibilities in many jurisdictions, using international holding and finance structures, to move some of these profits to a lower or zero tax environment.
An international structure can also be used for international treasury management. Surplus funds held may generate a higher net return. Also by centralising the treasury operations one may reduce the costs of international payments (by, for example, using multilateral netting).
Many clients find that, having taken funds out of their own jurisdiction, it is difficult to invest again in their own country without incurring heavy (back) taxes, interest and penalties. In many instances an international structure can invest in the original source country without disclosing the original owner of the funds. This may allow clients to invest funds in the market they know best.
International structures can also be used for cross border employment systems. For some clients we operate a program whereby one company invoices a principal for services rendered by an executive or professional. The professional concerned gets paid a salary in accordance with his life style needs. The balance (after payment of his salary and tax thereon, if applicable) is placed for him in an international retirement fund. Generally the parties involved in this are based in different jurisdictions. This service is especially interesting for people working internationally.

Many countries impose different rules for compliance. The most important rule is “know your client”. Banks generally ask to see the client’s passport and a copy of a utility bill (to prove that the client lives somewhere.). Generally, we try to apply the rules of the European anti-money laundering directive. This means that we must:

  • undertake and complete full due diligence on the beneficial owner of the structure before moving any funds on behalf of the client
  • clients cannot sign alone on any of the structure’s companies / trusts bank accounts, we must at least be joint signatories on any accounts
  • all funds must be backed up by copies of supporting documentation (invoices, contracts, etc.)
  • we must keep (simple) accounts of all funds movements (usually an Excel spread sheet suffices).

Before entering into a new relationship we generally require full information of the sources of funds, banking and/or professional references, a brief CV of the client and the proposed use of the structure.

Please note that before entering into any structure it is essential to obtain advice from a well qualified professional (lawyer, accountant, tax expert) who understands the personal situation of each client. IN Fiduciary Services does not provide this kind of personal advice but would be happy to refer clients to a suitable professional advisor.