#Hong Kong and its link to Offshore Jurisdictions

Posted on May 18, 2012 by CitiTrust

In 1984, people of Hong Kong were made aware of the concept “offshore jurisdiction” by the re-domicile of one of the biggest listed conglomerates in Hong Kong to Bermuda.

Since then, quite a number of offshore jurisdictions become well-known in the business community of Hong Kong. Businessmen now prefer to incorporate an offshore company i.e. a company incorporated in one of those offshore jurisdictions e.g. BVI, Cayman Islands, Bermuda, Mauritius, Barbados, Belize etc., for investment holding purpose. This choice helps minimize the administrative and compliance work involved in maintaining the company. Almost all offshore companies have very minimal corporate and tax filing requirements. Details of directors and shareholders remain anonymous to the general public. Company secretary is not mandatory in most jurisdictions. Annual compliance requirement is to pay the government and agent fees to ensure that the company is still in the register of companies. Preparation of audited accounts is, in most jurisdictions, on voluntary basis.

When compared to companies incorporated in Hong Kong, annual filing showing details of the directors, shareholders, company secretary, and registered office address and capital details have to be submitted to the Companies Registry. This information is public information. Audited accounts have to be prepared for adoption by members at general meetings held on an annual basis. Profits tax filing has to be done with the Inland Revenue Department. All these could be burdensome when the company is only a passive investment vehicle. Therefore, setting up an offshore company becomes a natural choice.

Besides being used for investment holding, it is also used as a vehicle for fund raising purpose. Lots of incubating businesses set up offshore companies for angel and strategic investors to fund their fledgling business operations. As reputable law firms from most offshore jurisdictions have set up offices here, obtaining legal opinion and arranging joint venture agreements, shareholder agreements and all other legal papers can be done without physical hindrance.

Subsequent transfers of shares amongst founder members and investors can be done without going through governmental approval. Unlike companies incorporated in Hong Kong, transfer of shares in most offshore companies can be done by the parties involved signing the necessary documents and obtaining board approval. There is no stamp duty payment for shares transfer.

Some people may have the misconception that the main purpose of using offshore company is to avoid paying stamp duty in Hong Kong. Stamp duty saving is one of the reasons but not the only reason when it comes to making the choice. In Hong Kong, when shares are transferred within a group, application for stamp duty relief can be made and if the Stamp Office is satisfied that all conditions are met, no stamp duty is payable. With proper corporate structure planning at the outset, stamp duty is not an issue in subsequent corporate changes. That is why stamp duty saving is not the only reason for having an offshore company. Administrative and compliance cost savings are more important in most cases.

As Hong Kong is one of the top IPO centers, one of the major reasons in having an offshore company is for listing purpose. In addition to the time saved in shares transfer, arranging share swap with another offshore company is also cost effective. The procedures involved are simpler. Currently, there are more than 20 jurisdictions being accepted by the Stock Exchange of Hong Kong (the ‘Exchange’) for listing. For those offshore jurisdictions, how to get the Exchange to put them on the approval list is important to promote themselves in Hong Kong.

Offshore jurisdictions have their networks of tax treaties. Investors sometimes have to choose a particular jurisdiction as a bridge for investing into their target country. Again, the more tax treaties, the more appeal to others in using them as a bridge. How to choose the right jurisdictions is a question for the professionals to answer. All the above explains why offshore companies are so commonly used in Hong Kong.

Wiki Offshore is an online global repository where you can find, collaborate and contribute to information on all things related to offshore investment.

Have something to add? Contributing to Wiki offshore is easy. To add and share your content with others please go here.

Wiki Offshore

We also invite you to review the 2nd Quarter Edition of Cititrust EDGE eMagazine for the year 2012.

Topics in this issue cover:

- Trusts.
- The Offshore Debate.
- Bribery Acts.
- IRS continued scrutiny of foreign insurance subsidiaries.
- Also more from Russia, Austria, Japan, Estonia, India and other jurisdictions.

Download your complimentary copy of Cititrust’s EDGE eMagazine here.

We welcome your feedback and comments through our Twitter, LinkedIn and Facebook channels at www.cititrust.biz

download-5-editions-of-edge-magazine

Posted in cititrust, Hong Kong, IRS, offshore banking, offshore companies, offshore company, offshore company formation, offshore foundations, Offshore investment, offshore investments, offshore trusts, Tax, Wealth Management | Tagged , , , , , , , | Leave a comment

Cititrust Strategic Partnerships

Posted on May 18, 2012 by CitiTrust

Wiki Offshore is an online global repository where you can find, collaborate and contribute to information on all things related to offshore investment.

Have something to add? Contributing to Wiki offshore is easy. To add and share your content with others please go here.

Wiki Offshore

We also invite you to review the 2nd Quarter Edition of Cititrust EDGE eMagazine for the year 2012.

Topics in this issue cover:

- Trusts.
- The Offshore Debate.
- Bribery Acts.
- IRS continued scrutiny of foreign insurance subsidiaries.
- Also more from Russia, Austria, Japan, Estonia, India and other jurisdictions.

Download your complimentary copy of Cititrust’s EDGE eMagazine here.

We welcome your feedback and comments through our Twitter, LinkedIn and Facebook channels at www.cititrust.biz

download-5-editions-of-edge-magazine

Posted in Offshore investment | 1 Comment

Civil Law and Options For International Asset Protection

Posted on May 16, 2012 by CitiTrust

Trusts present a problem for civil law jurisdictions

The person living in a civil law jurisdiction is like any person anywhere subject to the normal commercial risks in life. Whether it is estate planning, where the process and timing of the passing on of wealth to the younger generation can be problematic if too soon or not done in the right way. Likewise the business person undertaking a range of economic activity and businesses will not necessarily want to expose all of his wealth to the commercial risks he is undertaking. It may be desirable to protect some of the accumulated wealth from creditor and other financial risk.

What a person actually owns in their own right is essentially subject to the risks that the person faces.

Trusts have the world over been recognized as a fundamental solutions to these problems of nature. In many countries around the world the trust is increasingly being seen as a viable option to solve a range of economic and family problems in relations to wealth and managing risks.

Many civil law countries of course do not recognize trusts. The analysis of trusts vis a vis civil law constructs has been dealt with by many commentators and we will not retread that ground here. In relation to wealth in the civil law country it is therefore problematic to establish a trust over wealth that ultimately will not be recognized by the courts there.

The Belize Hybrid Limited Company is one such vehicle. A statutory based entity specially designed to behave like a trust. Belize company law is circa 1950s and provides a lot of flexibility uncommon in the corporate law of most jurisdictions today.

The shares in a hybrid may only be owned by Controlling members. A Controlling member may not receive any distributions or otherwise benefit from any of the assets of the hybrid. The articles and the memorandum have been drafted to achieve this result. The controlling members appoint the directors and officers and in the first instance they delegate the client as an ordinary member of the entity. That first client and ordinary member can then nominate further ordinary members. Controlling members and the officers of the hybrid may charge fees fro their services.

Ordinary members can vote on motions to liquidate and windup the company only. Otherwise the distribution of benefits is purely at the discretion of the Controlling members.
In the same way trusts can be formed with a protector so the M&A of the hybrid allows for a Protector to be appointed.
The key features of the hybrid are;

1. The hybrid is a company. It has access to double tax treaties where it is tax resident.

2. The officers of the company are bound by director’s fiduciary duty.

3. Trust law does not apply to the hybrid. Company law is construed accordingly. This is of most importance as a company is likely to be recognized by civil law jurisdictions. The problems of non-recognition of trusts do not apply.

4. Ordinary members, at the discretion of the directors may receive loans. In some countries the receiving of loans is not a reportable event.

5. There are a range of estate planning capabilities for the family using a Hybrid to structure. As the hybrid is a company there is no need for a identifiable beneficiary.

6. Asset protection is achieved as the legal owners of the assets of the hybrid are the controlling members who are not connected and not subject to the risks that ordinary members may be undertaking in their business activities.

It is possible for person resident in the civil law jurisdiction to structure their international assets. Capital can be deployed efficiently to business many jurisdictions. Where the ordinary member is an IBC, there is possible further confidentiality.

In conclusion

The person who is structuring their affairs internationally should ideally consider a robust and long-term but cost effective structure. Many business people are time poor but asset rich. No one wants to implement a non-compliant structure now that becomes the source of much problems later. The ideal proper and compliant structure implemented now will save time and money in the long run.

The control of the asset protection company resides with the controlling members and this will be the case as the company holds assets and conducts international business.

Wiki Offshore is an online global repository where you can find, collaborate and contribute to information on all things related to offshore investment.

Have something to add? Contributing to Wiki offshore is easy. To add and share your content with others please go here.

Wiki Offshore

We also invite you to review the 2nd Quarter Edition of Cititrust EDGE eMagazine for the year 2012.

Topics in this issue cover:

- Trusts.
- The Offshore Debate.
- Bribery Acts.
- IRS continued scrutiny of foreign insurance subsidiaries.
- Also more from Russia, Austria, Japan, Estonia, India and other jurisdictions.

Download your complimentary copy of Cititrust’s EDGE eMagazine here.

We welcome your feedback and comments through our Twitter, LinkedIn and Facebook channels at www.cititrust.biz

download-5-editions-of-edge-magazine

Posted in belize, cititrust, offshore banking, offshore companies, offshore company, offshore company formation, offshore foundations, Offshore investment, offshore investments, offshore trusts, Tax, trust, Wealth Management | Tagged , , , , , | Leave a comment

Why go international? Because it is inevitable.

Posted on May 14, 2012 by CitiTrust

Ideas for international tax planning with Brazil and Austria

Many Brazilian business persons for entirely valid business reasons will increasingly need to deploy capital they have earned in Brazil, on profitable business opportunities. Businesses nowadays regularly seek to diversify their interests internationally. Naturally, clients will want to do this tax efficiently.

Canada for years had such a policy as Barbados companies for many years were exempted from the Canadian CFC rules. The reason this was done was to enable a small and medium size businesses in Canada to accumulate the capital necessary to create and grow multinational Canadian domiciled businesses. Canada is adhering to this policy by rewarding low tax countries who enter into exchange agreements with the same exemption from the CFC rules. Canada is therefore expanding this practice.

The most cost effective way to deploy capital internationally is to use structures and business models that are tax compliant and that make use of double taxation agreements. The Brazil Austria treaty is one such treaty that can be used by Brazilian resident persons to structure with certainty and tax efficiency.

One possible solution

A structure using the Brazil Austria treaty is a tax compliant structure.
There is a fundamental feature of the Brazil Austria treaty that allows tax compliant structures to be implemented via Austria. The Austrian company must however be properly setup and operated.

It is possible for the Brazilian resident person to structure their international business activity tax efficiently using Austria’s global network of double tax treaties jurisdictions. Capital can be deployed efficiently to business many jurisdictions without any Brazilian tax implications. Austria has full and effective double tax treaties with Belize and Barbados for instance. Both Barbados and Belize have low taxed companies that have access to the treaties with Austria and the corporation rates of tax are one percent and zero respectively.

Why use a tax compliant solution

The Brazilian person who is ready to look at becoming international should ideally consider a robust and long-term but cost effective structure. Many business people are time poor but asset rich. No one wants to implement a non-compliant structure now that becomes the source of much problems later. The ideal proper and compliant structure implemented now will save time and money in the long run.

In conclusion

The Brazil Austria treaty has a very important feature: Brazil will not tax dividends paid from a properly setup and structured Austrian company. Also the Brazil controlled foreign company rules will ultimately not tax the undistributed profits of an Austrian company.

An Austrian company, treaty resident in Austria, provides many planning options to optimize international business planning. Belize has double tax treaties with over 80 countries including Belize and Barbados. There is much planning that can be done.

Wiki Offshore is an online global repository where you can find, collaborate and contribute to information on all things related to offshore investment.

Have something to add? Contributing to Wiki offshore is easy. To add and share your content with others please go here.

Wiki Offshore

We also invite you to review the 2nd Quarter Edition of Cititrust EDGE eMagazine for the year 2012.

Topics in this issue cover:

- Trusts.
- The Offshore Debate.
- Bribery Acts.
- IRS continued scrutiny of foreign insurance subsidiaries.
- Also more from Russia, Austria, Japan, Estonia, India and other jurisdictions.

Download your complimentary copy of Cititrust’s EDGE eMagazine here.

We welcome your feedback and comments through our Twitter, LinkedIn and Facebook channels at www.cititrust.biz

download-5-editions-of-edge-magazine

Posted in austria, barbados, Brazil, offshore banking, offshore companies, offshore company, offshore company formation, offshore foundations, Offshore investment, offshore investments, offshore trusts, Wealth Management | Tagged , , , , | Leave a comment

The Brazilian Guide to International Wealth Management

Posted on May 10, 2012 by CitiTrust

CONSIDERING INTERNATIONAL WEALTH MANAGEMENT

This article outlines why the Brazilian international investor requires trust and wealth management services.

Background

International estate planning is one of the key reasons for a Brazilian wealthy individual to create a trust private interest foundation abroad. There are a number of reasons a Brazilian person will want to consider estate planning;

Brazilian and Latin American tax authorities are increasingly challenging the substance and validity of trusts. Of course this is because among other things, trusts are counter to the forced heirship rules for many Latin American jurisdictions. There are a number of cases where the tax authorities have called the trustees to the residence country of the settlor and embarked on extensive queries as to the operation, validity and existence of the trusts.

Even though blacklisted by Brazil, countries like Belize and Barbados can still be used as a place from which to structure international wealth. Asset protection is ideal when deploying capital in countries like the US, Switzerland, Canada and UK that do recognize trusts.

Why wealth management

1. Where a Brazilian person has international assets in some countries, like the USA, that impose estate taxes, a structure needs to be used to avoid these estate taxes.

2. If a trust is used to make investments in places like the United States and the United Kingdom, investments can change ownership without triggering these taxes in these countries.

3. There is significant commercial risk of doing business internationally. Trusts, foundations or other asset protection vehicles can shelter personal and accumulated family wealth from unknown commercial risks like litigation or fraud.

4. Brazil is a country that has some forced heirship or post-mortem alimony rules, there is a significant potential for problems where families with wealth have young inexperienced children.

5. The Brazilian government is increasing the amount of tax it is collecting and tax rules are being increasingly enforced. This is more the case in jurisdictions like the US, Canada and UK. Currently a lot of Brazilian clients use non tax compliant structures but this is not the wisest decision as if these structures and the assets in them are investigated by the tax authorities they could be taxed.

The demand for trusts and tax compliant international wealth management in Brazil is increasing. Good wealth management means a structure that;

1. Provides asset protection from commercial risks
2. Is cost effective to operate and also tax compliant.
3. Provides a high level of customer service to time poor clients

Potential wealth management solutions

International estate planning can only be achieved by a Brazilian person setting up the the trust or foundation or other asset protection vehicle in a jurisdiction that would reject an order by a judge from the country of the settlor.

Provided the client has or is sending wealth or assets outside of Brazil these assets can be protected by setting up a Belize trust.

The diagram below shows a Belize trust using an Austrian company to hold Brazilian real estate and private equity and international investments. This wealth will ultimately transfer in line with what the trust document says. The courts or other family members do not control the assets. If other international investments are to be structured they ideally should be structured in a separate trust.

The Brazil Austria Mexico double tax treaty lends itself to the tax efficiency of this structure.

Brazilian and Latin American clients with international wealth will be well advised to structure their international wealth via trusts in a foreign jurisdiction with good trust laws.

International developments …Canada Barbados

A Brazilian person investing in Canada can achieve many benefits including immigration status and residence in Canada. By using the Canada Barbados tax treaty the Brazilian investor can utilize the Canadian rules internationally.

Considering Brazil is a civil law country and trusts may not be recognized, a trust company may not. In Barbados companies that are trustees of trusts can be owned by anyone. A shareholder of a trustee company can appoint directors and officers who can also act as trustees. At all times the Canadian company owns the shares of the trust company and shareholder ownership and corporate law applies.

The Barbados company’s law is actually that of Canada slightly amended. The two jurisdictions work well together. Assets under the trust can be held in a BVI company. The BVI Company is not only tax neutral but the BVI commercial courts can have jurisdiction over the company assets. The best of both worlds is facilitated by a tax efficient structure and world-class property rights.

Wiki Offshore is an online global repository where you can find, collaborate and contribute to information on all things related to offshore investment.

Have something to add? Contributing to Wiki offshore is easy. To add and share your content with others please go here.

Wiki Offshore

We also invite you to review the 2nd Quarter Edition of Cititrust EDGE eMagazine for the year 2012.

Topics in this issue cover:

- Trusts.
- The Offshore Debate.
- Bribery Acts.
- IRS continued scrutiny of foreign insurance subsidiaries.
- Also more from Russia, Austria, Japan, Estonia, India and other jurisdictions.

Download your complimentary copy of Cititrust’s EDGE eMagazine here.

We welcome your feedback and comments through our Twitter, LinkedIn and Facebook channels at www.cititrust.biz

download-5-editions-of-edge-magazine

Posted in Brazil, cititrust, Offshore investment, offshore investments, Tax, Wealth Management | Tagged , , , , , | Leave a comment

How Brazilian families can deploy globally via Canada

Posted on May 9, 2012 by CitiTrust

The Brazilian Family

The Brazilian family considering how to expand internationally naturally has to contemplate how to tax efficiently but compliantly deploy capital. The frictional costs of deploying large amounts of capital are substantial. Withholding taxes and the tax position of foreign direct investments in target countries can make or break a business plan.

The Brazilian tax system is a sophisticated creature and Brazil’s stance on international investment by its residents in emerging. Brazil’s government will ensure the country moves from strength to strength with common sense international tax practice with maximum benefit for the country while addressing massive inward investment from investors worldwide. It is notable that Brazil does not have treaties with the UK nor the United States. Negotiations may well be ongoing.

The wealthy Brazilian based family doing well at home naturally is seeking to diversify their interests internationally and seek out profitable opportunities worldwide. It is a fact the family will find it prudent to use one or other country as a platform for international investment and expansion. Here we consider briefly why a Brazilian family may consider using a Canadian platform.

Why Canada ?

The Brazilian family with mining and oil and technology interests will quickly determine that the Canadian TSX (Toronto Stock Exchange) and Canada generally is an excellent place to raise capital. There are many venture capital investors concentrated in the main cities of Canada who specialize in this investment category and raising funds. The other reasons follow on from here;

I. Raising capital & the Reverse takeover
II. Immigration benefits
III. Canadian global SME growth strategy.
IV. the Canadian Global Wealth management platform.

Canada is like Brazil in that it has a sophisticated set of tax laws including transfer pricing and anti avoidance that prevents erosion of its tax base. The Canadian controlled foreign company rules are called the Foreign Affiliate rules. Brazil’s CFC rules are comprehensive in that they contain no exception for active business income. The Brazilian CFC rules therefore act like attribution rules in that any foreign entity controlled by a Brazilian resident person has its profits subject to tax immediately and on an arising basis. While this may seem ideal to the Brazilian government in the short term the reality is that businesses require large amounts of capital to grow and compete. If the Brazilian government wants to allow its home grown multinationals to attain global scale and compete internationally they should consider their taxation policy.

The Reverse takeover

It is widely known this is a faster route for the medium to small company to gain access to listed status and then the ability to raise capital for expansion. The way this process works is essentially the Brazilian family merges their company with the Canadian listed company. The Canadian listed company then owns the Brazilian company, the Brazilian family likely takes controlling shares in the Canadian listed entity.

The Brazilian family now owns a Canadian listed entity. Typically these entities tend to be dual listed so that the company can trade its shares in the US market also.

The Immigration benefits

Now that the family owns the shares of a Canadian listed entity there are substantial immigration benefits. Including permanent residence on economic citizenship grounds. The family can now make the use of Canadian permanent residence. Not just the patriarch or matriarch but children as well can now get onto the five year countdown to Canadian citizenship. If the family places a key family member to reside in Canada managing the entity this can provide a nexus for the family to work around. Travel worldwide becomes a lot easier with Canadian status.

Canadian global SME growth strategy.

Canada has long had some exceptions to its CFC rules in that where active business income is being generated, if it is in a low tax jurisdiction with a double tax treaty that income was not taxed under the Canadian CFC rules. The reason Canada did this was to facilitate the accumulation of capital amongst its SME sector. By allowing small and medium sized businesses to accumulate capital, these businesses had the necessary capital to scale their businesses and grow into larger companies connected with Canada. This option even facilitated the growth of some multinationals enabling them to more tax efficiently accumulate capital so they could compete wit US and UK multinationals. While the US is high tax at home it operates a deferred tax regime for foreign profits that are not taxed until they are brought back to the US. This has allowed US multinationals to accumulate capital outside the US and deploy it and compete internationally. Abuse of this provision by large multinationals was prevented by transfer pricing.

For a long time Barbados, as the only low tax jurisdiction with Canada, was the only place where low taxed subsidiaries could avoid immediate taxation of profit is under the Canadian CFC rules. This is the case to this day.

This is all relevant to the family acquiring an interest in a Canadian company or executing the reverse takeover outlined above. If the Canadian dual listed entity owns a Barbados subsidiary the Canadian company now has the use of a low taxed subsidiary in a treaty jurisdiction to carry out a range of tax efficient capital deployment activities including captive insurance, financing and international trading. Dividends paid from the Barbados subsidiary to the Canadian parent are not subject to tax in Canada under what is called exempt surplus.

The Canadian wealth management platform

Consider briefly, a Canadian company with a Barbados subsidiary licensed as an international bank in Barbados.

As the bank is licensed in Barbados under the Barbados international Financial services act and because the bank is regulated by the Barbados Central bank, properly in the eyes of the Canadian authorities, even though the bank is subject to zero corporate tax in Barbados and zero withholding taxes on dividends paid to Canada and zero corporate tax on the dividends received in Canada, the bank is still exempted from the Canadian CFC rules. The payment of any dividends to Brazilian owners of the Canadian listed company shares will be charged reduced withholding tax under the Brazil Canada double tax treaty.

The Barbados bank acting as trustee of a Barbados trust can access the Barbados USA double tax treaty and carry out a range of financial services activity and financing without the risk of generating effectively connected income in the USA. There is also the option of establishing a representative office in the USA that is important to some operations like insurance. Barbados has a network of thirty-four treaties and growing including Netherlands, Luxembourg, Spain and Austria. These treaties are all very useful for onward tax compliant structures.

The wealthy Brazilian family of course can therefore very tax efficiently raise and deploy capital from a Canadian parent Barbados bank. Further treaty planning can be used to provide financial if necessary to other Brazilian subsidiaries.

There are currently over sixty private banks in Barbados many of them owned by Canadian parents.

Wiki Offshore is an online global repository where you can find, collaborate and contribute to information on all things related to offshore investment.

Have something to add? Contributing to Wiki offshore is easy. To add and share your content with others please go here.

Wiki Offshore

We also invite you to review the 2nd Quarter Edition of Cititrust EDGE eMagazine for the year 2012.

Topics in this issue cover:

- Trusts.
- The Offshore Debate.
- Bribery Acts.
- IRS continued scrutiny of foreign insurance subsidiaries.
- Also more from Russia, Austria, Japan, Estonia, India and other jurisdictions.

Download your complimentary copy of Cititrust’s EDGE eMagazine here.

We welcome your feedback and comments through our Twitter, LinkedIn and Facebook channels at www.cititrust.biz

download-5-editions-of-edge-magazine

Posted in barbados, Brazil, canada, cititrust, Offshore investment, offshore investments, Tax, Wealth Management | Tagged , , , | 1 Comment

Wiki Offshore

Posted on May 8, 2012 by CitiTrust

Wiki Offshore is an online global repository where you can find, collaborate and contribute to information on all things related to finance. Information covered on Wiki Offshore include, but is not limited to:

- Business & Investment Structures
- Company Structuring
- Corporate & Commercial Law
- Double Taxation
- Estate Planning
- Incorporation
- Insurance Protection
- Intellectual Property
- International Business Compliance
- International Finance
- Limited Liability Companies (LLCs)
- Onshore & Offshore Companies
- Tax Information & Agreements
- Treaty Law
- Trust & Trustee Services
- Wealth Management & Preservation

Have something to add? Contributing to Wiki offshore is easy. To add and share your content with others please go here.

Wiki Offshore

We also invite you to review the 2nd Quarter Edition of Cititrust EDGE eMagazine for the year 2012.

Topics in this issue cover:

- Trusts.
- The Offshore Debate.
- Bribery Acts.
- IRS continued scrutiny of foreign insurance subsidiaries.
- Also more from Russia, Austria, Japan, Estonia, India and other jurisdictions.

Download your complimentary copy of Cititrust’s EDGE eMagazine here.

We welcome your feedback and comments through our Twitter, LinkedIn and Facebook channels at www.cititrust.biz

download-5-editions-of-edge-magazine

Posted in Offshore investment | Tagged | Leave a comment

2nd Quarter edition of Cititrust EDGE eMagazine for the year 2012

Posted on May 7, 2012 by CitiTrust

Dear Readers,

We invite you to review the 2nd Quarter Edition of Cititrust EDGE eMagazine for the year 2012.

Topics in this issue cover:

- Trusts.
- The Offshore Debate.
- Bribery Acts.
- IRS continued scrutiny of foreign insurance subsidiaries.
- Also more from Russia, Austria, Japan, Estonia, India and other jurisdictions.

We’re confident that you will find it interesting and informative.

Download your complimentary copy of Cititrust’s EDGE eMagazine here.

We welcome your feedback and comments through our Twitter, LinkedIn and Facebook channels at www.cititrust.biz

Sincerely,

Joy Godfrey, Director

Cititrust International, Inc.

download-5-editions-of-edge-magazine

Posted in Offshore investment | Leave a comment

From ‘Rags to Riches and Back’

Posted on May 2, 2012 by CitiTrust

Preservation of Wealth to avoid ‘Rags to Riches and Back’

It is not always easy to ensure that wealth is maintained in a family for many generations. There are two possibilities for families, or should we say dynasties, where the daring or plain hard-working patriarch has turned their miniature funds into gargantuan wealth:

Possibility 1 – The wealth is preserved in the family for many generations – As an example, Hoshi Ryokan is a family owned Japanese hotel business that has run in the same family for 46 generations. In Japan and other countries where family tradition is strong, it is not unique. There is no need to add anything: they have all of the family governance that they need for stability and success.

Possibility 2 – The wealth lasts one a few generations. The Americans describe the process as “shirtsleeves to shirtsleeves in three generations”, the wealth being built up by the labour of one, to be dissipated by the following generations, returning them to their grandparents’ shirtsleeves. Unfortunately it would appear that most British and American family-owned businesses are lucky to span two generations.

Why is this? Examples of common challenges to passing wealth down the generations include:

• The negative personal effects of inherited wealth
• Legal ties over succession to wealth
• Matrimonial claims
• Taxation
• Mismanagement and misappropriation
• Family strife

Any of these can cause serious financial loss. The family strife points are commonly when there is a major family change in a family structure – a divorce or a change of generation, when the old order passes and the young can get their hands on the family silver.

How can families be helped to hold on to the family wealth?

Estate planning is the means by which property is passed intact for the benefit of successive generations. All estate planning involves the technical aspect of passing on a rich person’s wealth, but it also comprises further elements:

• identifying and implementing his or her objects and wishes
• protecting wealth from unnecessary taxation
• protecting wealth from outsiders
• protecting wealth from destruction by insiders
• protecting insiders from destruction by wealth
• averting family strife
• preserving and growing its value

The professional adviser must listen carefully and identify the client’s real issues and concerns, which are not always readily disclosed.

Those of us involved in estate planning are familiar with a variety of tools – trusts, companies, foundations, partnerships, and so on. An estate plan will not always comprise only a simple will: it must sometimes include elements of “family governance”, a means of regulating involvement of the wider family, to ensure that it is not allowed to dissipate the wealth.
What elements could make up a family governance structure? Some include:

A. Identifying and stating the objects and vision of the family undertaking.

B. Preparing and implementing a constitution, defining roles and benefits for family members, to which family members must adhere or be cast adrift: it must be more worthwhile to sign up than not to do so.

C. A body of family members, representative of different parts of the family, introducing a measure of democracy and playing a greater or lesser role in decision-making.

D. Succession planning: managing the generational change, rather than merely passing on the assets.

E. A family office dedicated to the management, by professionals, of the wealth.

F. Periodic family meetings, to share information and views and thereby ensure that family members do not feel disenfranchised.

G. A specific plan for the family business, to ensure stability and success and yet a fair sharing of the benefits.

H. Flexibility: not only must the structure be bespoke for this family, but it must be able to adapt to changing circumstances and time.

This bears more than a passing resemblance to corporate planning and governance, and of course this is from where many of the ideas have been drawn.

In conclusion, ultimately the idea must be aimed at ensuring that the wealth is retained, that the family members live healthy, happy and valuable lives and leave the wealth behind for succeeding members.

For, as Margaret Ward put it: “Our most important tasks as families are to make ourselves redundant and to die in peace.”

BY GAVIN FERGUSON & JOHN RIMMER

For further inquiries use our fast and confidential Live Chat service.

download-5-editions-of-edge-magazine

Posted in belize, cititrust, Estate Planning, Hong Kong, offshore banking, offshore companies, offshore company, offshore company formation, offshore foundations, Offshore investment, offshore investments, offshore trusts, retirees, Tax | Tagged , , , , | Leave a comment

IRS Seeks to Boost Revenue: Introduces 2012 Voluntary Disclosure Program

Posted on April 30, 2012 by CitiTrust

On January 9, 2012, the IRS issued a press release (IR-2012-5), which announced the reopening of the offshore voluntary disclosure program. During the release, IRS indicated that it had collected in excess of $4.4 billion from taxpayers who participated in the 2009 and 2011 voluntary disclosure programs. These figures include $3.4 billion from those who participated in the 2009 program (95% of these cases have closed), and $1 billion from those who participated in the 2011 program. The $1 billion figure will increase significantly as the 2011 cases are processed, since taxpayers were not required to prepay the offshore penalty in the 2011 program.

Important Distinctions. The 2012 offshore voluntary disclosure program does not have a deadline by which taxpayers must make a disclosure. However, the IRS made it clear that the terms of the program could change on a whim. For example, the IRS could exclude certain taxpayers from participating in the program (perhaps those affiliated with a certain foreign bank that is about to turn over account information), increase the size of the penalties on all or a certain class of taxpayers, and possibly even terminate the program in its entirety.

The IRS intends to release additional details about the program, and update its frequently asked questions, which can be found on its website here.

Requirements.

The 2012 voluntary disclosure program requires taxpayers to cure any foreign-based noncompliance that exists during tax years 2003-2010. Besides filing complete and accurate amended tax returns (or original returns, if applicable), taxpayers must pay the following amounts to the IRS: (i) the tax deficiency, (ii) interest on the deficiency, (iii) a 20% accuracy-related penalty on the deficiency (or the delinquency penalties if original returns were not previously filed), and (iv) an offshore penalty for the years in question equal to 5%, 12.5% or 27.5% of the year with the highest aggregate balance held within the foreign accounts as well as (i) the value of any previously unreported income producing assets and (ii) the value of assets purchased with previously unreported income. These requirements and penalties are identical to those under the 2011 program, with the one exception that the highest penalty is now 27.5%, as opposed to 25% in the 2011 program.
Penalties. Taxpayers can quality for the 12.5% penalty if (i) the highest aggregate account balance, (ii) the fair market value of assets generating income, which were not reported in the U.S., and (iii) the fair market value of assets in undisclosed foreign entities, if procured with untaxed funds, at no point exceeded $75,000.

Three categories of taxpayers can qualify for the 5% penalty. These include certain:

(i) individuals who inherited accounts.

(ii) individuals who did not know that they were U.S. citizens.

(iii) individuals who were resident of a foreign country.

1. Inheritance.

A taxpayer must satisfy all four requirements to receive the 5% penalty. (i) The taxpayer could not open the account or cause the account to be opened; (ii) The taxpayer must have had infrequent contact with the bank and exercised minimal control over the account; (iii) During the years covered by the voluntary disclosure, the taxpayer could not have taken out more than $1,000 in any calendar year, unless the account was closed and the funds were transferred to the U.S.; and (iv) the taxpayer will have to identify the source of the deposit and, if that source was taxable in the U.S., prove that tax was paid on it unless the deposit into the account was prior to 1991.

2. Accidental American.

The procedural requirements for “accidental” U.S. citizens to qualify for the 5% penalty are surprising. If a taxpayer was born in the U.S. to foreign parents, and is consequently a U.S. citizen, but grew up in a foreign jurisdiction, the taxpayer is entitled to the 5% penalty provided she did not know she was a U.S. citizen. An example in FAQ52.2 fleshes out these requirements. The example states that the taxpayer “became aware she was a U.S. citizen when she had to get a birth certificate in order to obtain a passport from the foreign jurisdiction where she resides.” Because this is the only instance in which the taxpayer realized she was a U.S. citizen, the example declares she is entitled to the reduced 5% offshore penalty.

A variation on this example has the opposite result: the taxpayer was born in the U.S. to foreign parents, grew up in the foreign jurisdiction, but always knew that she was a U.S. citizen; her penalty will be 25% and not 5%.

3. Foreign Resident.

For certain taxpayers who have lived abroad during each of the years covered by the voluntary disclosure, the penalty is not only reduced to 5%, but the penalty will only apply the value of the foreign accounts, as opposed to including the value of foreign assets. To qualify for the reduced penalty, taxpayers must: (i) reside in a foreign country; (ii) make a good faith showing that he or she has timely complied with all tax reporting and payment requirements in the country of residency; and (iii) have no more than $10,000 of U.S. source income each year. The IRS interprets the $10,000 limitation as including gross income, as opposed to net income.

Enforcement. Commissioner Doug Shulman continues to warn taxpayers to come forward and submit a disclosure before the IRS finds them. “As we’ve said all along, people need to come in and get right with us before we find you,” he said. “We are following more leads and the risk for people who do not come in continues to increase.”

Conclusion.

There is nothing illegal with having a foreign account, but such accounts must be reported. While not every failure to report the existence of a foreign account is criminal, the IRS is seeking to claim they are willful. The willful penalty for failure to report a foreign bank account is 50% of the account value. Since the terms of the 2012 offshore voluntary disclosure program are much less than the 50% penalty, the program offers taxpayers quite possibly the best last chance to resolve their noncompliance.

Kevin E. Packman, Holland & Knight LLP, Miami

If you would like to discuss options for resolving your compliance or require assistance in dealing with the IRS, Holland & Knight’s Offshore Tax Compliance Team is available to offer assistance.

For further inquiries use our fast and confidential Live Chat service.

download-5-editions-of-edge-magazine

Posted in cititrust, IRS, offshore banking, offshore companies, offshore company, offshore company formation, offshore foundations, Offshore investment, offshore investments, offshore trusts, Tax, trust, Wealth Management | Tagged , , , , , , , | Leave a comment