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Sulieman Neal Sullivan Group Inc can help you form tax exempted companies and design offshore structures that will allow you to manage your assets effectively. We will always take the time to explain and clarify the small details. We have offices in Los Angeles, CA and Bangkok, Thailand.
Frequently Asked Questions
The Cayman Islands levy no taxes whatsoever on income, capital, capital gains, or sales. There are no withholding taxes and no taxes on inheritance. The Cayman Islands generate revenue by the imposition of customs duties, by a stamp duty on land transfers, and by other indirect means. There is no currency exchange control in the Cayman Islands.
We recommend that you obtain fiscal and legal advice from attorneys and tax and financial experts in your own country in relation to what you intend to achieve by using a Cayman Islands company. This firm will not advise on any foreign legal or other ramifications of any business or tax venture or scheme and we advise only on the laws of the Cayman Islands.
An “exempted company” under the Companies Law of the Cayman Islands is one whose objects are to be carried out mainly outside the Cayman Islands. There are several advantages afforded by the law to exempted companies over ordinary (non-resident) companies.
An exempted company may be granted a twenty year guarantee that it will not be subjected to taxation (even though there are presently no taxes in the Cayman Islands). Clients should consider the potential value of possessing a Tax Exemption Certificate (TEC) in the event that taxes are ever introduced in the future in the Cayman Islands on profits and income of exempted companies. That value will of course depend very much on the level of net annual income that their exempted companies produce and in many situations that number may dwarf the government increase, making TECs still very attractively priced to some clients.
The names of the shareholders of an exempted company are not required to be filed with the Registrar of Companies and an exempted company need only have one shareholder.
The annual reporting requirements are minimal and consist only of a statement signed by the company secretary or a director. In addition, the operations of the exempted company must be carried out mainly outside of the Cayman Islands, the provisions of Section 193 of the Companies Law must be complied with (Section 193 precludes an exempted company from trading in the Cayman Islands except in furtherance of its business carried on outside the Cayman Islands), and any bearer shares must be held by a custodian.
An exempted company is permitted to issue “no par value” shares. The name of an exempted company may be in a foreign language and need not include the word “Limited” or the abbreviation “Ltd.”. An exempted company is not required by law to hold a general meeting of its members.
A company cannot be formed until we have received funds and the completed company and due diligence questionnaires. Once received, we can usually submit a company to the Registrar for incorporation on the same day. However, it may take a week to have the completed papers returned to us from the Registrar of Companies. If you have an emergency requirement for a company, documents can be returned on an “express basis” at an additional cost.
The information we require for incorporation is:
- The preferred name of the exempted company with at least two alternatives.
- The authorized share capital of the exempted company. The majority of exempted companies are incorporated with an authorized capital of US$50,000 as this is the maximum authorized capital permitted for payment of the minimum government fee.
- Any special classes of shares desired and the par value of the shares. If it is contemplated that the exempted company may wish to repurchase or redeem any of its shares at a future date then a class of specifically redeemable shares should be created, such as a class of redeemable preference shares.
- The name(s) and address(es) of the beneficial owner(s) of the shares, whether the shares are to be registered or bearer, and the number of shares to be issued to each shareholder. If the shares are to be bearer shares, the name, address, and references of the person to whom the shares are to be delivered must be provided to us. We must have a mailing address and the name of a contact with telephone and fax numbers.
- If the objects of the exempted company are to be restricted, specific details as to the purposes and objects of the exempted company will be required. Otherwise, our standard objects clause is drawn so widely that the exempted company can undertake any business which a natural person can undertake.
- The names and addresses of the directors and officers which must be filed at the office of the Registrar of Companies. A simple notice of acceptance of appointment by each prospective director and officer should also be provided. An exempted company need only have one director. It is also recommended that a company secretary be appointed. The same person may be both director and secretary.
We provide the following services:
Cayman Islands law requires us to “know our client” and we must know the proposed activities of an exempted company to be formed by us. We must also have basic information on its proposed directors, officers and shareholders. Before we incorporate any exempted company, we require you to complete and return to us a due diligence questionnaire.
Annual fees, due in January of each year, are US$1,827 for an exempted company with the minimum authorized share capital (which includes our annual registered office fee of US$1,095 and government fees of US$732). We can provide the office of secretary or assistant secretary for US$300 per annum. We also offer mail forwarding services at a fee of US$300 per annum.
Should you wish to proceed with the incorporation, we kindly request that you provide to us a retainer in the amount of US$3,500.00 on account (or US$4,000.00 for an express incorporation). This amount may be paid by way of cheque, money order, bank draft, or a wire transfer as per the wiring instructions below. We will deliver a fee note to you at the completion of the incorporation.
Nevis is a small island in the Caribbean Sea that forms part of the inner arc of the Leeward Islands chain of the West Indies. It is located near the northern end of the Lesser Antilles archipelago, about 350 km east-southeast of Puerto Rico and 80 km west of Antigua. Its area is 93 km² and its capital is Charlestown.
Nevis IBC is a limited liability company which conducts its trading and business outside the Nevis and is intended for offshore activities. It takes up to 2 days to incorporate a company in the Nevis.
The directors of the company may be of any nationality and may reside anywhere. At least one director is required and there is no requirement to appoint a local resident director. The shareholders of the company may be of any nationality and may reside anywhere. At least one shareholder is required, this can be the same person as the director. There is no upper limit to the number of shareholders and a shareholder can be a person or a corporation.
The standard share capital of a Nevis IBC is $1,000 USD. However, only one share of the share capital must be issued and paid up. Your company’s share capital can be issued in any currency.
The company must have a registered agent and registered office in Nevis. There is no requirement for local secretary. The details of shareholders and directors do not appear on public record. The company must maintain accounting records. It does not have to keep records in the Nevis and there is no requirement to file accounts or a financial statement. There is no requirement for having audited accounts or a corporate tax return. There are no corporate taxes for a Nevis IBC, except for the annual government levy of USD$250 for standard share capital.
When making the decision to utilize the tax advantages offered by an offshore jurisdiction, the choice of where to locate the structure is of extreme importance. Several of the well known jurisdictions have signed an “exchange of information” treaty with the US. Recently others, under the supervision of Great Britain, have just been told that a Company Formation Agent (CFA) must be used to form an exempt corporation and that all information on beneficial ownership, directors, and officers of corporations established in their jurisdiction must be recorded and on file with the CFA. This information must be made available to the Registrar or Financial Services Department of the jurisdiction on demand, and while the information is not available to the public it may be passed on to the UK, the US, and other approved or authorized persons. Such information must be available to any “regulatory or criminal investigation, whether by the local authorities or, when permitted by law, by an overseas authority.”
To make the selection one must first be comfortable with the stability of the region. This is followed in importance by the sophistication and capability of the financial infrastructure. Last but not least are the personnel with whom you would be working. Obviously the confidentiality of your personal situation should not be available to any authorities unless they have a sustainable claim of criminal fraud.
In the event that you do not wish to have information potentially available to the UK or US authorities, your choices are now somewhat circumscribed. The island of Nevis is emerging as a significant force in the field and is independent. The Bahamas are independent and Panama is emerging from their “dark ages” and becoming a viable jurisdiction again despite the potential for the US to apply pressure to the government.
Of course, one can have business activities in any of the jurisdictions without revealing the details of the owners of the foreign corporation or trust that is engaged in that business activity. This enables the use of Bermuda to act as custodian or broker for securities. BVI can be used for the creation of a corporate protector. Recently due to the considerations above Nevis has become a primary site for trust and corporate formation.
The basic concept behind designing an offshore structure is the development of a structure that is not tainted by the client or his heirs and assigns.
The best tool for holding and handling assets is one of various types of Limited Liability Company. Unfortunately there are precedents that look through the corporate veil to the ultimate beneficial owner. Thus ownership of the company by the client, even in nominee form, is unacceptable. The solution is to have an ownership vehicle that removes any possibility of being tainted by the client. Most practitioners use a trust to own the shares of the underlying company.
However, in most developed countries anti-trust tax legislation has been put in place, where the revenue services deem a trust to be originally from the country of the settlor or beneficiary or both. Taxes are assessed on income or wealth whether or not the settlor or beneficiaries have received any benefit at all.
Whilst this is a tax neutral situation, and the trust provides asset protection from litigation and creditors, it provides little to defer tax or handle estate duty problems.
The solution is the use of a trust that is not tainted by the settlor (deemed or otherwise), beneficiaries, trustee, or protector to own the underlying company. A foreign purpose trust would meet these requirements.
The settlor and beneficiaries may be eliminated from the trust by having a foreign trustee create a purpose trust by declaration and appointing a foreign protector whose job is to keep a weather eye on the trustee.
This technique effectively pulls the whole structure outside the purview of the country of origin, as the client has nothing to do with the formation and set up of the structure. This anticipates changes passed and proposed by onshore countries attempting to enfold foreign trusts in their regulatory and tax net.
As an example, the US passed changes to the Internal Revenue Code that resulted from the Small Business Job Protection Act and the Health Insurance Portability and Accountability Act. These new Acts require reporting from a) US grantors of foreign Trusts, b) US beneficiaries of distributions from any foreign trust, and c) receipt of gifts exceeding $10,000 in any one year.
The use of the foreign purpose trust format for the past few years has avoided any of the above reporting or taxation requirements. A purpose trust is based on UK law and was initially devised to enable family members to use the funds in the trust to acquire burial plots. Its usage has since been expanded but its purpose must be considered to provide a social or community benefit. It has a finite life and a minimum charitable funding amount.
There are two controlling factors:
a) The protector who ensures that the trustee is fulfilling the purpose of the trust and is able to terminate the trust prior to its expiration date. When the trust is terminated, the protector has the responsibility to appoint remaindermen for the funds remaining in the trust or to appoint another trust with specified beneficiaries.
b) The authority to change the trustee to any foreign person, excluding themselves, or to change the jurisdiction of the trust. These last powers can be assigned to the client or their representative if so required but frequently a foreign fiduciary is used to handle that task. In the US the IRS conceded that the power to change the trustee and jurisdiction are not sufficient to make the protector a grantor of the trust (Rev. Rul. 95-58).
It is recommended that the protector be a foreign fiduciary corporation (Bank, Trust Company, or Law Firm) who will be responsive to the counsel of the client for direction. In the event that the protector (sometimes called an enforcer) resigns or dies, the trustee can appoint a new protector as long as he is not an onshore person.
As was ably explained by Paul Egerton-Vernon in the Trust & Trustees article “Purpose Trusts” in December 1997/January 1998: with the exception to the rule for charitable trusts, there was a general principle in law that it was not possible to have a trust for a specific purpose. This led to the development of the purpose trust for specific purposes by the introduction of legislation. The Cook Islands was the first jurisdiction to introduce this legislation, followed by Bermuda in 1989.
Technically under the trust acts that are being passed in many offshore jurisdictions, a purpose trust may be created for the sole purpose of owning the shares of an underlying company. It has been mooted that the “holding of the shares in ZYX Ltd” is not so much a purpose as a description of how the assets in a trust are to be held.
The use of the word “charitable” has connotations in law that would be overlooked by the layman, such as the relief of poverty, advancement of education, advancement of religion, protection of the environment, advancement of human rights, and other purposes which are beneficial to the community. The use of the word charitable in the trust deed will therefore turn the interpreters of the law to these specific terms and definitions.
Thus in drafting the trust we wish to escape the pitfall of “not having a purpose” and also be careful not to call the trust a charitable trust, but still use the concept of a purpose trust with philanthropic and social purposes.
Most clients have organizations that they would like to support. Some of them may be registered charities and others may not be. We must therefore give our purpose trust bona fide purposes. The problem with including a specific known charity (Red Cross, United Way, etc) is that the trustee is obliged to inform them they are beneficiaries of the trust. In the event that the protector decides to terminate the trust, he may well be challenged by one of these charities as to whom and what is distributed to the remaindermen.
The solution to this is to create another offshore company in your jurisdiction of choice (but outside that of the trust and the underlying company) which will be a foundation and beneficiary of the purposes of the trust. This solves the problem of ensuring that the purpose is capable of performance and ensures that the protector and trustee will not get blindsided by some fringe group claiming to have an interest due to their charitable activities.
Having developed and constructed the structure it is necessary to get the assets into the trust without it being tainted by the “donor”. This is achieved by using an arms length third party contractual agreement that ensures that the transaction is a transfer of assets at market value. These may consist of, but not be limited to, annuity contracts, term life products, or a combination thereof. The objective is for the underlying company to receive from the client any asset at market value in exchange for an agreement to perform in the future.
Once the funds are in situ, the company may make arrangements to provide loans to the client as one of its investments secured by the contractual agreements.
These unique tax planning tools have largely been ignored by the professionals as the transactions are unsecured and the buyer could take the property and be unable or unprepared to make payments. With intelligent choice of buyers, these methods may become very sophisticated methods of tax avoidance.
Finally one of the added benefits to this type of structure other than asset protection is that it is flexible and may easily be adjusted to be tax efficient for differing situations and can ensure continuity of wealth through future generations.
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Whether you have questions about offshore structure design or any aspect of tax exempted companies, we are here to help. We can provide you with accurate and up-to-date information about Wealth Fiduciary Structure. Complete the online form to learn more about offshore investment or call Sulieman Neal Sullivan Group Inc for an appointment.