An onshore or offshore company is usually established for two possible reasons: out of a need for anonymity – in order not to appear either as a director or shareholder; and/or, to protect assets in order to ensure that they cannot be seized. When creating an offshore company privacy can be achieved by appointing a so-called “nominee director” who acts on the client’s behalf. The client bestows either full powers on this nominee director, through a “General Power of Attorney”, or limited powers in the form of a “Limited Power of Attorney”. The company’s units or shares can also be held by a “nominee shareholder”, i.e. a person or company that holds the shares on the client’s behalf to protect their privacy.
It is also possible to hold the company’s shares in a trust. The trustee can hold the shares subject to pre-agreed conditions. A trust may hold any type of asset including stocks, bank accounts and movable or immovable property. A trust protects the assets from being seized or controlled by a malicious third party. In the event of death, the trust also makes it possible to transfer assets anonymously and discretely, often without the need for probate and whilst avoiding inheritance tax.
The Trust: Principles and Advantages
A legacy of the middle ages, the modern trust is an effective way of benefiting from tax breaks and protecting assets. It is commonly used in common law countries. A trust is usually used as a company holding other companies and it is therefore the first link in a chain of ownership. Trust property is owned by a “trustee” (who may be either a natural or legal person) and may be subject to restrictions imposed by by a “protector”, if one is appointed. In general, the trustee must be licensed by a special authority, such as the Financial Service Commission.
A combination of four entities is required to constitute a trust:
- The “settlor” who established the trust and settles all or part of his/her/its assets on the trust. The settlor can be a natural or legal person.
- The trustee who manages the trust and its assets. The trustee acts in the beneficiary’s interest, and follows the settlor’s instructions. The trustee can also be a natural or legal person.
- The beneficiaries who are the entities who benefit from the trust and its management by the Trustee. The list of beneficiaries can also include the settlor.
- The protector, if appointed, is a neutral third party who has some control over the actions of the settlor, subject to the terms of the trust instrument.
The Advantages of Trusts
The advantage of a trust is that it optimises tax benefits for the settlor’s assets in accordance with the tax laws of the country in which the trustee is located, while the settlor can reside in another country. Trusts are also useful for transferring assets while avoiding taxation and for holding assets owned by several companies. Finally, a trust guarantees protection against the seizure of assets because settled into trust assets are no longer the property of the settlor.
There are two main decisions when establishing a trust:
- Discretionary or fixed interest: Discretionary trusts do not specify the distribution of revenue and assets, except in a private document, and grants the trustee a degree of discretion over his conduct whereas fixed interests trusts specify this distribution in the trust instrument and limit the discretion of the trustee.
- Revocable or Irrevocable. Revocable trusts allow the Settlor to recover his assets and end the trust whereas irrevocable trusts do not.
Foundation: Structure and Advantages
Fidusuisse Offshore can provide you with the expertise necessary to set up your foundation. A foundation makes it easier to manage your affairs. Foundations can be created in most countries and be fully customized through the use of By-Laws. There are two main types of foundations: the first is a “charitable foundation” which is focused on a specific theme and which makes it possible to finance such activities as humanitarian aid, sport activities, cultural events, etc. Art foundations are charitable foundations as they make it possible to purchase works of art and promote artists. The other type of foundation is the “private foundation”, which is used on behalf of one or more private persons. This is the type of foundation used for corporate or family foundations as it is possible to contribute funds in order to enable these foundations to grow. Although a private foundation may also be for charitable purposes, a charitable foundation may not generally be used for private benefit.
The advantages of foundations:
- A foundation may own movable and immovable property.
- It can buy vehicles (aircraft, boats, cars, etc.).
- It can hold shares in companies.
- It can have a specific purpose: humanitarian, sport activities, scientific, etc.
- Unlike a trust it is an incorporated entity with its own legal identity.
- Foundations may be more acceptable to civil law countries than trusts.