Category Archives: Indian and Pacific Ocean Tax & Money Havens

American companies are living the United States because of high taxes

The corporate tax rate in the United States is the second highest in the developed world.

American companies are finding new overseas tax havens to legally protect some of their profits from the U.S. tax rate of 35 percent, among the highest in the world. Lesley Stahl reports. Move your corporation or part of your corporation out of the United States while it still is possible. Do not wait as the current negative sentiment could result in restriction on US companies in the future.

See the video covering the story at: http://www.cbsnews.com/video/watch/?id=7376848n&tag=nl.e882#ixzz1VmZRlPaG

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The Tuvalu International Business Corporation – Very competitive

The Tuvalu International Business Corporation to facilitate the conduct of businesses by the international business and shipping community.

Situated in the Pacific ocean near the intersection between the equator and the international date line, Tuvalu has emerged as a modern and cost effective offshore jurisdiction to register an international business company, particularly for the shipping industry.

Formerly known as the Ellice Islands, Tuvalu consists of nine islands scattered over a million square kilometers in the Western Pacific Ocean. Tuvalu separated from the joint administration of the Gilbert & Ellice Islands and became an independent state on October 1, 1978 after more than eighty years of British colonial rule. It enjoys political stability, low taxes and a familiar legal system for international business based on common law principles.

Senior Lowtax Business Editor Jeremy Hetherington-Gore welcomed the advent of the Tuvalu International Offshore Financial Centre (OIFC): “You could say that Europe and the Americas are well-served by OIFCs, with nearly forty operating in the Atlantic basin; but there are many fewer in the Asis-Pacific zone, and this is all the more remarkable when you consider that it is going to be the dominant economic region of the world in the next twenty years. So I am very happy to see that Tuvalu is making strides both in terms of its Companies Registry and in terms of its Shipping Registry.

Tuvalu International Business Companies are governed by the Tuvalu International Companies Act which is regarded as a modern piece of corporate legislation tailored specifically to the needs of international shipping related businesses. Incorporation is quick and straight forward, and a company can be formed within one business day

Under the International Companies Act, a company incorporated as a Tuvalu IBC is required to have only one shareholder and only one director. Every company incorporated as a Tuvalu IBC is required to keep a Register of Directors and one or more Share Registers. However, the copies of the Register of Directors and Share Register kept by the registered agent and the Registrar are kept confidential, and do not form part of the public record of the Registry. IBCs are not subject to any tax liability in Tuvalu and need not file any financial statements. There is no minimum issued share capital requirement and offshore companies are exempt from stamp duty on all transactions. Shelf companies are also available. Like most offshore jurisdictions, certain restrictions are placed on Tuvalu IBCs; for example, they cannot carry on business with persons resident in Tuvalu or own real property located in the jurisdiction. Separate licences must be applied for if a company wishes to carry on banking, trust, insurance or reinsurance business. Incorporation costs are relatively low; a new incorporation costs approx. USD 1.500 inclusive of the full ‘corporate kit.’ An annual renewal tax fee of USD 425 is payable yearly.

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Private Foundations

We can help you to establish a Private Foundation. Essentially, Private Foundations act as a holding entity for assets transferred to them.  The transfer is usually in the form of a gift, by a person referred to as the donor and in some jurisdictions, the term “settlor” is used.

The Private Foundation have traditionally been used over the centuries for benevolent or charitable purposes, often being associated with pieces of art or other valuable collections. The Private Foundation works well for individuals desiring a straight forward asset holding/protection structure designed to provide beneficiaries with an asset-derived income.

Foundations cannot be used for trading activities or for conducting financial service business activities.  However, the buying and selling of assets (real estate, shares in trading companies, investments etc.) is not considered a trading activity. Foundations can act as a shareholder but not a director or officer, in a trading entity like a corporation.

There is no gift tax to pay at the time a Foundation is established, and earnings generated by the Foundation are tax exempt. However, incomes paid by Foundations to its beneficiaries, once declared by beneficiaries, might be subject to local taxation at their place of domicile.

Because the Foundation’s assets are gifted, the donor receives no payment in return. The Foundation becomes the owner of the assets endowed to it and, as such, the entity has a separate legal personality. It is in this area that Foundations fundamentally differ from trusts, since trusts are not considered to be legal entities.  In the case of a trust, legal title of its assets is held in the name of the trustee.

In order for the Foundation to function, the assets need to have been endowed and placed at the disposal of the Foundation and its officers.  This endowment satisfies the tax inspector’s question “has the property ceased to be the asset of the tax-payer (donor)”. One of the documents required at the time of registration of a Foundation is a Certificate of Initial Assets signed by its officers. This declaration must confirm that assets of not less than US$ 10,000 in value have been endowed to the Foundation. Upon receipt of the Certificate of Initial Assets, the Registry will issue a ‘Certificate of Endorsement of Statement of Value of Initial Assets’.  The specific assets endowed at the time of registration need not be named and additional assets can be gifted at anytime, again without any public record of their value or their source.

Unlike trusts, once assets are placed in a Foundation, they cannot be withdrawn at will by the donor.  A statement relating to the endowed assets also needs to be included in the Memorandum of Endowment signed by the donor and submitted with the application to register. The Memorandum is not filed, but is returned to the Foundation attached to a Certificate of Endorsement of Documents issued. An ‘Extract of Particulars of the Memorandum of Endowment’, signed by the Secretary of the Foundation is filed. The names, addresses and specimen signatures of the appointed officers and the Secretary, and details of the address to be used for the service of documents to the donor are included in this Extract. The name of the donor does not appear in the Extract and, therefore, need not become public information. In addition, more than one donor is permissible, and there are no restrictions on residency or nationality of the donor.  However, a donor cannot act as an officer or be appointed as the Secretary of the Foundation, but can participate in its supervisory board, if one is appointed.  Moreover, the donor can be one of the beneficiaries.

Management responsibility of a Private Foundation sits with its officers who determine the distribution of income and capital in accordance with the donor’s instructions.

A minimum of three officers need to be appointed, and at least two officers must be physical persons. One of the officers can also act as the Secretary, and a corporate Secretary is permitted. Consent to Act declarations for each officer and the Secretary need to be submitted with the application to register the Foundation, and these are filed together with the Extract. As with the donor, there are no restrictions on residency or nationality for the officers and/or the Secretary. Officers can delegate their powers to one another. To assist in the management of a Foundation, the officers may decide to appoint a Supervisory Board comprised of at least three physical persons.  Private Foundation Law permits a donor to participate on the Supervisory Board.

The Supervisory Board must be established as a body that is independent of its officers and beneficiaries. The Board acts like the Protector of a trust. Similarly, auditors may also be appointed. The procedural rules for running a Foundation are set out in the Management Articles, a document that is very similar in scope to the bylaws of a corporation. The Articles are signed by the donor and submitted with the application to register the Foundation. Like the Memorandum, the Management Articles are not filed, but returned to the Foundation attached to a Certificate of Endorsement of Documents.

A typical function of a Private Foundation is to provide beneficiaries with an income derived from an asset(s) endowed to it from a donor(s). As has been outlined above, the donor provides guidelines as to how the Foundation is to be managed and also defines who the beneficiaries will be, what payments should be paid to the beneficiaries, and when payments should occur.

While the officers of the Foundation need to know the names of the beneficiaries, such information is not required to be filed. A donor can also provide further guidance to assist officers to manage the Foundation in the form of a Letter of Wishes and, from time to time, change the beneficiaries. The Letter of Wishes is an internal document and not, therefore, filed.

Once formed, a mandatory annual return for the Foundation, signed by the Secretary must be submitted.  The annual return must confirm that the information filed in the Extract remains correct and that proper accounts have been maintained.  Annual returns are not publicly filed.

The Private Foundation provides a perfect holding structure for emerging financial and asset empires, while distancing the donor from otherwise taxable events.  The Foundation permits income generated from assets held by the Foundation to be available to the donor and subsequently his heirs in accordance with the (changing) wishes of the donor/settlor.   At the same time, the Foundation keeps intact the wealth-generating activities of a family (shipping operation, hotels, property, licenses, royalties, manufacturing or service activities).

The above concept is based on Austrian law and also used in Liberian Private Foundations. Similar foundations are available other places like Panama and Mauritius.

Contact us if you are interested to set up a Private Foundation.

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