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0. Contents n e r r a W k r a M d n a e i t t a e P s e l r a h C © t h g i r y p o C 1. About Sovereign 4 6. Principles of Corporate & Tax Law 46 2. The Sovereign Group 6.1 Introduction Directory 6 6.2 Bases of Taxation 6.3 The Legal Framework 3. Services 10 6.4 Confidentiality and International Initiatives 3.1 Company Formation 6.5 Death of the Client and Trusts and Management Services 6.6 Special Types of Companies 3.2 International Tax Planning 3.3 Bank Introductions 7. 3.4 Accounting and Auditing Trusts & Trustee 3.5 Trust Creation and Trustee Services Services 64 3.6 Immigration and Residency 7.1 Introduction 3.7 Wealth Management 7.2 Advantages of a Trust 3.8 RegisterAYacht.com 7.3 Which Jurisdiction? 3.9 Sovereign Credit Cards 7.4 Disadvantages and Solutions 3.10 Trademark and IP Services 3.11 Fund Formation and Administration 3.12 Offshore Gaming Licence Applications 8. Jurisdiction Profiles 72 3.13 Sovereign Insurance Services 8.1 Bahamas 8.2 Belize 4. Frequently Asked 8.3 Bermuda Questions 20 8.4 British Virgin Islands (BVI) 8.5 Cayman Islands 8.6 Cyprus 5. Case Studies 28 8.7 Dubai 5.1 Purchasing a Trading Company 8.8 Gibraltar 5.2 Structuring Patent Royalties 8.9 Guernsey 5.3 Purchasing Property 8.10 Hong Kong 5.4 Holding Company for Dividends 8.11 Isle of Man and CGT Planning 8.12 Jersey 5.5 Personal Service Company 8.13 Malta 5.6 Estate Duty / Inheritance Tax (IHT) Planning 8.14 Mauritius 5.7 Obtaining UK Non-Domicile Status 8.15 Netherlands 8.16 Samoa 8.17 Seychelles 8.18 Singapore 8.19 The Turks & Caicos Islands (TCI) 8.20 Uruguay 8.21 Further Information

3 1. About Sovereign n e r r a W k r a M d n a e i t t a e P s e l r a h C © b e l e C SOVEREIGN’S CORE BUSINESS is setting up and managing companies, trusts and other structures to meet the specific personal or business needs of our clients. Typically these needs would include tax planning, wealth protection, property ownership and facilitating cross-border business.

We currently manage over 7,000 structures for a wide Our global reach enables us to provide local expertise on variety of clients. We advise public companies and pro- an international scale and allows our clients access to a fessional law and accountancy firms but the majority of global service from a local point of delivery. It also means our clients are individuals: expatriates, entrepreneurs, that, in most cases, business can be conducted in the freelance consultants, private investors, or wealthy per- client’s first language. sons and their families. This brochure is intended as a general guide to We have also developed a wide range of supporting Sovereign and the services that it offers. We always services including wealth management, specialist tax encourage prospective clients to contact their most advice, ship and yacht registration, credit cards, as convenient Sovereign office for an initial consultation. well as trademark and intellectual property registration This can be given without fee or commitment. Should and protection. you choose to proceed, we will provide accurate time and cost estimates before undertaking any work on The first Sovereign office opened in Gibraltar in 1987 and your behalf. we now have offices or agents in all the major inter- national finance centres. Not all the jurisdictions in which Please also visit our website at SovereignGroup.com. we operate require or allow licences but wherever This contains updates to this information together with possible we have applied for, and been granted, the other items that may be of interest. You may also wish to appropriate authorisation. To obtain these licences and subscribe to The Sovereign Report , a quarterly news- authorisations, Sovereign has had to demonstrate its letter providing news and comment on issues affecting financial stability and probity, as well as the professional international tax planning. competence and integrity of its staff.

5 2. The Sovereign Group Directory n e r r a W k r a M d n a e i t t a e P s e l r a h 6 SECTION HEADING C © b e l e C SOVEREIGN HAS OFFICES OR AGENTS LOCATED IN EVERY MAJOR INTERNATIONAL FINANCE CENTRE , all of which share the Group’s central commitment to quality and integrity. This network enables us to provide local expertise on an international scale and at the same time allows our clients access to a global service from a local point of delivery. It also means that, in most cases, business can be conducted in the client’s first language.

We always encourage prospective clients to contact their most convenient Sovereign office for an initial consultation. This can be given without fee or commitment. Should you choose to proceed, we will provide accurate time and cost estimates before undertaking any work on your behalf. Full contact details for each office are listed on the following pages.

“Anyone may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the treasury; there is not even a patriotic duty to increase one’s taxes.” Learned Hand

7 The Sovereign Group Directory

BAHAMAS CYPRUS GIBRALTAR HONG KONG Sovereign (Bahamas) Limited Sovereign Trust Suite 2B, Mansion House Suites 1601-1604 P.O. Box #N-4244 (Cyprus) Limited 143 Main Street, Gibraltar Kinwick Centre Suite 205A, 2nd Floor City House, 3rd Floor 32 Hollywood Road Saffrey Square, Bay Street 6, Karaiskakis Street Sovereign Trust Hong Kong Nassau, Bahamas P.O. Box 53284 (Gibraltar) Limited Tel: +1 242 322 5444 CY-3301 Limassol Tel: +350 200 76173 Sovereign Trust Fax: +1 242 325 8445 Cyprus Fax: +350 200 70158 (Hong Kong) Limited [email protected] Tel: +357 25 503 125 [email protected] Tel: +852 2542 1177

Licensed as a Financial Corporate Service Fax: +357 25 503 001 Licensed by the Financial Services Fax: +852 2545 0550 Provider – Licence No. 153 / File No. 157 [email protected] Commission of Gibraltar [email protected] Licence No: FSC 00143B

BRITISH VIRGIN ISLANDS DENMARK Sovereign Accounting Sovereign (BVI) Limited RegisterAYacht.com Sovereign (Denmark) ApS Services Limited P.O. Box 3085, Suite 6 Tel: +350 200 51870 Mailing address: P.O. Box 44 Tel: +852 2868 1326 Mill Mall, Road Town Fax: +350 200 51871 2730 Herlev, Denmark Fax: +852 2868 2362 Tortola [email protected] Location: 53C Nyhavn [email protected] British Virgin Islands DK.1051 Copenhagen K Sovereign Accounting Tel: +1 284 495 3232 Denmark ISLE OF MAN Fax: +1 284 495 3230 Services (Gibraltar) Limited Tel: +45 4492 0127 Sovereign Trust [email protected] Tel: +350 200 48669 Fax: +45 4369 0127 (Isle of Man) Limited Fax: +350 200 70158 [email protected] Sovereign House [email protected] THE PEOPLE’S REPUBLIC 14-16 Nelson Street OF CHINA: Shanghai DUBAI Douglas Sovereign Asset Sovereign Trust (China) Limited Sovereign Corporate Services Isle of Man IM1 2AL Management Limited Shanghai Liaison Office Suite 1501, 15th Floor Tel: +44 (0)1624 699 800 Tel: +350 200 41054 Level 29, Shanghai Kerry Centre Al Musalla Tower Fax: +44 (0)1624 699 801 Fax: +350 200 41036 1515 Nanjing West Road Khalid Bin Al Waleed Road [email protected] Shanghai 200040 [email protected] P.O. Box 62201, Dubai Licensed by the Isle of Man Financial Authorised by the Financial Services The People’s Republic of China Supervision Commission as a Corporate United Arab Emirates Commission of Gibraltar to conduct Service Provider (Licence No. 43215) Tel: +8621 6103 7089 investment business Tel: +971 4 397 6552 and as a Trust Service Provider Fax: +8621 6103 7070 Fax: +971 4 397 8355 (Licence No. 43521) [email protected] [email protected] Sovereign Insurance Services Limited MALTA Tel: +350 200 44609 Sovereign Trust (Malta) Limited Fax: +350 200 41536 Valletta Buildings [email protected] Flat No. 20, 4th Floor

Authorised by the Financial Services South Street Commission of Gibraltar as a general Valletta VLT 1103, Malta and life insurance intermediary Tel: +356 21 228 411 Fax: +356 21 228 412 [email protected]

Authorised to act as a Licensed Nominee

8 The Sovereign Group Directory MAURITIUS SEYCHELLES SWITZERLAND URUGUAY Sovereign Trust Sovereign Trust Sovereign Trust (Switzerland) Sovereign Trust (Mauritius) Limited (Seychelles) Limited Limited Liability Company (Uruguay) Limited Level 3, Alexander House 1st Floor, #4 DEKK House Seefeldstrasse 69 Andes 1365, Esc. 310 35, Cybercity, Ebene, Mauritius De Zippora Street Zurich 8008 Edificio Torre de la Tel: +230 403 0813 Providence Industrial Estate Switzerland Independencia Fax: +230 403 0814 Mahé, Republic of Seychelles Tel: +41 (0)43 488 36 29 Montevideo, Uruguay [email protected] Tel: +248 321 000 Fax: +41 (0)43 488 35 00 Tel: +598 2 900 3081

Licensed as a Management Company Fax: +248 321 822 [email protected] Fax: +598 2 902 1246 Management Licence No. MC00006831 [email protected] [email protected] TURKS & THE NETHERLANDS SINGAPORE CAICOS ISLANDS SovereignGroup.com Sovereign Trust Sovereign Trust Sovereign Trust (TCI) Limited (Netherlands) BV (Singapore) Pte Limited P.O. Box 170 Bloemgracht 45 96A Club Street Churchill Building 1016 KD Amsterdam Singapore 069464 Front Street, Grand Turk The Netherlands Tel: +65 6222 3209 Turks & Caicos Islands Tel: +31 (0)20 428 1630 Fax: +65 6725 8179 British West Indies Fax: +31 (0)20 620 8046 [email protected] Tel: +1 649 946 2050 [email protected] Fax: +1 649 946 1593 Licensed as a Trust Company by the SOUTH AFRICA: [email protected] Dutch National Bank Cape Town Licensed by the Financial Services Commission of the Turks & Caicos Islands NETHERLANDS ANTILLES Sovereign Trust (S.A.) Limited Licence No. 029 Sovereign Trust 3rd Floor, Mariendahl House Newlands On Main (Netherlands Antilles) Limited UNITED KINGDOM Cnr Main & Campground Roads World Trade Centre 40 Craven Street Newlands 7700, Cape Town Unit BC IV04 London WC2N 5NG South Africa Piscadera Bay Curacao United Kingdom Curacao, Netherlands Antilles Tel: +27 21 683 1045 Tel: +599 9 463 6138 Fax: +27 866 450 489 Sovereign Accounting Fax: +599 9 463 6438 [email protected] Services Limited [email protected] Tel: +44 (0)20 7389 0644 Johannesburg Fax: +44 (0)20 7930 1151 Sovereign Trust (S.A.) Limited PORTUGAL [email protected] Sovereign – Consultoria Lda 2nd Floor, West Tower Parque Empresarial Algarve Nelson Mandela Square Sovereign Group Partners LLP Crn Maude and 5th Street Bloco 8, No. 21 Tel: +44 (0)20 7389 0655 Sandton, Johannesburg 2196 8400 – 431 Lagoa Fax: +44 (0)20 7930 0502 South Africa Algarve, Portugal [email protected] Tel: +351 282 340 480 Tel: +27 11 881 5974 Regulated by the FSA. Fax: +351 282 342 259 Fax: +27 11 881 5611 Licence No. 208261 [email protected] [email protected]

The Sovereign Group Directory 9 3. Services n e r r a W k r a M d n a e i t t a e P s e l r a h C © b e l e C OUR SERVICES ARE DESIGNED TO SAVE YOU TAX. To do this, we need to understand you, your business, your objectives and goals. We can then design a solution that is functional, cost effective and compliant. We will not advise our clients to undertake any type of planning that would not be effective if scrutinised by their local revenue authority. We offer cutting edge solutions that will work both on a practical and legal basis.

Sovereign provides the following services:

3.1 Company Formation necessary advice – how to use it and how to ensure that and Management Services it is structured correctly – most certainly is not. Every case is different and a high level of expertise is required We can incorporate companies in most jurisdictions, to ensure that the advice is up-to-date, effective and fully both offshore and onshore. compliant. Failure to structure and manage the company correctly could mean that the intended tax savings are After incorporation, a company will be required to main- not realised and, in some cases, that a net increase in tain a minimum presence in the jurisdiction of incor- the tax payable could result. poration. A legal registered office will always be a neces- sity and all companies also require a resident company Once we understand your personal and business secretary and/or a resident agent. We habitually provide requirements then Sovereign, through its global network these services for all our clients and describe them as of offices, is in a unique position to advise on a suitable “domiciliary services”. For reasons explained in the structure which will meet those needs and should result Frequently Asked Questions section, we provide in significant tax savings. directors for many of the companies that we incorporate to ensure that its affairs are properly “managed and 3.3 Bank Introductions controlled” from offshore. Opening bank accounts is becoming more and more 3.2 International Tax Planning onerous and difficult. Many banks simply will not open accounts for offshore companies. Others will only open It is relatively straightforward to set up or purchase a accounts for companies which have been introduced to company, but it is vital to get proper advice about how them by a recognised and licensed service provider on to structure the ownership of that company, how it must their “approved list”. be administered and how to organise any commercial arrangements into which it is going to enter. Whereas the All banks now recognise the need for increased due company itself can be viewed as a commodity, the diligence when opening accounts and operating them.

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12 Services Different banks require markedly different documentation Even if the accounts do not need auditing, however, it is before they will open accounts. Even different branches good business practice for them to be prepared in of the same bank frequently have different procedures. accordance with the relevant companies law so that all The required documentation is generally voluminous and shareholders and the directors themselves can have complicated, and many documents require not just relevant financial information upon which proper busi- certification by the company secretary but notarisation in ness decisions can be made. the jurisdiction of incorporation. In all jurisdictions in which Sovereign operate we either In short, it is often difficult if not impossible for most have in-house accounting services or a range of clients to attend to account opening procedures on their accountancy firms that we can recommend and with own. It is therefore strongly recommended that whom we work closely. Sovereign is asked to assist with a bank introduction and with the preparation and submission of the necessary 3.5 Trust Creation and Trustee Services paperwork. Of course, clients are free to choose their own banks but generally the account will be opened far Sovereign is licensed as a provider of trustee services more quickly, cheaply and efficiently if banks known to in a variety of jurisdictions and our comprehensive and recommended by Sovereign are used. trust services are described in greater detail later on in this brochure. 3.4 Accounting and Auditing 3.6 Immigration and Residency Companies incorporated in onshore jurisdictions will generally have to prepare and file accounts. Often these It is possible to gain substantial tax benefits when accounts have to be audited. In most offshore juris- changing your country of residency, particularly if a move dictions there is a requirement under local company legi- to a zero or low tax environment is anticipated. slation that directors prepare accounts and present them to the shareholders at the Annual General Meeting. As part of its overall services, Sovereign is able to advise upon the consequences of changing residency But because there is generally no tax to be assessed and assist with obtaining residency permits in a large on the profits of the company, there is rarely a require- variety of jurisdictions, but especially those which offer ment to present the accounts to any government a low or zero tax environment such as Gibraltar, authority or file them on the public register so share- Cyprus, Malta, Monaco, the UK, the Turks & Caicos holders frequently agree to waive the requirement to Islands or the Bahamas. prepare accounts.

Services 13 3.7 Wealth Management • Reduced Costs – The costs will therefore never be greater and will often be less than if the client invested Sovereign Asset Management (SAM) is the division of directly with the wealth manager. SAM makes no Sovereign that provides investment advice and other additional charges because it receives a placement wealth management services to Group clients. SAM was payment from the bank. But SAM can often leverage formed as a stand alone, fully regulated, asset manage- its collective “buying power” to negotiate reduced ment firm. It is based in Gibraltar and regulated by the fees for its clients. Gibraltar Financial Services Commission. b. Asset Management SAM provides services in the following areas: SAM provides a range of asset management services to match a client’s requirements precisely. The experienced a. Private Banking and qualified advisory team will review a client’s financial With substantial assets under management, SAM requirements before making specific recommendations. leverages the collective strength of its clients to obtain optimum terms and service levels from wealth man- i. Advisory Asset Management agers. By investing through SAM, clients gain access to SAM will identify the client’s principal financial objectives services and investment opportunities usually only and key issues, and develop appropriate investment available to Ultra High Net Worth Individuals or insti- strategies. SAM will assist the client to select a suitable tutions, at no extra cost. The security of client’s assets private bank or wealth manager and will monitor invest- will not be compromised because funds are placed ment performance and report to the client on a regular directly with the selected wealth manager. basis. It will advise the client whenever it feels that a change in investment strategy should be considered. In By acting as their representative SAM brings a number other words, SAM’s clients receive two levels of advice of benefits to investors: for the price of one.

• Wealth Manager Selection – Private banks are an inte- ii. Discretionary Asset Management gral part of wealth management, but they are not all In addition to the advisory services, SAM will take the the same. SAM is able to provide a comprehensive day-to-day investment decisions in close cooperation assessment of wealth management propositions. with the selected bank’s investment team. This opens access to the full research and expertise of the bank • Privileged Access – SAM enjoys privileged access to and the potential for further asset diversification many private banks because it represents a number through the ability to include, where appropriate, alter- of clients. It can therefore ensure that its clients native investment classes such as private equity, hedge receive the best terms and conditions, irrespective of funds, commodities and property. the actual size of their investable assets.

14 Services c. Liquidity Management 3.8 RegisterAYacht.com For clients who may wish to retain currency deposits to ensure appropriate levels of liquidity, SAM operates a There are many advantages to having a British regi- pooled deposit account with a major international bank. stered yacht, but if you want to fly the Red Ensign it is SAM has leveraged its overall “buying power” to nego- important to make an educated choice as to which tiate highly favourable interest rates and flexibility. There British Port of Registry will meet your particular needs. is no fixed period in order to benefit from enhanced deposi t Each register is self-contained and has different regu- rates and immediate access to funds. Currencies include lations in place, offering its own advantages or, in some the US Dollar, Euro and Pound Sterling. cases, disadvantages. d. SAM Investment Funds With the professional expertise acquired from 20 SAM has created a range of funds to provide clients with years of experience in the field of yacht registration access to a spread of asset classes and investment and offshore company management, Gibraltar-based strategies. The minimum investment is USD 100,000. RegisterAYacht.com can assist from the outset to en- sure that the correct procedures are properly followed. • Sovereign Trust Absolute Return (STAR) Fund – a low- risk fund of hedge funds that sets out to provide RegisterAYacht.com provides a comprehensive range of absolute returns in a wide range of market conditions. ancillary marine services, including “Provisional Regi- stration” if required. • Sovereign Wealth Manager Fund – a diversified fund portfolio that reflects prevailing SAM investment Registration of the yacht in the name of a company will strategies for gaining capital growth. provide confidentiality of ownership. It may also prove beneficial in relation to inheritance tax issues, as well as • Planetary Fund – a global portfolio of shares, largely in reducing transfer taxes on the future sale of the yacht. the mid cap sector, that are selected for their growth Potential personal liability problems can also be reduced potential. using a corporate structure. e. Securities RegisterAYacht.com can liaise on behalf of a client with SAM is able to provide a range of stock broking services agents or brokers and will assist in preparing documen- to its corporate and trust clients, which can be co- tation to transfer the title and successfully complete ordinated through Sovereign administrators. either a purchase or sale.

RegisterAYacht.com works closely with brokers to obtain comprehensive cover at competitive rates for yacht insur- ance. Radio licence applications can also be arranged.

Services 15 Yacht Registration

Yachts can be registered in many different jurisdictions around the world and using a variety of different ownership structures.

Making the right choice will minimise your costs and enhance the enjoyment and the value of your vessel.

Making the wrong choice could mean extra taxes and costs – and could seriously limit your options for financing, sailing or chartering out.

RegisterAYacht.com is dedicated to getting it right. Our team of in-house lawyers can provide all the necessary legal expertise and we have associate offices in all the major shipping jurisdictions.

We cannot promise you fair winds but we can Register AYacht.com guarantee you plain sailing.

A member of The Sovereign Group 3.9 Sovereign Credit Cards Some short cuts are available – registering a trademark in the European Union provides cover in all EU member It is generally quite difficult to obtain a credit or debit card countries, while registering under the Madrid Protocol for an offshore company account. Some banks are covers a number of other countries. Generally the willing to provide cards, but only if a deposit is lodged starting point is to register a trademark within one with the bank that is often up to three times greater than country that is a party to an international convention. the available monthly credit limit. This then gives the applicant a six-month window in which to file in other countries and gain priority – the For this reason Sovereign now offers the Sovereign same verification date as the date of filing in the first MasterCard, which is secured by a deposit corres- country. This allows other registrations to progress when ponding to 125% of the monthly credit limit. All trans- time and available funds allow. actions are processed offshore. The credit card is a convenient way to pay business expenses incurred in Given the importance of trademarks, and intellectual relation to an offshore company. property in general, to modern businesses, Sovereign has established an intellectual property division which 3.1 0 Trademark and IP Services offers the following services:

The intellectual property associated with a business • Registration of trademarks anywhere in the world and name or system can be one of its most valuable assets, advice on a suitable trademark programme. but only if it is properly protected. Any business that wishes to establish a national or international identity • A monitoring service to warn of any attempts to should take steps to protect the use of its name, logo register similar marks. or other intellectual property. This is preferably done at the outset when it can be protected more quickly, easily • Advice in relation to all aspects of intellectual property and cheaply. registration, including designs, patents and copyright.

Many people, for instance, do not realise that simply • Advice and proactive assistance to protect intellectual registering a company or an Internet domain name does property rights from infringement and other abuses. not provide exclusivity on that name and does not prevent others from registering similar names in the • Patent and petty patent registration. same jurisdiction or identical names in other jurisdictions. • Domain name registration and escrow services. The only effective way to guard against this happening is to register a trademark or service mark in each juris- diction in which one wishes to be protected or intends to carry on business.

Services 17 3.11 Fund Formation and Administration 3.12 Offshore Gaming Licence Applications

Sovereign can form and administer funds in most major Applying for and obtaining an online gaming licence offshore jurisdictions, including, but not limited to, the can appear daunting because of the amount of legal Bahamas, Cayman Islands, Gibraltar, Isle of Man, Malta and regulatory documentation that must be assembled, and Cyprus. prepared and filed. Sovereign has developed unrivalled expertise in licensing online casinos worldwide. In this capacity, we provide a “turnkey” service which consists of: A dedicated Gaming Licence team, including a number of in-house international barristers and • Formation and licensing of a fund. corporate lawyers, has been established to assist with applications to most reputable online gaming juris- • Drafting of a fund prospectus. dictions. We can steer clients through the entire licence application process, providing them with a • Formation and licensing (where required) of a fund “one-stop-shop” advisory service. management company. Sovereign also benefits from its extensive links with • Drafting of agreements between a fund and its regulators in key jurisdictions, such as Malta, where management company and service providers. stringent standards are in place to protect both operators and their customers. • Advice on correct tax structure.

• Introductions to fund administration services, bankers, custodians, secretary and registrars, etc.

18 Services 3.13 Sovereign Insurance Services

Insurance is one of the most effective ways to manage • Private Yacht Insurance – sailboats, motor yachts and the risks to the lifestyle that you’ve built for yourself and other watercraft. your family. Developing an insurance portfolio that will not only protect your assets but also provide liquidity, is • Motor Insurance – motor vehicles, motorcycles, etc. a vital part of the wealth management process. And the tax treatment of certain insurance policies – and their • Private Medical Insurance. benefits – also make them ideal vehicles for maximising income, and for retirement and estate planning. • Travel Insurance.

Sovereign Insurance Services Limited (SIS) will work with • Life Insurance – whole of life or term life. you and your client relationship manager to customise the insurance strategies that best meet your personal or • Keyman Insurance – to compensate a business for business needs – and to review and adapt those the financial loss on the death or critical illness of a strategies as your needs change in the future. key employee.

We are now able to provide our clients with access to a • Personal Accident/Illness and Income Protection/ range of insurance products to suit their needs. We can Disability Insurance. advise clients on an appropriate insurance solution to suit their particular needs, arrange quotations and place • Major Illness (Trauma) Insurance. cover on the client’s behalf. In doing so, we draw on a full range of life, health and wealth protection products from • Business Insurances – Office Pack Insurance, Public some of the world’s leading financial services companies. Liability, Professional Indemnity, etc.

SIS can advise on all types of general or life insurance SIS is licensed by the Gibraltar Financial Services but, based on our clients’ profiles, we aim to provide a Commission to act as an insurance intermediary for wide range of insurance products including: general and life insurance business within the European Economic Area (EEA). • Home and Contents Insurance – either the primary residence or a holiday home or apartment. The role of SIS is to work for you, not the insurer, and to take the difficulty out of arranging your insurance • High Value Home Contents and/or Personal Effects portfolio at the most competitive cost. Insurance – jewellery, artworks, antiques, etc.

Services 19 4. Frequently Asked Questions n e r r a W k r a M d n a e i t t a e P s e l r a h 6 C © b e l e C Q. What can Sovereign do for me? Development (OECD) against so-called “harmful” tax A. Sovereign gives specialised tax advice with an competition and by the Financial Action Task Force emphasis on offshore opportunities. Our services will be (FATF) against money laundering, have forced most of use to anyone wishing to save current or future tax, for OFCs to increase transparency and regulation, and to themselves or their company. To assist with this, permit the exchange of information for both criminal and Sovereign establishes and administers secure and effi- fiscal matters. This means that, under certain prescribed cient corporate and trust structures for expatriates, busi- circumstances, the beneficial ownership of an OFC nesses, entrepreneurs, private individuals and families. structure can and must be revealed upon request by an inquiring tax authority. But confidentiality will not be of paramount importance to anyone undertaking tax Q. What is the difference between avoidance rather than evasion. tax avoidance and tax evasion? A. Tax avoidance, also called tax mitigation or simply None of this means that offshore structures are any less tax planning, is doing everything possible within the law useful but it is absolutely critical to arrange the ownership to reduce your tax bill. Learned Hand, an American and management of an offshore structure correctly if they judge, once said in a US Court of Appeals case: “There are to be effective. For instance, it is usually imperative is nothing sinister in so arranging one’s affairs as to keep that they are administered by a board of directors that is taxes as low as possible – nobody owes any public duty based offshore. By using a blend of offshore companies, to pay more than the law demands.” life insurance contracts and offshore trusts, Sovereign is able to create offshore structures that legitimately and Tax evasion means paying less tax than you are legally legally defer or avoid tax in the taxpayer’s home country. obliged to – normally by concealing the true facts or Legal opinions confirming the effectiveness of these failing to complete your tax return correctly. There may be structures can be obtained on behalf of clients. a thin line between the two but, as former UK chancellor Denis Healey put it, “The difference between tax avoid- ance and tax evasion is the thickness of a prison wall.” Q. Can I act as a director of an offshore company? A. There is no legal barrier to doing this but it will rarely Q. What are the benefits of using be a practical or sensible option because this will offshore structures? generally, under the “management and control” test, A. Offshore structures can be used to defer or save make the offshore company liable to tax on its worldwide tax, increase confidentiality and preserve assets. Off- income in the director’s country of residence. Companies shore Financial Centres (OFCs) were traditionally are generally considered to be liable to tax not in their characterised by low or no taxes, less onerous comp- place of incorporation but where they are managed and liance requirements, and secrecy. Recent initiatives, led controlled, which means where their directors reside and by the Organisation for Economic Cooperation and meet. It would generally be safe to be a director provided

21 n e r r a W k r a M d n a e i t t a e P s e l r a h C © b e l e C

22 Frequently Asked Questions that there is a majority of offshore based directors and sequences noted in the previous answer will apply, to the the onshore director flies offshore for regular (at least detriment of all involved with the company. The fact that quarterly) board meetings. There is a fuller discussion of a company is registered offshore does not mean that its this principle on page 49. For example, an offshore directors can ignore their responsibilities and act in ways company with UK resident directors will be subject to UK that would be considered improper or unpalatable tax on its worldwide income because it is managed and “onshore”. Please refer to page 54 for more on this. controlled in the UK. That is the law in the UK and most high tax countries have similar laws. Q. Will I lose control of my assets? A. You must give up control of your assets by placing Q. If I control an offshore company must them in the company and, for the reasons explained in I report the liability of the company to the previous answer, this company must be managed tax in my home country? and controlled by the offshore directors. But you will A. The rules vary from country to country but normally retain the ability to regain control whenever you wish the answer is yes, and failure to do so may be an offence because the agreement with Sovereign will state that all and the directors may be prosecuted. In the recent UK officers provided by Sovereign will resign upon request. cases of R -v- Allen and R -v- Dimsey , a UK resident shadow director and his advisors were prosecuted under criminal law for failure to report the liability of the Q. What other safeguards do I have company to tax in the UK. The case involved a Jersey where Sovereign provides directors? company that was deemed liable to tax in the UK A. You must have a certain level of trust in your because it was, as a matter of fact, managed and service provider and for that reason you should only controlled from the UK – in this case not by the directors, use companies that can demonstrate a good track but by other persons. The Court decided that because record of providing fiduciary services. They should also the directors took instructions from other persons, so be properly licensed in well-regulated jurisdictions, those other persons were the people who really have professional indemnity insurance, appropriate managed and controlled the company. All the levels of expertise, integrity and an unblemished defendants received lengthy custodial sentences. reputation. Sovereign can meet all these criteria.

Q. Can Sovereign provide directors? Q. Can I act as a shareholder in an A. Yes, but those directors must exercise independent offshore company? mind and management, and must exercise the normal A. Yes, but this will almost certainly have tax con- degree of control over the company for which they act. sequences . Attribution rules and other anti-avoidance If they simply follow instructions from another person legislation common to most onshore jurisdictions may well then they do not exercise control such that the con- apply. The effect of these rules is that the income and

Frequently Asked Questions 23 capital gains of an offshore company may be “attributed” authority. The OECD now requires all OFCs to implement to a shareholder, who will then be taxed on the proportion exchange of information procedures so that details of the of profits of the company equal to his percentage beneficial ownership of offshore companies may be shareholding whether or not he actually receives the revealed to an onshore tax authority upon request. These money. These rules are designed specifically to stop procedures were to be implemented by 2003 in relation to offshore companies being used for the very purpose most criminal tax matters and by 2005 for civil tax matters. people set them up – to defer or avoid tax by letting profits roll up offshore and delaying the distribution of profit to the owners. There is normally a duty to declare the share- Q. So is there any confidentiality holding and account for the tax due. There are some left offshore? exceptions to these rules and careful planning may enable A. All professionals and directors who are entrusted tax to be legitimately deferred or avoided. For most with somebody’s personal or private matters owe a duty shareholders therefore, offshore companies on their own of confidentiality to that person. Where professional will not be effective in legitimately reducing tax, but an directors and nominee shareholders are employed, offshore company that forms part of a more complex information about beneficial ownership is not available structure can often be extremely effective. for public inspection. This is the case both onshore and offshore. What has changed in recent years, and particularly since 11 September 2001, is that barriers to Q. What if the shares in the offshore the exchange of information in criminal and fiscal matters company are held by an offshore trust? are in the process of being dismantled and information A. This may be effective, but in sophisticated regarding beneficial ownership must be passed to any jurisdictions the same sort of anti-avoidance legislation requesting authority to assist that authority “to collect the will generally also apply to offshore trusts and renders correct amount of tax from its residents”. them ineffective for deferring or reducing income and capital gains tax. There is usually a way to structure an offshore company so as to make it effective in reducing Q. If there is no anonymity, why set up tax, but this will rarely be simple. If it were simple, an offshore structure? nobody would pay tax! A. Offshore structures that rely purely on secrecy are probably being used for illegal tax evasion rather than legal tax avoidance. There is nothing illegitimate or Q. Can I hold shares in an offshore immoral in setting up an offshore structure but failure to company anonymously? make the correct reporting to the home country tax A. Shares can be issued to nominee shareholders authority is illegal and the onshore world is demon- provided by Sovereign and this would increase anonymity strating a growing intolerance of those who evade tax by – although this does not relieve the beneficial owner of their failing to make the reports required by law. There are duty to report their interest if so required by their home tax many ways in which an offshore structure may help to

24 Frequently Asked Questions mitigate or avoid tax but proper advice and correct stering offshore structures correctly, and which can implementation is essential. demonstrate that it has the necessary expertise and resources to provide an efficient and solid service. You must also take into account that there are likely to be Q. How might going offshore affect two costs involved: a) the cost of the structure itself; and my beneficiaries? b) the cost of the advice leading to the structure being A. Positively. If you are able to arrange your affairs in a set up and subsequently used. You would be unwise to tax-efficient way, then beneficiaries under a trust, or a set up an offshore structure without receiving compre- will, stand to receive more than would otherwise be the hensive advice about the tax or other consequences. case. Provided that the planning you undertake is both legitimate and compliant with your local tax laws, then large savings in tax can be made to the advantage of Q. Does it matter where I live? your beneficiaries. A. Yes, it matters greatly. Anti-avoidance legislation varies enormously from country to country. It is essential to understand this legislation and how it will affect you Q. Can I protect my assets from creditors? and any structure you might set up. Not surprisingly, a A. Yes. Offshore structures can provide some pro- structure that is effective, compliant and legal for a tection from creditors but only if set up before both debts resident of the UK may be completely different to a have arisen and before the facts and circumstances that structure that achieves the same result for a resident of might give rise to the debt are known. In other words, if South Africa. It is vitally important to understand the you do something that is likely to lead a creditor to make legislation in your country of residence and how it affects a claim, it is already too late to set up the asset protection any offshore structure you may be contemplating. structure. Such structures should be set up well in Sovereign can give expert advice in this area. advance of any creditor claim being contemplated.

Q. What do I have to tell my home Q. Will the costs be prohibitive? tax authority? A. No. The fees paid should be a small fraction of the A. This will vary depending on your country of tax savings that will result. The fees you will pay for residence. Sometimes it is possible to create a structure setting up a particular structure will vary considerably in such a way that your interest in that structure does not depending on which service provider you use. It is have to be reported. Sometimes it is possible to create a unlikely that the cheapest service provider will be the structure that has to be reported but which is still best, but the most expensive may not be the best either. effective. The ideal solution is to create a structure that You need to select a service provider that holds pro- doesn’t have to be reported, but which would be fessional licences, has professional indemnity insurance, effective even if it was. Any of the three possibilities has a proven track record of setting up and admini- should assist in legally mitigating tax.

Frequently Asked Questions 25 Q. What is the best offshore finance Q. Why do I have to explain the source centre for me? of my assets? A. The answer to this will vary considerably depend ing A. For many years the leading industrial countries, on a number of different factors: acting largely through supra-national organisations such • your country of residence; as the OECD and the FATF, have been trying to combat • your nationality; money laundering, particularly in relation to drug • the purpose for which you are setting up the structure; trafficking. This process was accelerated and refocused • the location of your customers or anybody who deals after 9/11, with the major objective being to prevent with your entity; terrorists from receiving funds. All financial institutions of • the changing perceptions of the general public and any description, both onshore and offshore, now have to foreign governments – for example, an OFC with a very identify their clients, monitor their transactions, under- good reputation may not keep that reputation. stand their business and know where, when and how a client has accumulated wealth. Sovereign has offices or agents in ALL major offshore financial centres and is therefore well placed to advise on this aspect without partiality. Q. Why do I have to give proof of my identity? A. For the same reason that you must prove the Q. Will I have to travel regularly to an source of your assets. It is part of the due diligence offshore finance centre? required before any regulated operator is allowed to take A. No. There should be no need to travel regularly to you on as a client. Criminal activities and terrorist your offshore centre so the choice of OFC need not be financing can only function with access to untraceable limited by geographical considerations. funds. The need to provide due diligence is a source of irritation to many clients and represents a major cost to the service provider. Unfortunately, there is no way round Q. Is there less regulation offshore? this. It is a legal requirement to obtain this information A. No. Quite the opposite. OFCs are more heavily before doing business. regulated than onshore jurisdictions. For example, a company in the UK that sets up and manages UK companies is not required to have any form of licence or authorisation whereas offshore corporate service providers are heavily regulated and must obtain a licence and renew it every year.

26 Frequently Asked Questions A 40% return – guaranteed!

Does that sound too good to be true? Well it is true but it isn’t good… unless you’re the taxman.

The worldwide estates of most British citizens will be subject to UK inheritance tax at 40% – even if you have lived abroad for many years.

Many expatriates do not realise this. Living abroad is not enough to lose your UK domicile and hence your liability to UK inheritance tax.

But don’t panic. Sovereign can advise you on effective strategies to eliminate or mitigate this tax.

Contact us now. You can’t take your wealth with you, but you can ensure it goes where you want.

SovereignGroup.com Providers of Intelligent Offshore Planning since 1987 5. Case Studies n e r r a W k r a M d n a e i t t a e P s e l r a h C © b e l e C THE FOLLOWING CASE STUDIES ARE DESIGNED TO DEMONSTRATE how offshore companies, onshore companies and offshore trusts can be used to structure your affairs so as to maximise your assets and minimise your fiscal liabilities:

5.1 Purchasing a Trading Company

5.2 Structuring Patent Royalties

5.3 Purchasing Property

5.4 Holding Company for Dividends and CGT Planning

5.5 Personal Service Company

5.6 Estate Duty / Inheritance Tax (IHT) Planning

5.7 Obtaining UK Non-Domicile Status

29 5.1 Purchasing a Trading Company

The Situation Shareholder Shareholder

AUSTRALIA OFFSHORE UK CANADA COMPANY USA

Attribution of undistributed Dividend income and capital

The Solution Guarantor Member Shareholder

AUSTRALIA HYBRID UK CANADA COMPANY USA

Deferment of tax on Dividend income/gains until distribution

30 Case Studies 5.1 Purchasing a Trading Company

The Situation In other words, US, Canada and Australia all require the Three investors wish to purchase one-third each of a interest in the offshore company to be reported, profitable UK trading company. One investor is tax rendering the offshore structure ineffective. resident in the US, one in Canada and one in Australia. They wish to structure their affairs to be as tax efficient The Solution as possible whilst not interfering with the existing Each investor should incorporate a hybrid company, operations of the UK company. structured specifically to take into account the anti- avoidance legislation of his country of residence, and The Problem use such a company to hold his shareholding in the UK Each investor would be liable to pay full rates of local tax trading company. on dividends received from the UK company, as well as full rates of capital gains tax from any subsequent sale of Hybrid companies are limited both by shares and by shares in that company. guarantee and can therefore be effective in deferring payment of tax on the underlying income and capital Incorporating an offshore company, or one company for gains until actual distribution. By using these vehicles tax each investor, to hold the shares in the UK trading can be deferred indefinitely. company might, in theory, provide a way of deferring tax on the income and capital gains pending distribution. In the case of the Canadian and Australian investors, But in practice, US, Canadian and Australian anti- distribution could be delayed until such time as the avoidance legislation would attribute the undistributed investor has moved to a low or zero tax country when it income and capital gains of an offshore company to the would no longer be liable to Australian or Canadian tax. beneficial owner and tax them as though all income The US investor could not employ such a technique received by the offshore companies had been received because, irrespective of his country of residence, he directly by their beneficial owners. would still be subject to US tax. But considerable advantage could still be obtained for the US person by deferring the tax and reinvesting out of the untaxed funds.

Case Studies 31 5.2 Structuring Patent Royalties

The Situation Licence of IP

ONSHORE HONG KONG COMPANY

Royalty subject to full withholding tax due to no Double Tax Treaty

The Solution Licence of IP Sub-licence of IP

NETHERLANDS ONSHORE HONG KONG ROYALTY SUBJECT COMPANY TO 2.1% TAX

No withholding tax Reduced withholding tax

32 Case Studies 5.2 Structuring Patent Royalties

The Situation Notes A Hong Kong resident, Mr K, has developed software Many tax treaties now contain “limitation of benefits” that he wishes to sell throughout the world. Generally, clauses which provide that, if the recipient company is Mr K’s income stream will consist of royalties. not majority-owned by Dutch residents, then the tax treaty cannot apply. In such cases, using a collection The Problem service can be highly effective. In other words Dutch resi- Most high tax countries require tax to be withheld at dents would beneficially own the Netherlands company source on a royalty before payment. Hong Kong has few and their fees would be the margin that must be held in tax treaties so generally tax would have to be deducted the Netherlands. Sovereign can provide this service. by the payer from the royalties paid. A number of other high tax countries might be used as a The Solution base for the intermediary licensing company. Mr K should set up an intermediate licensing company in a country that does have tax treaties with the countries All businesses have Intellectual Property (IP), whether it from which payments emanate. The Netherlands is is their brand, logo, know-how, systems or products. generally considered the country of choice, but other This IP is often the most valuable assets of the business jurisdictions with tax treaties, such as Malta, Cyprus or so it is a mistake not to protect it by holding it in a the UK, may also be suitable. In this example, Mr K separate company and by taking steps to register it would license a Dutch company to exploit his software, where possible. which would in turn sub-license the end user. Royalty payments would be made to the Netherlands rather than Remember the general rule is “trademark it or lose it”. directly to Hong Kong, thereby reducing or eliminating Registering into the name of an offshore structure the withholding tax because the Netherlands has a treaty gives great protection and tremendous tax planning with the country of payment. opportunities as that offshore entity can then license its own group of companies, enabling the group to The Dutch company would receive the royalty income extract pre-tax profits from high tax areas. but also has a duty to pay out royalty income under the master licence agreement with Hong Kong. Only the margin between the two would be profit subject to tax in the Netherlands. The amount of the margin required to be held in the Netherlands will vary from case to case and specialist advice will be needed to determine the correct amount.

Case Studies 33 5.3 Purchasing Property

The Situation

Personal ownership of property

INVESTORS PROPERTY CGT on sale Sale transaction costs Wealth tax Estate duty

The Solution Shareholder Owner of Title

OFFSHORE PROPERTY INVESTORS COMPANY

CGT on sale = 0% Company never Eliminates 3% Sale transaction costs “dies”, so no IHT annual tax on value = minimal of property Wealth tax = 0% Estate duty = 0%

34 Case Studies 5.3 Purchasing Property

The Situation The Solution These notes will necessarily be general because the As a general rule, estate duty would be avoided if the correct structure to purchase a property will differ from property were to be owned by a company. This occurs country to country depending on the local tax system in the because a company, unlike an individual, cannot “die” – country where the property is situated. However certain thereby eradicating the estate duty that would be pay- general principles apply in most, if not all, countries. able on the death of an individual. But many countries now charge estate duty on the worldwide assets of the The Problems owner. In this case the value of the shares – which would Irrespective of the nationality, domicile, place of be equal to the value of the property – would be included residence and personal circumstances of the owner in the estate of the deceased owner. In other words, most countries will apply the following taxes: although local estate duty may be avoided by corporate ownership, worldwide estate duty may not. (a) Estate Duty: local estate duty is normally charged on the value of the property upon the death of the owner Even when loans are taken out against the value of the because the asset is situated within their borders. Most property, thereby reducing the value of the shares by the countries levy some form of estate duty or an equivalent amount of the loan, either the loan itself, or the assets that tax on the death of the owner of that property. it has been used to purchase, may fall within the estate of the deceased. One way or another, the total value of the (b) Capital Gains Tax: on resale of the property most property is normally going to be within the estate. Further countries charge a tax based upon the difference planning may therefore be necessary to minimise or between the acquisition price and the resale price. eradicate the worldwide estate duty on the owner’s estate. Separate advice on this aspect will be needed. (c) Income Tax: all countries charge local taxes on income generated from the exploitation of the property If a company owns the property, then transferring the e.g. any rent received from the occupation of that shares in the company may effect a transfer of ownership property. The tax would apply irrespective of who rents whilst leaving the title to the property unaltered. Some the property and how the rental is paid and local tax countries have initiated anti-avoidance legislation that returns must be filed detailing that income. treats the transfer of the shares in the property owning company as equivalent to a transfer in the property, and (d) Stamp Duty: most countries charge a sales tax based tax is charged accordingly. Those situations are rare and upon the total value of the property upon any subsequent generally a sale of the shares will eradicate capital gains on transfer. The rate of this transfer tax can vary from a the property. Again, the owner may be subject to capital negligible figure to amounts as high as 15% and this can gains on a worldwide basis, so further planning may be often be the highest cost incurred when selling property. necessary to eradicate worldwide capital gains.

Case Studies 35 Income tax is charged on rental income but, generally, It is common in many countries for property to change expenses incurred in producing the rent can be offset hands by way of a share transfer in the property owning against the tax. Thus the maintenance costs of the company, so the vendor should readily find a buyer who property and the costs of any loan used to purchase the will be comfortable with effecting the acquisition by way property, but not interest on loans raised against the of a share transfer. property later – the interest payments – can be deducted from the rent before tax. The interest on a loan is usually It should be noted that any purchaser of shares in a by far and away the biggest allowable expense and, company would, if subsequently obliged to sell the with careful planning, this can be used to minimise or property out of the company, become liable to capital totally eradicate local taxes on rental income. But note gains tax on the difference between the original pur- that all loans must be at arm’s length terms for the chase price and the current sale price. There is therefore interest to be allowable. a potential disadvantage in purchasing property through a transfer of shares, but generally it should be possible Corporate ownership also allows stamp duty, or other to calculate the potential worst case scenario, and for transfer taxes that would normally apply in the country the buyer and seller to then agree an equitable deduction where the property is situated, to be avoided. This is in the purchase price by way of compensation. because a transfer of shares in an offshore company could generally be made without attracting such In short, corporate ownership is a flexible way of owning charges. Corporate ownership also allows easy division property, which offers large potential tax savings in all of of the equity in a property, which enables the ownership the above mentioned areas. However, careful planning to be rearranged without cost or expense. and specialist advice are needed to avoid potential pitfalls and tax traps brought about by fast changing tax legislation in this area.

36 Case Studies Have your cake... and eat it!

There are substantial benefits to putting assets into trust but many people dislike the resulting loss of control. Fortunately there is a solution. A Private Trust Company allows family members to continue to participate in decisions relating to the management of assets, without invalidating the trust. This means you can plan for the future, without compromising the present. Sovereign advises clients worldwide on their succession strategies. Do not delay. Contact us now to make sure that your family, and not the taxman, can enjoy your cake.

SovereignGroup.com Providers of Intelligent Offshore Planning since 1987 5.4 Holding Company for Dividends and CGT Planning

The Situation Shareholder

GERMANY Full withholding tax on dividend OFFSHORE COMPANY

Shareholder RUSSIA

Full withholding tax on dividend

The Solution Shareholding and loan GERMANY Shareholding and loan Shareholding and loan

OFFSHORE UK NETHERLANDS Reduced COMPANY COMPANY COMPANY withholding tax

No withholding tax No withholding tax Shareholding RUSSIA and loan

38 Case Studies 5.4 Holding Company for Dividends and CGT Planning

The Situation located in another EU member state. Subject to certain Mr D is purchasing the majority of the shares in two conditions, this EU Directive requires that no tax should successful companies, located in Russia and Germany be withheld on the dividend at source. As both the respectively. Both businesses may require loan finance Netherlands and Germany are full members of the EU, to be made from the holding company and both dividends can flow from Germany to the Netherlands businesses are generating good dividends. There is free of withholding tax. also a five-year exit strategy that is likely to result in a large capital gain that would be taxable for Mr D in his A Dutch company can benefit from the “participation home country. exemption” which means that dividends received in the Netherlands are exempt from Dutch tax. Interest can be The Problem paid, from either Russia or Germany, to the Netherlands Dividends paid out of Russia and Germany would at reduced levels of withholding tax due to the respective normally be subject to withholding tax. Interest paid out treaty or the EU Directive on royalties and interest. of Russia and Germany would also generally attract a withholding tax. Mr D’s home country would charge A Dutch participation exemption company is exempt capital gains tax upon the resale of the shares in the from capital gains tax on the resale of the shares in the Russian and German companies. German or Russian company.

The Solution Dividends paid out of the Netherlands would be subject The shares in the Russian and German companies to Dutch withholding tax; so a tax efficient exit is should be purchased using a Dutch company. The required. To achieve this, the Dutch company should be Netherlands has a tax treaty with Russia that reduces the wholly-owned by another tax efficient EU holding withholding tax from the usual 15% to 5%. company, such as a UK company. Under EU Directive 90/435, no withholding tax would apply to dividends The Netherlands also has a tax treaty with Germany but paid between the Netherlands and the UK. The UK it is simpler to rely instead on EU Directive 90/435, company would not incur any charge to tax on dividends which applies when a dividend is paid by a subsidiary received in the UK nor would tax be withheld on located in one EU member state to a holding company dividends paid out of the UK to the ultimate owner.

Case Studies 39 5.5 Personal Service Company

The Solution

Contract COUNTRY “X”

Gross Fee

PERSONAL Contract MR C SERVICE COUNTRY “Y” COMPANY Gross Fee

Contract COUNTRY “Z” Gross Fee

40 Case Studies 5.5 Personal Service Company

The Situation The Solution Mr C is a highly paid IT consultant who works throughout Mr C should set up a personal service company. This the world. Each project normally lasts at least six months company, rather than Mr C in a personal capacity, should and requires Mr C to travel to a foreign country to carry enter into contracts with clients. If Mr C’s company is out his duties. located in a jurisdiction that has a tax treaty with the country in which he carries out the work, payments can The Problem usually be made free of both withholding tax and tax at Mr C is likely to spend more than six months in each source. Mr C’s company can then pay him a moderate country in which he undertakes a project and is therefore salary, leaving the balance of the contract value to be likely to become tax resident in that country and subject taxed at the company’s low rate. to that country’s full rate of tax on the income generated from the project. Mr C is normally resident in a low tax Notes country and is therefore unwilling to pay higher levels of Employment income may be taxable at source without tax. Mr C also finds it difficult to be competitive when he the use of a tax treaty as described above. It is therefore quotes for a project unless he is tax efficient in the way important to select a jurisdiction that has low effective that he works. rates of tax but still manages to reduce any withholding tax or tax at source on the income paid. Malta, Cyprus and Mauritius may all provide planning opportunities here. Alternatively, structures using high tax countries such as UK Limited Liability Partnerships (LLPs) or US Limited Liability Companies (LLCs) may also provide a solution.

Case Studies 41 5.6 Estate Duty / Inheritance Tax (IHT) Planning

The Solution

UK COMPANY

OFFSHORE SPANISH SPANISH COMPANY COMPANY PROPERTY

TRUST

OFFSHORE US COMPANY PROPERTY

ART

42 Case Studies 5.6 Estate Duty / Inheritance Tax (IHT) Planning

The Situation On the death of Mr X, the US Revenue would make a Mr X lives in a country which charges IHT only on assets charge to IHT based on the value of his New York situated within the country but he has a large portfolio of apartment. That charge can be avoided by transferring foreign investments which include: the apartment to an offshore company whose shares are • shares in a valuable UK trading company; owned by an offshore trust. Careful consideration must • a holiday villa in Portugal; be given to certain US anti-avoidance legislation to avoid • an apartment in New York; the presumption that there has been a change of owner- • a large art collection in his home country. ship and the consequent application of transfer or death taxes upon the death of Mr X. The Problem The UK, Portugal, USA and Mr X’s home country all The art collection can be transferred directly to the charge IHT on assets physically located in their state. Trustees. Care would have to be taken to ensure that Mr X does not retain benefit by having the use and The Solution enjoyment of the art collection throughout his life, whilst Mr X’s country of residence permits him to set up a trust purporting to have divested himself of those assets. If structure to hold the assets. But particular attention needs this were the case, then the transfer to the trust might be to be paid to the way in which these assets are owned. ineffective in avoiding local IHT. But, if Mr X were to pay an annual fee for the use and enjoyment of the art, then The UK assets are probably the most straightforward. local IHT should be eliminated. There would be no charge to tax (stamp duty excepted) if the shares in the UK company were transferred to the Notes Trustees because this would be a sale by a non-resident If Mr X were living in a high tax country that levied IHT and would therefore be exempt from UK capital gains tax. on a worldwide basis, then the foreign assets may be When the shares in the UK company are held by the trust, subject to IHT in their country of situation and also in the death of Mr X would not represent a taxable event in Mr X’s home country. Credit may be given for capital the UK and UK IHT would therefore be eliminated. taxes paid in one jurisdiction against capital taxes due in another but often there is a double charge to tax so the If the Portuguese property were to be held directly by the need for proper IHT planning is even greater. Trustees, an annual tax charge would be levied on the value of the property. This can be avoided by having the In many countries the transfer into a trust attracts some property transferred to a Maltese company (to avoid the form of transfer/gift tax, but with care that can be annual tax on property owned by “blacklisted” countries), eliminated or reduced by making a sale of the assets, which in turn is owned by the trust. even if the purchase price is left outstanding.

Case Studies 43 5.7 Obtaining UK Non-Domicile Status

The Situation established a permanent home abroad. The UK Revenue An elderly UK national, Mr Q, has been living in Australia will want to see evidence, which should include: for 20 years and has a worldwide estate (mostly sited in Australia) valued at £1 million. • purchase of a house in the new country;

The Problem • taking steps to become a national and/or permanent Many UK nationals live under the misapprehension that resident of the new country; because they live outside the UK they are no longer subject to UK Inheritance Tax (IHT). Wrong! Any UK- • a long period (seven to ten years) of residency abroad; domiciled individual, generally someone born in the UK, will retain their UK domicile – known as domicile of origin • establishment of a business and other financial ties – irrespective of their residence, until death or until the with the new country; UK Revenue agrees otherwise. The rate of IHT is 40% of the amount by which the total value of their worldwide • severance of business ties with the UK. estate exceeds the nil rate band (2007 – £300,000). This is not an exhaustive list and other indicators The Solution would assist. Mr Q considers himself to be Australian but he has retained his UK nationality and passport for sentimental The UK Inland Revenue will not give advance rulings and reasons. Certainly he is tax resident in Australia, and it is therefore only possible to test a UK domicile by filing neither resident, nor ordinarily tax resident, in the UK. But a relevant return in the UK. For persons resident outside Mr Q may well still be subject to 40% UK IHT. At the the UK, this is achieved by making a “chargeable current valuation of £1 million, and after subtracting the first transfer”. Under current rules this is most easily done by £300,000 which would be exempt from UK IHT, Mr Q’s setting up a discretionary trust and transferring into it an estate would be subject to a £280,000 tax demand. amount in excess of the lifetime and annual exemptions, we suggest £400,000. This will produce a lifetime IHT To avoid this possibility, Mr Q should take steps to equal to 20% of the excess value transferred if non- convince the UK Revenue that he is not domiciled in the domicile status is not agreed. If, however, the UK agrees UK. Legally, Mr Q must satisfy the UK Revenue that he that the transferor was not UK domiciled at the time of has left the UK, has no intention of returning to the UK to transfer there will be no tax bill issued and certainty on live (temporary visits are not a problem) and has the domicile is achieved.

44 Case Studies Notes People who have lived abroad for many years often Even if the deceased is subject to IHT in his new country decide not to make an application, either because they of residence, without appropriate planning he may also believe themselves to be safe from tax or because they pay IHT on the same assets back in the UK. A double believe that the UK Revenue will not trouble their heirs or charge to IHT could wipe out the entire estate. their estate upon their death on the grounds that they will not be aware that they have died. Getting a ruling on domicile is an insurance policy. You may think you are not UK-domiciled but if the UK This is not prudent. In these days of increasing exchange Revenue disagrees, you will not be around to argue the of information, it is unlikely that anybody of substantial point, and your estate and heirs may lose out. The wealth can pass away abroad without his or her home procedure is relatively straightforward and, even if the country or country of origin getting to hear about it. Revenue decides that you are still UK-domiciled, a ruling Failure to take steps to mitigate UK IHT will greatly will be helpful in deciding what to do next. Planning impact on the value left to the heirs. without certainty on the domicile issue can be a disaster.

Case Studies 45 6. Principles of Corporate & Tax Law n e r r a W k r a M d n a e i t t a e P s e l r a h 6 SECTION HEADING C © b e l e C 6.1 Introduction 6.2 Bases of Taxation

Why Incorporate? Tax Residency The primary attraction of incorporation is to limit liability. It is a common misconception that both a company and Shareholder losses are restricted to the amount of the an individual may only be tax resident in one jurisdiction share capital that they have either paid for or undertaken at any one time. Most countries will tax an individual who to pay for. A company is a distinct legal entity so spends six months within their borders. By simple creditors are only able to attach to the assets of the example an individual who spends six months in the UK company for payment while the personal assets of the and the other six months in the USA may be considered shareholders remain safe. tax resident in both the US and the UK and subject to tax on his worldwide income in both countries. Happily, the Using Companies to Mitigate Tax USA and UK have signed a tax treaty to eliminate double Profits received by a company are taxed at the taxation, so that credit will be given for tax paid in one corporate income tax rate rather than the personal rate country against the tax due on the same income in the applicable to its shareholders. So a resident of a high other. But the individual would still be subject to the tax country may set up a company in a low or zero tax highest level of taxation applicable in either country. jurisdiction and arrange for profits to be booked into the name of that company. This generates a saving equal to A similar position applies to companies. Most countries the difference between the corporate rate of tax and the consider any company that is incorporated within their shareholders’ personal tax rate. Anti-avoidance legi- jurisdiction to be tax resident there. Most countries also slation in the shareholder’s country of residence may consider any company that is managed and controlled seek to reduce or nullify the effectiveness of such within their jurisdiction to be tax resident, even if incor- arrangements but skillful structuring may make that porated abroad. A company is generally considered to anti-avoidance legislation inapplicable. be managed and controlled wherever its directors habitually meet and reside. Thus a company incor- If a company makes a distribution of profits this will be porated in the USA that has an UK board of directors taxable in the hands of the recipient. The greatest advant- will be subject to both US and UK tax on its income. age is therefore achieved by letting the profits roll up within This “management and control” test means that it will the company so that tax is “deferred indefinitely”. When rarely be the case that an individual residing onshore profits remain untaxed offshore, tax is saved both on the can safely act as the director of an offshore company original profit and the investment income generated by without making that company liable to tax in his home reinvesting those profits, so the benefit is cumulative and jurisdiction. For this reason Sovereign often provides substantive. Distribution of the profits can be delayed until directors who manage the affairs of the offshore the recipient has moved to a jurisdiction with a lower, even company from offshore. zero, tax rate and then tax is avoided completely.

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48 Principles of Corporate & Tax Law Anti-Avoidance Legislation In R -v- Dimsey and R -v- Allen a Jersey-based account- Most countries have enacted anti-avoidance legislation ant acted as director of a number of Jersey companies. designed to reduce or eliminate the effectiveness of The companies were beneficially owned by a person offshore structures. Each country has its own specific resident in the UK who habitually instructed the Jersey rules in this area but such legislation can be broadly accountant what to do and effectively made decisions on categorised as follows: the management of the company. It was held that the UK person was a shadow director and the controller of the a. Management and Control Principles companies, and that therefore the companies were resi- Most countries tax companies on the basis of their tax dent in the UK for tax purposes. It followed that both the residence rather than their place of incorporation. Tax accountant in Jersey and the UK resident had a duty to residency is normally taken to be the place where the declare the liability of the Jersey companies to UK tax. company is managed and controlled. Prima facie the Their failure to do so and the supply of misleading infor- management and control rests with the directors, so a mation to the UK tax department about the way in which company will generally be tax resident where its directors the companies were managed led to lengthy jail sentences meet and reside, or otherwise exercise their decision- for both the beneficial owner (for tax evasion) and the making processes. But this is not the whole story. accountant (for collusion in the tax fraud, for his part in Revenue departments around the world understand that “rubber-stamping” the transactions of the companies). the directors of record may not necessarily be the actual people who make the decisions in relation to the In Wood & Another -v- Holden the position of a Dutch management of the company. If it can be shown that the company with directors based in the Netherlands was beneficial owner, or some other person, makes decisions examined. The UK Revenue argued that the company about the management of the company rather than was in fact managed and controlled by persons resident directors, or that the directors react to instructions given in the UK because the directors based in the Nether- by another person, then control clearly rests with that lands had insufficient knowledge about the business of other person. As a result, the tax residence of the the company to make informed decisions. The Special company will fall into the jurisdiction where that person Commissioners found in favour of the Inland Revenue. lives and resides. Many countries recognise the existence They ruled that the directors (a corporate services of “shadow directors” defined as persons who actually provider) were unable to produce evidence that they had manage the company without being appointed as a taken advice on the transaction, and that they had not director and without having the legal status to do so. been kept informed, had made no effort to be part of the negotiations and were unable to prove that they had There have been many recent cases in this area and it is reviewed the legal documentation. worth highlighting some of the principles outlined in these cases to illustrate the dangers of directors not actually The High Court then overturned the Special Commis- controlling the companies they supposedly manage. sioners’ decision. It rejected the Special Commis- sioners’ view that the directors had insufficient infor-

Principles of Corporate & Tax Law 49 mation on which to make effective and informed deci- Whilst the tax authority lost in this instance, certain sions. It had engaged a leading UK accountancy firm to principles emerged from the case: advise on and represent it in the negotiations, but this did not mean that the UK advisors took the decisions. • Directors must be knowledgeable and sufficiently well The High Court also found that the UK accountancy firm informed to take decisions. reported to the directors about the negotiations and they in turn, had judged, as independently as possible, • Mere physical acts of signing board resolutions or whether or not the transactions were in the interests of documents are not sufficient to constitute actual the company and did not compromise their own management. position as directors. In fact, the corporate service providers gave evidence that any documents requiring • Legal personnel must review documentation and their signature were reviewed by the legal department to advise the directors as to the appropriateness of ensure they were satisfactory, both from its own signing and of the legal implications. perspective and that of the company, as well as from a Dutch legal perspective. • Directors must spend sufficient time on the affairs of the company to get to know the business of the HMRC (the renamed Inland Revenue in the UK) company. In the case of a corporate service provider, appealed to the Court of Appeal, which upheld the fees paid by the company to the directors should be decision of the High Court. It found that the directors commensurate with the necessary time and attention had not been bypassed, nor did they stand aside, required of them when reaching their informed since their representative signed the documents and, decisions. since the documents were signed, the directors must have decided to do so. It also found that while the UK • The referral by the directors of certain matters to accountancy firm set up the overall structure and professional advisors was an important factor in the intended and expected the directors to take decisions directors being able to demonstrate that they were (which in fact they did take), there was no reason to exercising independent mind and management over infer that the UK accountancy firm dictated the the affairs of the company. But care should be taken decisions to the directors. It was considered inherently to ensure that the professional advisors are instructed improbable that a major trust company would allow its by the company and report to the directors, rather actions to be dictated by a client’s professional than to the beneficial owners. advisors. The Court of Appeal further found that a management decision does not cease to be a man- In summary then, it will rarely be possible for onshore agement decision because it could have been taken on clients to act as directors of offshore companies without fuller information; ill-informed or ill-advised decisions tax consequence. It will also not be possible for onshore taken in the management of a company remain residents to appoint directors and then habitually give management decisions. them instructions about how to manage the company.

50 Principles of Corporate & Tax Law Directors must be able to demonstrate that they are appeal, it is clear that offshore companies will continue indeed the persons who make the decisions on important to come under close scrutiny from onshore tax matters regarding the management of the company and authorities. The need for an offshore corporate service must fully document their deliberations and the decision provider of substance that understands these tax issues making process so that, upon enquiry, they are able to and the commercial realities of any given transaction clearly demonstrate that they are in control. therefore becomes increasingly more important.

If short cuts are taken about the way a company is b. Attribution Rules managed then it is liable to have very serious conse- These rules seek to tax the profits of a company as quences. The income of the company will be liable to tax though they had been paid out to its owners whether in the onshore jurisdiction, penalties will normally be such profits are actually paid out or not. Where an owner added to the tax due, and the beneficial owners and/or holds only a portion of a company, then the percentage the directors may face criminal penalties for failure to of the company’s profits allocated to him is equal to his declare the liability of the company to tax in the onshore percentage of shares. If, for example, a UK resident jurisdiction aswell as for misleading the Revenue. In the owned 50% of an offshore company then he would be Dimsey and Allen cases, the beneficial owner was sen- liable to declare his interest in the company on his year tenced to 13 concurrent terms of seven years’ imprison- end tax form. He would be taxed as though he had ment and a confiscation order in excess of £3,000,000, received 50% of the profits of that company calculated with a consecutive term of seven years’ imprisonment in in accordance with UK rules, whether he had actually default. The accountant received 18 months in jail. received them or not.

In the case of Agip (Africa) Limited v Jackson , the Court c. Transfer Pricing Legislation held that the directors of an offshore company did not All arrangements between companies that have any sort have to be co-conspirators to an alleged fraud in order of common ownership must be at “arms length”, or open to be legally liable, but that such liability could be market, prices. Otherwise, transfer pricing legislation established on the basis of (a) actual knowledge of the enables the local revenue to adjust those prices. For activities of the company; (b) wilfully shutting ones eyes example, if an offshore trading company was set up to to the obvious (“Nelsonian knowledge”); or (c) wilfully and buy goods from China and sell those goods to an recklessly failing to make such inquiries as an honest and associated company in the USA, then the price at which reasonable man would make. the goods were sold on must be the same price as the US company would be likely to pay on the open market. The above cases reinforce the need for company direc- If the US company paid a higher than open market price tors to be involved in every step of the decision-making to an associated company in a low tax jurisdiction and process and, more importantly, the need to evidence this thereby shifted profit to that company and reduced its involvement in writing wherever possible. Although the US tax bill, then the IRS is entitled to adjust the taxable UK tax authority in the Dimsey and Allen cases lost their profit to reflect the lower, open market price.

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52 Principles of Corporate & Tax Law d. General Anti-Avoidance Provisions 6.3 The Legal Framework Some countries have legislation, or case law, that states that if the primary purpose of an arrangement is to These general notes are written with reference to United reduce tax, any tax advantage obtained can be Kingdom companies and companies incorporated in removed. Thus, any arrangements that confer a tax jurisdictions which follow UK law. advantage should also have a commercial purpose. Company Name e. Anti-Treaty Shopping Provisions The Registrar has the power to refuse registration of any Treaties can be used to reduce withholding tax on name that he considers undesirable, confusing, dividends, interest and royalties but certain treaties may offensive or too similar to that of an existing company. prevent non-residents of the treaty partner from Certain words – such as trust, investment, bank, and benefiting. For example, the USA withholds tax on insurance – may be regarded as being sensitive and can royalties paid to non-residents at a rate of 30%. The only be used if the company is specifically licensed to USA/Netherlands treaty reduces the withholding tax on undertake the indicated activity. royalties to zero but the treaty contains provisions that render the treaty inapplicable unless the beneficial owner Authorised Share Capital of the recipient company is a bona fide resident of the The amount of the authorised capital – the maximum Netherlands. A Hong Kong resident wishing to reduce capital available to be issued – can be as high as withholding tax in the USA could not therefore achieve desired. In most jurisdictions the fee payable on incor- this by setting up a Netherlands company to receive the poration increases in line with the authorised capital. income and then pay it on to Hong Kong. But see case Generally, a company would be incorporated with the study on page 33 for a solution to this problem. highest authorised capital for which the minimum registration fees apply. There will always be products or structures – such as life insurance or pensions – that are specifically provided for Issued Share Capital by statute, which can deliver great tax advantages. The issued share capital – the capital actually taken up Likewise there will always be ways in which an by shareholders – may be paid, partly paid or issued for operation may be structured so as to prevent it falling a consideration other than cash. When shares have foul of anti-avoidance legislation. Simple offshore been wholly paid, the shareholder has no further liability structures will rarely work. In most situations a more to the company. If the shareholder does not pay for his sophisticated structure will be needed, and the on- shares or pays only in part then he can be called upon going administration will have to be handled accurately to pay the balance outstanding at any time and would and with skill if later problems are to be averted. always be subject to a “call” if the company cannot otherwise pay its debts.

Principles of Corporate & Tax Law 53 If nominee or Trustee shareholders hold shares, they Articles of Association would normally be fully paid up so as to avoid liability for The Articles of Association (often called “Bye-Laws”) the professional shareholders. represent a contract between the shareholders and the company. They provide detailed rules for the Registered Office and other Domiciliary Requirements management of the company’s affairs and for the All companies must have a registered office within the conduct of its business. country of incorporation, but this does not have to be the place where the company carries on business or keeps Shareholders, Directors and Secretaries its books of account. Many jurisdictions require all Shareholders are the legal owners of the company but companies to appoint a resident agent to receive official responsibility for the day-to-day management of the notices and legal papers. Some also require companies company rests with its directors and, to a limited extent, to have a locally resident company secretary or director. with the company secretary. The shareholders would normally retain the power to remove a director from office Company Secretary and elect a replacement but should not interfere with the It is usually the responsibility of the Company Secretary to management of the company and do not have power to make sure that a company is in good standing and make do so. In private companies it is quite common for the the necessary returns to the Registrar and government. shareholders to act as the directors of the company too. This requires a thorough knowledge of local company law and practice so it is strongly recommended that a locally- In jurisdictions that require for a public record of the based professional is appointed, even if there is no strict details of the shareholders to be maintained, the legal requirement to do so. shareholders of record will frequently be nominees or Trustees who will hold the shares on behalf of the Memorandum of Association beneficial owner, thereby preserving their anonymity. Historically the objects of the company would be set out in the Memorandum of Association. Because a As mentioned earlier, Sovereign frequently provides company was not allowed to undertake activities that directors who reside and meet offshore to prevent a were not authorised by its Memorandum, normal company being considered as resident in the high tax practice was to draft extremely wide powers for a country where the owners reside. Such directors will company, with care being taken to ensure that all the carefully consider and will normally carry out the wishes proposed and future activities of the company were of the ultimate owner. But they should not blindly follow fully set out. In most jurisdictions nowadays this “ultra his/her directions (or those of any other third party) vires” rule has been abolished so companies may because this would mean that the control and manage- undertake any lawful business that is not specifically ment rests with the instructing party and not with the proscribed or licensable. The Memorandum of com- directors. In this case, the company could then be panies incorporated in these jurisdictions may simply considered as tax resident wherever the instructing party state that the objects are unlimited. resides. If the tax status of the company is not to be

54 Principles of Corporate & Tax Law prejudiced, it must be clearly demonstrated that the Generally, in the jurisdictions that follow English common directors exercise independent mind and management. law there is an implied duty for management companies, bankers, etc. to keep their clients’ affairs confidential. In Clients may naturally be nervous about giving over control some jurisdictions this common law duty may be supple- of “their business” to a third party, so it is vital that such mented by local legislation that imposes criminal penal- control is given only to organisations of the highest ties on those who breach confidentiality or attempt to get integrity and experience. Sovereign meets these criteria. others to do so. For example, the Confidential Relation- We employ professionally qualified staff, hold appropriate ships (Preservation) Ordinance of the Turks and Caicos government licences and have successfully managed Islands imposes a maximum penalty of a fine of many thousands of companies. The importance of these USD 50,000 and/or a three-year prison sentence on factors and this track record cannot be overstated. those who reveal confidential information about a TCI company or its business dealings. Registered or Bearer Shares? Bearer shares are shares which transfer by delivery with- In all reputable Offshore Financial Centres (OFCs), details out the need for registration of the change of ownership. of beneficial ownership must now be made available They are therefore “anonymous”. In response to inter- upon request to “competent authorities”, including national demands for increased transparency and “know foreign tax departments around the world. So confi- your customer” procedures, most reputable offshore juris- dentiality no longer exists offshore but this will not dictions have now either prohibited them or require them concern those who engage in legitimate tax planning. to be “immobilised” by being lodged with a licensed prac- titioner (usually locally) along with details of the beneficial Know Your Customer Principles / Due Diligence owner. In short, bearer shares are no longer an option that Following the introduction of anti-money laundering legi- will be of any appeal to most clients because they will not slation worldwide, company managers and financial increase confidentiality but will increase costs. We there- institutions now have a statutory duty to implement fore recommend the issue of registered shares only. “Know Your Customer” (KYC) procedures. It is a require- ment for them to know the identity of the beneficial 6.4 Confidentiality and owner of a structure or account, the source of monies International Initiatives being transferred into an account and the type of busi- ne ss a company will undertake. Clients should therefore The degree of disclosure varies between different expect to provide full and frank information about them- jurisdictions. In some jurisdictions there is a requirement selves, their business dealings and their future plans. to file details of the directors, shareholders and secretary on a public register, but nominee shareholders and pro- Organisation for Economic Cooperation fessional directors can be employed to increase anony- & Development (OECD) mity. In other jurisdictions such as the Caribbean and In May 1996, the OECD called for its members to “develop Pacific islands, only minimal public disclosure is required. measures to counter the distorting effect of harmful tax

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56 Principles of Corporate & Tax Law competition”. This led to an initiative designed to force country requests the competent authority of another OECD members and those non-OECD members identified country to do so under the authority of a bilateral ex- as “tax havens” to eliminate harmful tax practices. change arrangement between the two countries.

In 1998 the OECD listed 41 jurisdictions as “tax havens” The OECD’s Committee on Fiscal Affairs has agreed on and called on them to make commitments to end harm- new provisions for the exchange of information between ful tax practices. The identifying criteria for blacklisting national tax authorities in its Model Tax Convention on were: low or no income taxes; ring fencing between resi- Income and on Capital. Article 26 has been changed to dent and non-resident tax regimes; lack of transparency; clarify that Contracting States should obtain and ex- and failure to exchange information. change information and to prevent bank secrecy from being used as a basis for a refusal. The Global Forum Following criticism from non-OECD countries and a shift has also developed a Model Agreement on Information in US government policy under the Bush administration, Exchange on Tax Matters that countries can use to the OECD modified these criteria by dropping the de- guide their bilateral negotiations. mand to increase taxes. Instead jurisdictions were asked to increase transparency and to facilitate exchange of The Global Forum is also working towards establishing a information. As an “incentive”, uncooperative jurisdic- global level playing field. In June 2004, representatives of tions would face sanctions including: 42 OECD and non-OECD governments approved a joint report on how to achieve their common objective of a • payments to that OFC would be made non-deductible global level playing field based on high standards of for tax purposes; transparency and effective exchange of information. The Global Forum agreed to carry out a review of the trans- • requiring OECD member states to deduct tax from parency and information exchange practices currently any payment to that OFC; applied by all OECD countries, the 33 non-OECD Participating Partners as well as other significant financial • prohibiting that OFC from using the banks and other centres. The Global Forum also invited other financial financial institutions of the OECD member states. centres to participate in its work.

The jurisdictions that have made commitments, including Tax Information Exchange Agreements (TIEAs) nearly all OFCs, now work together with OECD countries The US has pressured nearly all OFCs into signing under the auspices of the OECD’s Global Forum on Tax- bilateral agreements for the exchange of information on ation to develop the international standards for transpar- tax matters. These agreements require the contracting ency and effective exchange of information in tax matters. states to exchange information, upon request, that is relevant to the assessment and collection of tax and The OECD has demanded that countries exchange enforcement of tax claims or the investigation or prose- information whenever a competent authority of one cution of tax crimes. The US has stated its intention to

Principles of Corporate & Tax Law 57 sign such agreements with all OFCs. An increasing The UK and Dutch territories of the British Virgin Islands, number of TIEAs are also being negotiated between Guernsey, the Isle of Man, Jersey, the Netherlands OFCs and OECD Member States using the Model Antilles, the Turks and Caicos Islands and Gibraltar will Agreement on Information Exchange on Tax Matters that also apply the withholding tax over the same period. has been drafted by the OECD’s Global Forum. Surprisingly, the legislation only affects individual account OFCs that are associated or dependent territories of EU holders and, possibly, trust accounts. The legislation Member States are also required to sign TIEAs with EU does not affect corporate accounts even if the account Member States to facilitate exchange of information pro- owning corporation is registered in an EU member state. cedures under the EU Savings Tax Directive. Additionally, some major banking centres around the world, notably Singapore, Hong Kong, Bahamas, Dubai European Union (EU) Savings Tax Directive and Uruguay, are not currently affected by the legislation. The EU Savings Tax Directive came into effect on 1 July 2005. It applies to all 27 EU member states, The European Commission’s head of tax policy Michel together with their associated and dependent terri- Aujean said the EU would continue to monitor the Direc- tories, and has also been extended by agreement to tive’s progress, in particular against the development of key third countries. more sophisticated financial products or signs that investors are moving their savings elsewhere, particularly Twenty-four of the EU member states have chosen to to Asia. He also said the EU aimed to start talks with share information automatically about interest Singapore and Hong Kong. payments to a resident of another EU state or any territory under the control of an EU member. Anguilla, Financial Action Task Force (FATF) Aruba, the Cayman Islands and Montserrat have also The FATF is an inter-governmental body whose purpose agreed to exchange this information. is the development and promotion of policies, both at national and international levels, to combat money laun- Although they will not participate in the exchange of dering and terrorist financing. Established at the 1989 information, the remaining three EU members – Austria, G7 Summit, the FATF comprised the G7 Member States, Belgium and Luxembourg – have elected to impose a the European Commission, and eight other countries. It withholding tax on interest income during a transitional was given responsibility for examining money laundering period. The withholding tax, 75% of which will be paid techniques and trends, reviewing the action that had to the country of the taxpayer’s residence, will be 15% already been taken at a national or international level, until 2008, 20% until 2011 and 35% afterwards. and setting out the measures that still needed to be taken to combat money laundering. Agreements have also gone into effect under which Andorra, Liechtenstein, Monaco, San Marino and In April 1990, the FATF issued a report containing a set Switzerland will apply similar arrangements. of 40 Recommendations, which provided a compre-

58 Principles of Corporate & Tax Law hensive plan of action needed to combat money 6.5 Death of the Client and Trusts laundering. In 2001, the development of standards in the fight against terrorist financing was added to the An offshore company can own assets of all descriptions, mission of the FATF. including bank accounts, safely and confidentially. Trans- ferring assets into a corporate structure means that the The FATF is engaged in a major initiative to identify non- underlying assets can be removed from the estate of cooperative countries and territories (NCCTs) and to the client and instead the estate becomes the owner of ensure that all financial centres adopt and implement a single asset – the shares in the company. This is measures for the prevention, detection and punishment advantageous because, on the client’s death, only the of money laundering according to internationally recog- shares of the company need to be transferred to the heirs, nised standards. In 2000, the FATF published a list of 15 rather than each underlying asset. Normally assets are jurisdictions that had either critical deficiencies in their transferred on death by means of a will, but this can be an anti-money laundering systems or had demonstrated expensive and lengthy procedure. Even a simple estate unwillingness to co-operate in anti-money laundering can take over a year to wind up and the costs could be as efforts. As at 13 October 2005, the list of NCCTs had high as 6% of the value of the estate. Creating a trust can been reduced to just Myanmar and Nigeria. The FATF be used as an alternative to a will and has a host of called on its members to ensure that their financial advantages. A comprehensive explanation on the institutions give special attention to businesses and workings and advantages of trust structures is contained transactions with persons, including companies and within the trusts section in this brochure. See page 64. financial institutions, in these countries. 6.6 Special Types of Companies As a result, all countries are introducing higher standards for due diligence and “KYC” principles, and financial Insurance Companies institutions are being ever more diligent and careful There are a number of offshore jurisdictions that are keen about the business they take on and the way that to encourage the establishment of insurance companies business is monitored. Customers of any financial insti- that, like banks, bring employment and investment to the tution or financial services provider (including ourselves) country of incorporation, and generally enhance its repu- must expect to supply proof of identity, proof of resi- tation and its range of financial services. In a number of dential address and references before they will be taken OFCs it is possible to incorporate insurance companies on as customers, and to explain the source and busi- that pay no tax on their premium or investment income. ness purpose for any substantial movement of funds. St Vincent and the Seychelles are currently two of the Compliance with these requirements brings additional easier places in which to set up an insurance company. costs and inconvenience but is entirely unavoidable and has now become an absolute requirement imposed by Captive Insurance Companies local and international regulations and/or laws. Captive insurance companies are often formed by multi- national companies to insure and re-insure the risks of

Principles of Corporate & Tax Law 59 subsidiaries and affiliates. Captive insurance companies Typically the company will be structured so that the are particularly suitable for the shipping and oil shares are issued on terms that each carries one vote industries, and for the insurance of risks that might but no rights to dividends or to participate in the capital otherwise only be insurable at prohibitive premiums. or income of the company. The Guarantee Member- Bermuda and Guernsey have long been favoured as ships would be issued on terms that they carry no domiciles for the incorporation of captive insurance rights to vote but all the rights to participate in the companies, with countries such as the Isle of Man, income and capital of the company. Thus all control Gibraltar and the Turks and Caicos Islands now rests with the shareholders but all benefits flow to the competing for a share of this growing market. Guarantee Members. The shares can be issued to professional managers but, unlike normal shareholders, Hybrid Companies they cannot receive financial benefit from holding the The term “hybrid company” is used to describe a com- shares and therefore must act as quasi-Trustees. All pany that is limited both by shares and by guarantee financial benefits flow to the Guarantee Members who and therefore has two classes of member – Share- are therefore in a position not unlike the Beneficiaries holders and Guarantee Members. The directors elect a of a trust. Guarantee Member into membership of the company on condition that the member undertakes to contribute A Guarantee Member’s interest can be extinguished on to the debts of the company up to a certain specified death thereby avoiding any succession problems and maximum amount, typically USD 100 or less. As such the need to obtain probate. a Guarantee Member holds a contingent liability. This contrasts with the position of the shareholder who The anti-avoidance legislation enacted by many onshore holds an asset – the shares. countries aims to tax the undistributed or untaxed profits of low tax paying companies as though those profits The rights and obligations which attach to each class have been received by the shareholders. Although the of membership can be laid down in the Articles of legislation differs by country, it generally focuses on the Association of the company or by the directors in board percentage of shares held or the control of the company meetings, thereby keeping the terms and conditions of if that control is achieved other than through the membership confidential. The arrangements that can ownership of shares. Under the arrangements outlined be made are infinite and flexible. Skillful drafting can be above, the Guarantee Members would not own shares used to attach different rights and obligations to each or have control of the company so it may be that class of membership and create structures that are attribution rules (see page 31) are ineffective in taxing precisely tailored to the different needs of the client. profits rolled up within a hybrid structure. It will generally also be the case that a hybrid structure does not entail Hybrid companies are often referred to, and can be any reporting requirement for the Guarantee Members used as, quasi-trusts, particularly by persons resident in so that, on a practical level, unwanted attention from Civil Law countries where trusts are not recognised. onshore revenue authorities can be avoided.

60 Principles of Corporate & Tax Law There are a number of offshore jurisdictions in which it is equivalent. Moreover, because such an entity is formed possible to form hybrid companies. The structures under an English Common Law system, it is also more offered by the Isle of Man and Gibraltar have been the intelligible to a wider audience and will be better subject of much recent interest, but the TCI hybrid accepted by the major onshore jurisdictions. company is perhaps the most flexible. An “Anglo Saxon Foundation” is created by the founder, Guarantee Companies who may be elected as the founding member, transferring A guarantee company is a company that is limited assets to the guarantee company as a subscription. The only by guarantee and therefore has only Guarantee company elects members and appoints directors. Mem- Members and no shareholders. bership is not transferable and ceases upon death or resig- nation, but the directors may then elect new members. Guarantee memberships can be issued on whatever terms the directors decide, but the advantages noted above Frequently there are directors and Committee Members. as attaching to guarantee memberships in hybrid com- The Committee Members are normally elected from the panies would also apply to pure guarantee companies. family of the Founder and are the only persons who have the power to elect new members and approve payments Guarantee companies, because of the facility to to same. The directors would typically be professional extinguish a membership on death, can form the basis of advisors who manage the day-to-day affairs of the a personal holding company which allows for a smooth company but are unable to benefit in any way other than succession of title to the underlying assets through the by payment of an agreed fee for their services. guarantee membership structure. Charities Guarantee companies can be formed in most offshore and Most countries in the world have generally granted tax onshore jurisdictions that follow the English legal system. exemption to charities and tax breaks to those who donate money to them. The reasons for this are obvious. Anglo Saxon Foundations Charities are very useful ways in which governments can Traditionally, the Liechtenstein foundation has been the relieve themselves of the burden of funding projects such preferred vehicle for residents of Civil Law jurisdictions as hospitals, schools and other projects which would who wish to protect family assets and pass them on to otherwise use up their revenue. Encouraging charitable future generations. English Common Law does not work and donations to charities is therefore a necessary specifically recognise the concept of the foundation but component of any developed economy. a guarantee company may be structured to mirror a Liechtenstein entity. Such an entity may conveniently be Many of the world’s wealthiest people found their own described as an “Anglo Saxon Common Law Found- charities. Although this is primarily motivated by altruistic ation”, but in many ways this structure is more sophisti- instincts, charities also provide substantial tax breaks cated and flexible than the more expensive Liechtenstein and a way of controlling family wealth without necessarily

Principles of Corporate & Tax Law 61 being taxed on the income and other profits generated Private Trust Companies from that capital wealth. The valid creation of a trust involves the transfer of assets by the owner (Settlor) to the Trustees. Ordinarily Wealthy individuals can obtain huge advantages from the Trustees would be a professional firm well-versed in founding their own charitable foundation and these trust affairs and properly licensed to carry out trust advantages can include all or any of the following: business. However, it is possible for the Trustee to be a company owned and managed by the Settlor or his • generally contributions to a charity can be made family. Such a company would not generally require a without incurring transfer taxes or their equivalent; licence to act as Trustee provided that it does not offer trust services to the general public and provides services • contributions to a charity can be deductible from tax; only to its owners.

• the founder of a charity can maintain control over the The trust company should be limited by guarantee management and disposition of the underlying assets; rather than by shares because a guarantee membership would expire upon the death of its owner, so that there • the charity affords its founder the opportunity to carry would be none of the delays and expenses involved on his (family) name and to do so in a positive manner. in transferring the membership upon the death of the A “once off” gift provides some short-term recognition owner. The company can have a number of different but a charity may endure for generations; members each with particular interests and voting powers so that continuity upon the death of any one • charities can be a powerful way to mitigate estate, owner (or even a number of owners at the same time) capital and income taxes; is secured.

• charities provide ongoing employment opportunities Management could also be vested in family members for children and grandchildren; but more often it will be prudent to appoint directors well versed in trust matters to ensure that the affairs of • charities allow for the liquidation of appreciated assets the trust company are properly managed in accordance – often without tax consequence; with trust law and principles of good governance. This should ensure that the trust is not vulnerable to claims • charities protect assets from creditors; that it is a sham and potential liabilities are avoided. Sovereign can provide directors for this purpose either • charities provide maximum security and confidentiality; acting alone or in conjunction with the family. Comfort can be taken from the fact that, because the family • charities can be used by high profile persons with retains voting control of the company, any director can public image concerns (or needs). be removed from office at any time.

62 Principles of Corporate & Tax Law Assets are transferred to the trust company that holds US principles. Non-US persons are only taxed on US- those assets upon trust for a designated class of source income or income connected with the conduct Beneficiaries named within the trust deed. The terms of a US trade or business. If the LLC earns only income of the trust should be carefully drafted to suit the which falls outside this definition and the members of individual circumstances of the Settlor, Beneficiaries the LLC are non-US persons with no US presence, then and the trust company. no tax would be payable either by the LLC or by its members. The recommended structure is therefore to The way in which the assets are transferred to the have two offshore companies as the members. Trustees and the way that they are held – either direct or through a company or series of companies – will be Following the US lead, many offshore jurisdictions have most important. Sovereign will be able to advise on the passed legislation enabling the incorporation of LLC best way for assets to be held. structures. These are primarily used to structure joint ventures between US and non-US corporations or Limited Liability Companies (LLCs) persons. A non-US corporation or person may gain a The Limited Liability Company is another hybrid considerable tax advantage by structuring their affairs business entity, which combines the features of a offshore, whereas a US corporation may lose tax partnership with those of a corporation. It is a relatively credits in the country in which they are investing which new structure that was first created by the US state of would be available if they made a direct investment. Wyoming under the Wyoming Limited Liability Act of The offshore LLC may therefore be structured so that 1977. Wyoming’s example was followed by Florida in the income attributable to the US corporation flows 1982 and all US states have since enacted LLC through complete with tax credits still attached, legislation. The state of Delaware is usually considered whereas the income attributed to the non-US person or as the preferred domicile for a US LLC because of a corporation may be rolled up within the LLC. comparative lack of regulations and bureaucracy. An LLC has corporate form and personality but is Most of the offshore jurisdictions allow for the incor- categorised as a partnership. As such, an LLC is not poration of an LLC, but the Bahamas, Cayman Islands, independently taxable but rather its income is taken to Isle of Man and TCI companies are particularly suitable. flow through to its members who are taxed according to

Principles of Corporate & Tax Law 63 7. Trusts & Trustee Services n e r r a W k r a M d n a e i t t a e P s e l r a h 6 SECTION HEADING C © b e l e C 7.1 Introduction Beneficiaries). A trust can be created solely by verbal agreement but it is normal for a written document (the Although many people prefer not to think about their Trust Deed) to be prepared. This evidences the creation death, failure to plan in advance can mean that they leave of the trust, sets out the terms and conditions upon their estate in disorder. This will then have to be sorted out which the trust assets are held by the Trustees and by their successors – often at great expense and incon- outlines the rights of the Beneficiaries. In essence, a venience at a time when they are emotionally vulnerable. trust is not dissimilar to a will except that assets are transferred to the Trustees during the Settlor’s lifetime Many people seek to order their affairs by making a will. rather than to executors upon the death of the owner. Under this arrangement the executors named in the will The trust deed is therefore similar to the will. apply for a grant of probate, take possession of the assets of the deceased and then distribute those assets Those unfamiliar with the trust concept usually express according to the terms of the will. Such arrangements concern at the idea of transferring ownership of their are perfectly in order but result in high administration property to a Trustee. This concern can be alleviated if costs (often around 4% to 6% of the total value of the the trust concept and the distinction between legal and estate), long time delays (even a simple estate would beneficial ownership is properly understood, and normally take at least one year to be wound up) and, provided that the trust is governed by a reliable trust law very often, a large tax bill. that can be enforced in a reputable jurisdiction.

The only real alternative to a will is for the individual to Legal and Beneficial Ownership set up a trust during their lifetime. With careful planning, The practical advantages of a trust are derived from the this can eradicate delays, administration costs and tax fact that a distinction is drawn between the formal or liabilities, as well as bestowing a large number of legal owner of property and the person who has the additional benefits. For these reasons the use of trusts use or benefit of the property – the Beneficial Owner. is increasing dramatically. For formal legal purposes the Trustee is recognised as the owner whereas the persons who have the use or The purpose of this section is to provide an explanation benefit of the property are the Beneficiaries. It is of how trusts can be used to advantage and to dispel possible for the Settlor to retain an interest in the trust some of the most common misconceptions about them. and to be an actual or potential Beneficiary but this can have estate duty and tax disadvantages. It is vital Trust Concept that the Trustee remains independent and exercises A trust is an arrangement whereby property is trans- proper control over the trust property. The trust may ferred from one person (the Settlor) to another person be invalid if the Settlor continues to exercise control or corporate body (the Trustee) to hold the property for over the trust assets by retaining benefit or control, or the benefit of a specified list or class of persons (the by giving directions to the Trustees.

65 Accountability of Trustees c. Act Prudently Trust law imposes strict obligations and rules on Whether or not a Trustee is remunerated, he must act Trustees. There is a basic rule that a Trustee may not prudently in the management of trust property and will derive any advantage, directly or indirectly, from a trust be liable for breach of trust if – by failing to exercise unless expressly permitted by the trust – for example, proper care – the trust fund suffers loss. In the case of a where he is a professional Trustee and the trust provides professional Trustee, the standard of care that the law for a right to charge for his services. Full disclosure of the imposes is higher. Professional Trustees hold themselves basis and amount of charges is required. A professional out as having special expertise and the courts will expect Trustee who derives some indirect commercial advant- them to exercise a high standard of competence. Failure age that is not fully disclosed and approved will be to exercise the requisite level of care will constitute a acting in breach of trust and will have to account to the breach of trust for which the Trustees will be liable to Beneficiaries for the advantage gained. compensate the Beneficiaries. This duty can extend to supervising the activities of a company in which the Duty of Trustee to Obey Trust Document Trustees hold a controlling shareholding. Trustees must follow the Trust Deed and are subject to very strict rules governing the way in which their powers 7.2 Advantages of a Trust and discretion may be exercised. Trusts are an important tax planning tool but they also Fiduciary Relationship of Trustee have other uses that are of equal, if not greater, impor- The courts regard a trust as creating a special tance. A properly drafted and managed trust can confer relationship that places serious and onerous obligations advantages under any or all of the following heads: on the Trustee. Trustees are therefore subject to the following rules: Asset Protection Trusts can be one of the most effective ways of a. No Private Advantage protecting assets. In simple terms, assets transferred to A Trustee is not permitted to use or deal with trust pro- a trust no longer form part of the Settlor’s property, so perty for private direct or indirect advantage. The court the trust assets cannot be seized if a Settlor gets into will hold them liable to account for any profits made in financial difficulties. This is an over-simplification of the breach of this obligation. law. Under certain circumstances, the transfer into trust may be set aside and a court may order the trust assets b. Best Interests of Beneficiaries to be transferred back to the Settlor. Trustees must exercise all their powers in the best interests of the Beneficiaries of the trust, and disregard The rules of many onshore jurisdictions make this possi- the interests of others, including the Settlor. ble if a creditor of the Settlor, who cannot otherwise get paid, can show that the Settlor transferred assets into

66 Trusts & Trustee Services trust with the intention of avoiding a current or future of estate duty payable before the property can be trans- liability, or if the liability owed to the creditor arose within ferred to the executors who may then distribute to the a certain statutory period after the transfer into trust. For legal heirs according to the will. This procedure is entirely these reasons it has not been possible to be certain that unsuitable for those who wish to keep details of their assets transferred into trust are completely safe from assets confidential. The only other legal form of transfer creditor attack. is via a trust and this would generally save estate duty and keep the trust assets confidential. To overcome this problem many offshore jurisdictions amended their trust or bankruptcy laws to create what Avoiding Forced Heirship is now commonly referred to as the “Asset Protection Many continental European countries, civil law juris- Trust” (APT). This legislation gives protection to assets dictions and countries of Islamic tradition have “forced transferred into the trust structure from all forms of heirship” provisions, which prevent the deceased from creditor attack, provided the Settlor can show that he leaving his property to whomever he wishes. Typically was solvent at the time of the transfer and did not one-third of the estate must be left to children, one-third become insolvent as a result of that transfer. By to the spouse and the other third is the free estate that choosing an offshore jurisdiction which has enacted may be left to anyone else. If that course of action doesn’t APT legislation it is possible to gain a degree of appeal, a trust will frequently be the answer because it additional asset protection over and above that will allow a wider or different distribution of the estate. inherent in a normal trust structure. Estate Planning Tax Planning Many people do not want their assets to pass outright to Assets transferred into trust are no longer considered as their heirs, whether chosen by them or as prescribed by belonging to the Settlor, so the income and capital gains law, and prefer to make more complex arrangements. generated by those assets are taxed according to the These might involve providing a source of income, but rules governing the legal owner – the Trustee. Inheritance not capital, for a spouse for life, making provision for the tax would be eliminated because the Trustee would education of children but not letting them have access to continue in existence despite the death of the Settlor. Anti- capital until later in life, or providing a fund to protect avoidance legislation in the home country of the Settlor, or members of the family in the event of sudden illness or in the location of the trust assets, may seek to counteract other calamities. A trust is probably the most satisfactory this outcome but a correctly structured and administered and flexible way of making arrangements of this kind. trust should produce substantial tax savings. Protecting the Weak Confidentiality A trust provides a vehicle by which a person can Proving a will is a public procedure. The tax authorities provide for those who may be unable to manage their will need to receive a complete list of all the property own affairs such as infant children, the aged, the owned by the deceased in order to assess the amount disabled or persons suffering from illness.

Trusts & Trustee Services 67 Preserving Family Assets have a contingent interest and avoid any tax liability Preserving the family assets, or increasing them, is often until such time as a distribution is made to them. a motive for setting up a trust. An individual may wish to ensure that wealth accumulated over a lifetime is not 7.3 Which Jurisdiction? divided up amongst the heirs, but is retained as one fund to accumulate further, with provision for payments to There are many jurisdictions, both onshore and offshore, members of the family as the need arises while pre- in which it is possible to set up a trust. When choosing serving some assets for later generations. This can be the best jurisdiction it is important that it offers: achieved through a trust. • a strong tradition of enforcing trusts; Continuing a Family Business An entrepreneur who has built up a business will often be • an English Common Law system; concerned to ensure that it continues after their death. If the shares in the company are transferred to Trustees • an established reputation for trust business; prior to death, a trust can be used to prevent the un- necessary liquidation of a family company and to ensure • modern legislation including contemporary trust that the individual’s wishes are observed. These might concepts – particularly Asset Protection Trusts; include provision for payments to be made to members of the family from dividend income, with the Trustees • low or no taxation for trusts. retaining the shares and keeping the company running except in special circumstances justifying sale of control In the light of these requirements, the onshore juris- or liquidation. This may be particularly advantageous dictions such as the UK, USA and Australia are unsuit- where family members have little business experience of able because of high tax. Some jurisdictions are not their own or where they are unlikely to agree on the recommended because of political uncertainties, or correct way to manage the business. because they have only recently started to attract trust business with the result that their courts and profes- Gaining Flexibility sionals have limited trust experience. Other jurisdictions, The best laid plans can rapidly become obsolete but a whilst being noted for their expertise, have not kept Discretionary Trust can provide a system of manage- pace with the modern trends in legislation that bring ment of property that is capable of adapting as additional benefits and additional protection to trust circumstances demand. No Beneficiary has any fixed assets. Some of the more traditional trust jurisdictions, or absolute interest in the trust assets under a Disc- such as Jersey and Guernsey, fall into this category. retionary Trust. Instead, the Settlor can simply nomi- nate a class of Beneficiaries and the Trustee is given There is a very wide choice of jurisdiction but only a small wide discretionary powers in terms of whether, and to number are able to offer all the important elements. whom, he distributes trust assets. Beneficiaries only Although there are other jurisdictions which offer similar

68 Trusts & Trustee Services advantages, we believe that Gibraltar, the Turks & Caicos Memorandum of Wishes Islands and the Isle of Man are amongst the best avail- When setting up a discretionary trust it is common for able. Gibraltar and the Turks & Caicos Islands, in par- the Settlor to indicate to the Trustees how the Settlor ticular, have initiated strong asset protection legislation. would have dealt with those assets if he had retained Sovereign Trust (Isle of Man) Limited, Sovereign Trust ownership. The Trustees will then make a compre- (Gibraltar) Limited and Sovereign Trust (TCI) Limited are hensive note of those wishes in a written memorandum, fully licensed to act as Professional Trustees in their to which they would refer before dealing with the trust respective jurisdictions. property. The wishes of the Settlor will not be binding on the Trustees but, in practice, most reputable Trustees 7.4 Disadvantages and Solutions would be reluctant to deal with the trust property in any way other than that suggested by the Settlor except, for Irrevocability example, where a change in circumstance or other It is incorrect to assume that trusts cannot be revoked. matters suggests it is clearly disadvantageous to the Trusts can be made revocable but this usually has tax, Beneficiaries to act in that manner. estate duty, asset protection and stamp duty conse- quences. Revocability is a matter to be discussed when Protector the terms of the trust are considered. It is possible to appoint a Protector to exercise some degree of control over the trust property. In our view, it Loss of Control of Property is unwise for a Protector to be given anything other than Many potential Settlors are reluctant to transfer property negative powers – that is, the Protector’s powers should to Trustees because they fear loss of control over that be limited to vetoing the decisions or actions of the property. For those who wish to continue to exercise Trustees rather than having power to force the Trustees effective control over the trust assets after the transfer, to act in any particular way. If the latter, a Protector careful planning – together with an understanding of the could be found to be a “quasi-Trustee” and negative fundamental legal requirements of a trust – is required if consequences may ensue, especially if the Protector the trust is to remain valid. If a Settlor retains too much were to be resident in a high tax country. It is usual for control over the assets there is a risk that the trust will a trusted friend, family relative or professional advisor of not be effective and the Settlor will continue to be re- the Settlor to be appointed as Protector but it is also garded by the law as the owner. If this happens all the becoming increasingly common to use the services of a advantages of having the assets held in trust may be professional trust company. For this reason Sovereign is lost. In particular, a court may force a Settlor to exercise able to serve as a professional Protector where we are any control he retains in a particular manner thereby not retained to act as Trustees. negating any asset protection advantage that would otherwise have existed. Despite this, there are devices that may be used to give comfort to a Settlor.

Trusts & Trustee Services 69 Two-Tier Company and Trust Structure A third party professional trust company will often not be Greater flexibility can sometimes be achieved by having in a position to offer the Settlor the degree of flexibility the underlying assets owned by a company whose shares and the speed of response that they require – and its are then owned by a suitable trust, rather than the under- employees cannot be expected to be as familiar with the lying assets being owned directly by the trust. The Settlor, business of companies owned by the trust as the family or an appointee of the Settlor, may act as the director of members themselves. Decisions may have to be referred the company and may therefore exercise day-to-day con- internally or external advice obtained before they can be trol over the underlying assets with minimal interference or put into effect. If a change of Trustee is desired it can be need to refer to the Trustees. This two-tier structure can a lengthy and expensive process. But with the PTC be used to good effect in certain circumstances but may structure, these problems can be largely avoided. have tax and other disadvantages where the director of Directors familiar with the business make the decisions the company is resident in a high tax country. and, if a change of direction is desired for the manage- ment of the trust, this can be achieved by changing the Joint Trustees board of the PTC. A PTC can therefore provide greater There is no reason why a trust cannot be structured so comfort for the Settlor that his or her objectives in that there are joint Trustees, with the agreement of both creating the trust will be met. being required to take any action. The second Trustee may be the Settlor himself or a company controlled by It is usual and advisable to have at least one director who the Settlor. Again, there may be negative tax or other is a trust expert because running a trust company is consequences resulting from such a structure if the complicated and is also very different from running a Settlor is resident anywhere other than a low tax juris- normal company. To avoid arguments that a trust is a diction. Alternatively, a check and balance may be ob- sham, we believe it is vital to have expertise on the board tained by having two different professional trust corpor- to add substance and credibility to the PTC and to ations acting as joint Trustees. This can be cumbersome ensure that the PTC – and any trusts that it administers and expensive but may be suitable for certain trusts. – is run correctly.

Private Trust Companies The directors of the PTC must remember that all A Private Trust Company (PTC) is a company formed for decisions which they take in relation to the trust must be the specific purpose of acting as Trustee of a single trust, in the interests of the Beneficiaries as a whole. They or a group of related trusts. Family members can partici- should not be unduly influenced by their personal cir- pate in the management of the company and therefore cumstances or desires. in the decisions that need to be taken by the PTC as Trustee, including decisions relating to the control and Generally an offshore trust will only be subject to the management of companies owned by the Trustee. Such offshore tax regime if it is administered by a trust participation would not be possible if the Trustee was a company that is managed and controlled offshore. To third party professional trust company. achieve this, it will generally be necessary to have at

70 Trusts & Trustee Services least a majority of directors residing offshore. If the of trusts, and does not solicit from, or provide trust Settlor is an onshore resident, then they could be one company business to, the public. In most cases there of the directors, but onshore family members should is also no requirement to submit any reports or not form a majority on the board. accounts to any statutory body of either the PTC itself or of the trusts for which it acts as Trustee. More important than the constitution of the board will be the ultimate ownership of the PTC because this will, if Although the costs of establishing both a PTC and the the owners feel it necessary, allow them to remove trust or trusts of which it is to act as Trustee, are generally directors and replace them. In this way the aim of having higher than the cost of simply establishing a trust, the more control over the affairs of a trust would not be ongoing costs may be less than the Trustee fees that compromised, even if no family members were repre- would be charged by an independent third-party Trustee. sented on the board, provided that ownership is in the This is particularly the case where the trust assets are very hands of the Settlor or his family . substantial because independent Trustees will often charge fees based on a percentage of the assets. For this reason a PTC is best set up as a company limited by guarantee whose members can be Costs appointed and removed, or cease to be members, It is often assumed that the costs of running a trust are upon death or the attainment of a certain age. As a prohibitive. It is true that many of the major banks and result, the ultimate control of the PTC can rest with the other financial institutions charge hefty fees for setting up family irrespective of the constitution of the board of a trust and also charge a percentage of the trust assets directors, thereby giving the Settlor added comfort, in annual administration fees. The fees charged by while also avoiding any problems associated with smaller, independent trust companies are generally more having to transfer shares on the death of a member. reasonable and make trusts affordable to relatively modest estates. Independent trust companies offer a All the principal offshore locations now have in place more personalised service and also benefit from the fact licensing regimes for professional Trustees but many that they are truly independent. They can therefore select jurisdictions specifically exempt PTCs from the require- the best investments for the trust without being under ment to be licensed and regulated, provided that the pressure to place trust money with their own in-house PTC acts as Trustee solely of a specific trust or group investment advisors.

Trusts & Trustee Services 71 8. Jurisdiction Profiles n e r r a W k r a M d n a e i t t a e P s e l r a h

6 SECTION HEADING C © b e l e C THE SOVEREIGN GROUP HAS BOTH THE EXPERTISE AND EXPERIENCE to advise its clients on the selection of the most appropriate company jurisdictions, whether onshore or offshore, to meet their particular international business requirements. The information provided below will introduce you to some of the most commonly-used corporate structures available across a broad spectrum of jurisdictions, together with an appraisal of their respective advantages and disadvantages. If a location in which you are interested is not listed, please contact us for further information.

73 8.1 Bahamas

1. Company Law: The Companies Act, 1992 and the International Business Companies (IBC) Act, 2000. 2. Type of company: International Business Company (IBC). 3. Standard capital: USD 50,000 being the maximum capital for the minimum duty payable annually. 4. Annual fees paid to authorities: USD 350. 5. Taxation rates applied to companies generally: Nil. 6. Length of time to incorporate: 24 hours. Ready-made companies are available. 7. Minimum members: Minimum one, who may be individual or corporate. 8. Registered office: Yes, must be maintained in the Bahamas at the address of a licensed management company or law firm. A local registered agent must also be appointed. 9. Directors: Minimum one, who may be individual or corporate. A register of directors must be filed with the Registrar and is open to public inspection. Must a director / secretary be resident? No. be resident? 10. Is AGM required? No. 11. Annual return: Not required. Meeting required? Must financial statements be prepared and/or audited? Company is required to keep financial records reflecting financial position of the company but there is no need to record or file these with the authorities. 12. Is disclosure of profits required by filing balance sheets with annual returns? No. 13. Necessary to keep share register? Yes, at registered office. Necessary to file share register with Registrar? No. Share register open to inspection by public? No, but can be inspected by other members. 14. Any exchange controls or other inspection by public? financial restraints imposed? None.

74 Jurisdiction Profiles 15. Is redomiciliation into the jurisdiction allowed? Yes. 16. Is redomiciliation out of the jurisdiction allowed? Yes. 17. Language of incorporation: English. 18. Confidentiality: No specific statutory provisions governing secrecy in relation to companies, but English law, which applies within the jurisdiction imposes a common law duty on professionals to keep the affairs of their clients confidential. 19. Are bearer shares allowed? No. 20. Advantages: Flexible legislation. Very quick formation procedure. Good name availability. Not affected by EU savings directive. 20-year guarantee against tax, which runs from incorporation. Excellent banking services – 450 banks. 21. Disadvantages: Frequent changes in legislation. Poor legal services as no foreign lawyers allocated to practice in jurisdiction.

“The hardest thing to understand in the world is the income tax.” Albert Einstein

Jurisdiction Profiles 75 8.2 Belize

1. Company Law: The International Business Companies Act, 1990. 2. Type of company: International Business Company (IBC). 3. Standard capital: USD 50,000 would generally be used as this is the maximum level for which minimum Government fees apply. 4. Annual fees paid to authorities: USD 100. 5. Taxation rates applied to companies generally: Nil. 6. Length of time to incorporate: 72 hours. Ready-made companies are available. 7. Minimum members: Minimum one, who may be individual or corporate. 8. Registered office: Yes, must be maintained in Belize at the address of a licensed registered agent. A local registered agent must also be appointed. 9. Directors: Minimum one, who may be individual or corporate. Must a director / secretary be resident? No. be resident? 10. Is AGM required? No. 11. Annual return: None. Meeting required? Must financial statements be prepared and/or audited? Company is required to keep financial records reflecting financial position of the company but these need not be lodged or filed with the authorities. 12. Is disclosure of profits required by filing balance sheets with annual returns? No. 13. Necessary to keep share register? Yes, at registered office. Necessary to file share register with Registrar? No. Share register open to inspection by public? No, but can be inspected by other members. 14. Any exchange controls or other inspection by public? financial restraints imposed? None.

76 Jurisdiction Profiles 15. Is redomiciliation into the jurisdiction allowed? Yes. 16. Is redomiciliation out of the jurisdiction allowed? Yes. 17. Language of incorporation: English. 18. Confidentiality: No specific statutory provisions governing secrecy in relation to companies, but English law, which applies within the jurisdiction imposes a common law duty on professionals to keep the affairs of their clients confidential. 19. Are bearer shares allowed? Yes, but must be immobilised by lodging with a licensed professional intermediary. 20. Advantages: Flexible legislation, based on that of the British Virgin Islands. Quick, simple and cheap incorporation. Not affected by EU savings directive. 21. Disadvantages: Some commentators have worries about the stability of the country. Poor image due to lack of marketing.

“The federal income tax system is a disgrace to the human race. ” Jimmy Carter

Jurisdiction Profiles 77 8.3 Bermuda

1. Company Law: The Companies Act, 1981. 2. Type of company: Exempt Company. 3. Standard capital: Minimum authorised capital of USD 12,000 (or equivalent) required and both initial/ annual fees will be higher if this figure is exceeded. If the company is not conducting insurance business, there is no minimum amount of paid-up capital. 4. Annual fees paid to authorities: USD 1,780. 5. Taxation rates applied to companies generally: Nil, until at least March 2016. 6. Length of time to incorporate: 4 weeks. Ready-made companies are available. 7. Minimum members: Minimum one, who may be individual or corporate. 8. Registered office: Yes, must be maintained in Bermuda at the address of a licensed management company or law firm. A local registered agent must also be appointed. 9. Directors: Minimum two, individuals only. A register of directors must be filed with the Registrar and is open to public inspection. Must a director / secretary be resident? Yes. be resident? 10. Is AGM required? Yes. 11. Annual return: No. Meeting required? Must financial statements be prepared and/or audited? These must be prepared but the audit may be waived if all members and directors agree. 12. Is disclosure of profits required by filing balance sheets with annual returns? No. 13. Necessary to keep share register? Yes, at registered office. Necessary to file share register with Registrar? No. Share register open to inspection by public? No, but can be inspected by other members. 14. Any exchange controls or other financial restraints imposed? None.

78 Jurisdiction Profiles 15. Is redomiciliation into the jurisdiction allowed? Yes. 16. Is redomiciliation out of the jurisdiction allowed? Yes. 17. Language of incorporation: English. 18. Confidentiality: No specific statutory provisions governing secrecy in relation to companies, but English law, which applies within the jurisdiction imposes a common law duty on professionals to keep the affairs of their clients confidential. 19. Are bearer shares allowed? No. 20. Advantages: Blue chip jurisdiction. Approved for listing purposes in Hong Kong. Very well-regulated jurisdiction. 21. Disadvantages: Slow. Expensive.

“The terms tax avoidance and tax planning conveniently describe techniques by which the lawyer and accountant can so arrange a client’s affairs as to achieve a reduction in the amount of tax he would otherwise pay. This is an important function, for the burden of taxes is nowadays so great that taxation must be regarded as one of the major costs of production; and enterprising and productive schemes are often made possible only by intelligent tax planning. In other cases legislation is so hasty and ill conceived, essential reforms are so long delayed, or the consequences of legislation – unforeseen by uninformed or non commercially-minded legislators – are so immoral, that taxpayers have to rely on the concoction of highly artificial schemes to avoid what would otherwise be a manifestly unjust or even absurd result. ” Pinson on Revenue Law – 15th Edition, 1982

Jurisdiction Profiles 79 8.4 British Virgin Islands (BVI)

1. Company Law: BVI Business Companies Act 2004. 2. Type of company: International Business Company (IBC). 3. Standard capital: Minimum of either one share of par or no par value, but usually USD 50,000 being the maximum capital for the minimum duty, is payable, initially and annually. 4. Annual fees paid to authorities: Companies with a capital up to USD 50,000 pay USD 350 per year. Companies with a share capital exceeding USD 50,000 pay USD 1,100 per year. Any company which retains the ability to issue bearer shares pays USD 1,100 per year. 5. Taxation rates applied to companies generally: Nil. 6. Length of time to incorporate: 24 hours. Ready-made companies are available. 7. Minimum members: Minimum one, who may be individual or corporate. 8. Registered office: Yes, must be maintained in the BVI. A local registered agent must also be appointed. 9. Directors: Minimum one, who may be individual or corporate. Details of directors may be filed with Registrar but not a requirement. Must a director / secretary be resident? No. be resident? 10. Is AGM required? No. 11. Annual return: No. Meeting required? Must financial statements be prepared and/or audited? Company is required to keep financial records reflecting financial position of the company. 12. Is disclosure of profits required by filing balance sheets with annual returns? No. 13. Necessary to keep share register? Yes, at registered office. Necessary to file share register with Registrar? No. Share register open to inspection by public? No. 14. Any exchange controls or other inspection by public? financial restraints imposed? None.

80 Jurisdiction Profiles 15. Is redomiciliation into the jurisdiction allowed? Yes. 16. Is redomiciliation out of the jurisdiction allowed? Yes. 17. Language of incorporation: English. 18. Confidentiality: No specific statutory provisions governing secrecy in relation to companies, but English law, which applies within the jurisdiction imposes a common law duty on professionals to keep the affairs of their clients confidential. 19. Are bearer shares allowed? Yes, but must be immobilised and attract greater charges – see above. 20. Advantages: Highly popular jurisdiction. Law is familiar to most lawyers who deal with offshore matters. Flexible legislation allows the operation of the company to be almost totally dependent on the requirements of the client. 21. Disadvantages: Poor legal and banking services. Lack of name availability. Not a recommended jurisdiction for high profile trading corporations.

“All of us, at certain moments of our lives, need to take advice and to receive help from other people. ” Alexis Carrel

Jurisdiction Profiles 81 8.5 Cayman Islands

1. Company Law: The Companies Law (2002 Revision). 2. Type of company: Exempt Company. 3. Standard capital: USD 50,000 would generally be used as this is the maximum level for which minimum government fees apply. 4. Annual fees paid to authorities: Exempt Companies with an authorised share capital of up to USD 50,000 pay USD 636. Companies with an authorised capital exceeding USD 50,000 but up to USD 1 million pay USD 820 per year. Companies with an authorised capital exceeding USD 1 million but up to USD 2 million pay USD 1,730 per year. Companies with an authorised capital exceeding USD 2 million pay USD 2,460 per year. 5. Taxation rates applied to companies generally: Nil. The company can apply for a 20-year guarantee against taxation, which can be extended to 30 years upon application. 6. Length of time to incorporate: 3 to 5 days. 7. Minimum members: Minimum one, who may be individual or corporate. 8. Registered office: Yes, must be maintained in the Cayman islands at the address of a licensed management company or law firm. A local registered agent must also be appointed. 9. Directors: Minimum one, who may be individual or corporate. A register of directors must be filed with the Registrar but is not open to public inspection. Must a director / secretary be resident? No. be resident? 10. Is AGM required? No. 11. Annual return: Each company must file an annual return, which takes the form of a simple declaration. Must financial statements be prepared and/or audited? No. 12. Is disclosure of profits required by filing balance sheets with annual returns? No.

82 Jurisdiction Profiles 13. Necessary to keep share register? Yes, at registered office. Necessary to file share register inspection by public? with Registrar? No. Share register open to inspection by public? No, but can be inspected by other members. 14. Any exchange controls or other financial restraints imposed? None. 15. Is redomiciliation into the jurisdiction allowed? Yes. 16. Is redomiciliation out of the jurisdiction allowed? Yes. 17. Language of incorporation: English. 18. Confidentiality: The Confidential Relationships (Preservation) Law makes it a criminal offence to divulge confidential information or to wilfully obtain or attempt to obtain confidential information relating to a Cayman Island company. However this confidentiality is being eroded by subsequent legislation and mutual assistance treaties whereby there will be disclosure of information in criminal offences, including tax offences. 19. Are bearer shares allowed? Yes, but must be immobilised by lodging with an authorised custodian within the islands which brings additional costs. 20. Advantages: 540 banks are represented on the islands. Top legal services. Premier hedge fund jurisdiction. 21. Disadvantages: Expensive.

Jurisdiction Profiles 83 8.6 Cyprus

1. Company Law: Companies Law, Cap 113 which resembles the English Companies Act, 1948. 2. Type of company: International Business Company (IBC). 3. Standard capital: Euro 1,000. 4. Annual fees paid to authorities: Euro 20. 5. Taxation rates applied to companies generally: 10% uniform corporate tax rate but many forms of income are exempt. 6. Length of time to incorporate: 15 days after receipt of due diligence documents in respect of the beneficial owners. 7. Minimum members: Minimum one, who may be individual or corporate. 8. Registered office: Yes, must be maintained in Cyprus at the address of a licensed management company or law firm. A local registered agent must also be appointed. 9. Directors: Minimum one, who may be individual or corporate. A register of directors must be filed with the Registrar and is open to public inspection. Must a director / secretary be resident? No, but a majority of Cyprus resident directors would be required if the company wishes to utilise the tax treaties. 10. Is AGM required? No. 11. Annual return: An annual return must be filed each year showing details of shareholders and directors. Must financial statements be prepared and/or audited? Yes, for submission to the tax authorities in Greek. 12. Is disclosure of profits required by filing balance sheets with annual returns? No. 13. Necessary to keep share register? Yes, at registered office. Necessary to file share register with Registrar? Yes. Share register open to inspection by public? Yes.

84 Jurisdiction Profiles 14. Any exchange controls or other financial restraints imposed? Yes, foreign individuals and corporations need exchange control permission to hold shares in a Cyprus company. 15. Is redomiciliation into the jurisdiction allowed? Yes. 16. Is redomiciliation out of the jurisdiction allowed? Yes. 17. Language of incorporation: English. 18. Confidentiality: Although details of the shareholders and directors appear on the public file, statutory confidentiality provisions protect the details of the beneficial owners supplied to the Central Bank. 19. Are bearer shares allowed? No. 20. Advantages: Full member of the EU so can utilise directive 90/435 – ideal as holding company. Good range of tax treaties, especially with Eastern Europe and, in particular, Russia. 21. Disadvantages: Tainted by allegations of Russian money laundering.

“The taxpayer – that’s someone who works for the federal government but doesn’t have to take the civil service examination.” Ronald Reagan

Jurisdiction Profiles 85 8.7 Dubai

1. Company Law: Jebel Ali Free Zone (JAFZ) Offshore Companies Regulations 2003. 2. Type of company: JAFZ Offshore Company. 3. Standard capital: As there are no higher costs payable for larger share capitals we would generally recommend an authorised capital of AED 1 million. 4. Annual fees paid to authorities: USD 700. 5. Taxation rates applied to companies generally: Nil. 6. Length of time to incorporate: 1 to 2 weeks. 7. Minimum members: Minimum one, who may be individual or corporate. 8. Registered office: Yes, must be maintained in Dubai at the address of a licensed management company or law firm. A local registered agent must also be appointed. 9. Directors: Minimum two, individuals only. A register of directors (must be filed with the authorities) but it is not open to public inspection. A secretary, who must be an individual, is necessary. Must a director / secretary be resident? No. 10. Is AGM required? Yes. 11. Annual return: Every company must keep accounting records and these must be preserved for 10 years from the date on which they are prepared. Accounts must be approved by the directors and signed by one of them. Must financial statements be prepared and/or audited? Every company must appoint an Auditor (from the approved list), who shall examine and report on the accounts in accordance with the regulations. 12. Is disclosure of profits required by filing balance sheets with annual returns? No. 13. Necessary to keep share register? Yes, at registered office. Necessary to file share register with Registrar? No. Share register open to inspection by public? No, but can be inspected by other members.

86 Jurisdiction Profiles 14. Any exchange controls or other financial restraints imposed? None. 15. Is redomiciliation into the jurisdiction allowed? Yes. 16. Is redomiciliation out of the jurisdiction allowed? Yes. 17. Language of incorporation: English. 18. Confidentiality: There are no specific statutory provisions governing confidentiality in Dubai. 19. Are bearer shares allowed? No. 20. Advantages: Not affected by EU savings directive. Not a member of the OECD, or targeted by OECD as a tax haven, so there is no exchange of information. 100% foreign ownership is allowed. Company can own real estate properties on Palm islands, or any properties owned by Nakheel Company LLC or any other real estate approved by the JAFZ Authority. Company can hold an account in a bank in the UAE for the purpose of conducting routine operational transactions. One residence visa will be issued for one director – if the Offshore Company maintains an office in the JAFZ. 21. Disadvantages: The Company will not be allowed to carry on business with people who are resident in the UAE or carry out any trade in the JAFZ or in the UAE, unless they have first obtained an appropriate license from the relevant competent authority. The Registrar has the power to appoint competent inspectors to investigate the affairs of the offshore Company. Upon discretion of the Registrar, inspection costs may be charged to any office bearer of the Company. Not an English common law jurisdiction.

Jurisdiction Profiles 87 8.8 Gibraltar

1. Company Law: Companies Ordinance Act 1984 as amended, based on the UK Companies Act 1929 (as modified). 2. Type of company: Private Company. 3. Standard capital: Euro 2,000. 4. Annual fees paid to authorities: GBP 45. 5. Taxation rates applied to companies generally: Nil. 6. Length of time to incorporate: 5 days. Ready-made companies are available. 7. Minimum members: Minimum one, who may be individual or corporate. 8. Registered office: Yes, must be maintained in Gibraltar at the address of a licensed management company or law firm. A local registered agent must also be appointed. 9. Directors: Minimum one, who may be individual or corporate. A register of directors must be filed with the Registrar and is open to public inspection. A secretary is necessary. Must a director / secretary be resident? No. 10. Is AGM required? No. 11. Annual return: An annual return must be filed each year showing details of shareholders and directors. With effect from 1st April 2000 all Gibraltar companies must file annual accounts with the Registrar. Must financial statements be prepared and/or audited? These must be prepared and filed but most companies escape audit requirement. 12. Is disclosure of profits required by filing balance sheets with annual returns? Yes. 13. Necessary to keep share register? Yes, at registered office. Necessary to file share register with Registrar? No. Share register open to inspection by public? Yes.

88 Jurisdiction Profiles 14. Any exchange controls or other financial restraints imposed? None. 15. Is redomiciliation into the jurisdiction allowed? Yes. 16. Is redomiciliation out of the jurisdiction allowed? Yes. 17. Language of incorporation: English. 18. Confidentiality: No specific statutory provisions governing confidentiality in relation to companies, but English law, which applies within the jurisdiction, imposes a common law duty on professionals to keep the affairs of their clients confidential. 19. Are bearer shares allowed? No. 20. Advantages: Well-regulated and respected EU jurisdiction where costs are somewhat less than in its other EU competitors. 21. Disadvantages: Some political instability due to the Spanish government’s claim for sovereignty.

“The difference between tax avoidance and tax evasion is the thickness of a prison wall. ” Denis Healey

Jurisdiction Profiles 89 8.9 Guernsey

1. Company Law: The Companies (Guernsey) Law, 1994-1996; Protected Cell Companies Ordinance, 1997; Guarantee Companies Ordinance, 1997; Amalgamation of Companies Ordinance, 1997; Migration of Companies Ordinance, 1997; Protected Cell Companies (Amendment) Ordinance, 1998; Companies (Financial Assistance for Acquisition of Own Shares) Ordinance, 1998; Companies (Purchase of Own Shares) Ordinance, 1998; and Companies (Shares of No Par Value) Ordinance, 2002. 2. Type of company: Exempt Company. 3. Standard capital: GBP 10,000 is the maximum figure for which minimum costs apply. 4. Annual fees paid to authorities: GBP 100 filing fee and GBP 600 exempt duty. 5. Taxation rates applied to companies generally: 20%, but flat annual rate of GBP 600 payable for exempt companies. 6. Length of time to incorporate: 21 working days. 7. Minimum members: Minimum two, who may be individual or corporate. 8. Registered office: Yes, must be maintained in Guernsey at the address of a licensed management company or law firm. A local registered agent must also be appointed. 9. Directors: Minimum one, who may be individual or corporate. A register of directors must be filed at the registered office and with the Registrar and is open to public inspection. Must a director / secretary be resident? No. 10. Is AGM required? No. 11. Annual return: An annual return which gives details of the current directors and shareholders and any change in the shareholders since the last return or, in the case of a company filing its first annual return since the date of incorporation, must be filed at the public registry in January of each year and a filing fee of GBP 100 is payable. It should be noted that fines are payable for late filing. Must financial statements be prepared and/or audited? Yes. 12. Is disclosure of profits required by filing balance sheets with annual returns? No.

90 Jurisdiction Profiles 13. Necessary to keep share register? Yes, at registered office. Necessary to file share register with Registrar? Yes. Share register open to inspection by public? Yes. 14. Any exchange controls or other financial restraints imposed? None. 15. Is redomiciliation into the jurisdiction allowed? Yes. 16. Is redomiciliation out of the jurisdiction allowed? Yes. 17. Language of incorporation: English. 18. Confidentiality: No specific statutory provisions governing confidentiality in relation to companies, but English law, which applies within the jurisdiction, imposes a common law duty on professionals to keep the affairs of their clients confidential. 19. Are bearer shares allowed? No. 20. Advantages: Blue chip reputation. 21. Disadvantages: Expensive. Details on beneficial owner must be disclosed to the authorities prior to registration. Cumbersome and difficult to arrange.

Jurisdiction Profiles 91 8. 10 Hong Kong

1. Company Law: English Common Law supplemented by the 1993 Companies Ordinance Cap. 32 (as amended). 2. Type of company: Private Corporation. 3. Standard capital: HKD 1,000 is the maximum authorised capital which attracts the minimum capital duty. 4. Annual fees paid to authorities: USD 350. 5. Taxation rates applied to companies generally: 17.5% on Hong Kong-sourced income only. 6. Length of time to incorporate: 2 to 3 weeks (or 6 weeks if a Chinese representation of the name is to be included on the Certificate of Incorporation). Ready-made companies are available for immediate purchase. 7. Minimum members: Minimum one, who may be individual or corporate. 8. Registered office: Yes, must be maintained in Hong Kong. 9. Directors: Minimum one, who may be individual or corporate. A register of directors must be filed with the Registrar and is open to public inspection. Must a director / secretary be resident? Directors need not be resident, but a local secretary is required. 10. Is AGM required? Yes. 11. Annual return: Hong Kong companies are required to file full audited accounts and must also prepare and file an annual return which gives details of the current directors and of the shareholders who have held shares in the company at any time during the year. Must financial statements be prepared and/or audited? Yes. 12. Is disclosure of profits required by filing balance sheets with annual returns? No. 13. Necessary to keep share register? Yes, at registered office. Necessary to file share register with Registrar? Yes. Share register open to inspection by public? Yes.

92 Jurisdiction Profiles 14. Any exchange controls or other financial restraints imposed? None. 15. Is redomiciliation into the jurisdiction allowed? No. 16. Is redomiciliation out of the jurisdiction allowed? No. 17. Language of incorporation: English. 18. Confidentiality: No specific statutory provisions governing confidentiality in relation to companies, but English law, which applies within the jurisdiction, imposes a common law duty on professionals to keep the affairs of their clients confidential. 19. Are bearer shares allowed? No. 20. Advantages: Not affected by EU savings directive. Not a member of the OECD. World class banking and professional services. 21. Disadvantages: Expensive audit costs. Careful planning required to avoid Hong Kong tax on profits.

“Tax reform means ‘Don ’t tax you, don ’t tax me. Tax the fellow behind the tree ’.” Russell Long

Jurisdiction Profiles 93 8.11 Isle of Man

1. Company Law: The Isle of Man Companies Acts 2006. 2. Type of company: New Manx Vehicle. 3. Standard capital: The concept of authorised capital has been abolished. 4. Annual fees paid to authorities: GBP 70 filing fee and an Annual Corporate Tax Charge of £250. 5. Taxation rates applied to companies generally: Nil. 6. Length of time to incorporate: 5-7 days. Ready-made companies are available. 7. Minimum members: Minimum one, who may be individual or corporate. 8. Registered office: Yes, must be maintained in the Isle of Man at the address of a licensed management company or law firm. A local registered agent must also be appointed. 9. Directors: Minimum one. A corporate Director is permitted if it is licensed to act as such. Must a director / secretary be resident? Companies would have to have a local resident Director to ensure there is clearly demonstrated control and management of the Company on the Isle of Man. 10. Is AGM required? Yes. 11. Annual return: Must be submitted annually on anniversary of incorporation. Must financial statements be prepared and/or audited? Accounts must be prepared but most companies avoid the need to have an audit. 12. Is disclosure of profits required by filing balance sheets with annual returns? No. 13. Necessary to keep share register? Yes, at registered office. Necessary to file share register with Registrar? No. Share register open to inspection by public? No.

94 Jurisdiction Profiles 14. Any exchange controls or other financial restraints imposed? None. 15. Is redomiciliation into the jurisdiction allowed? Yes. 16. Is redomiciliation out of the jurisdiction allowed? Yes. 17. Language of incorporation: English. 18. Confidentiality: No specific statutory provisions governing confidentiality in relation to companies, but English law, which applies within the jurisdiction imposes a common law duty on professionals to keep the affairs of their clients confidential. 19. Are bearer shares allowed? No. 20. Advantages: Blue chip jurisdiction. Quick and efficient. Relatively inexpensive compared with other EU jurisdictions. Well-regulated and respected, one of the few offshore areas where a VAT number can be obtained for EU trading. 21. Disadvantages: The need to prepare accounts, even if these are not publicly filed, does add to the annual operating costs.

“[The tax system is] a subtle kind of moral and political dishonesty. One senses here a grand scheme of deception whereby enormous surtaxes are voted in exchange for promises that they will not be made effective. Thus the politicians may point with pride to the rates while quietly reminding their wealthy constituents of the loopholes. ” Simons Personal Income Taxation 1938 commenting on the US tax system

Jurisdiction Profiles 95 8.12 Jersey

1. Company Law: The Companies (Jersey) Law 1991, as amended, and subordinate legislation. 2. Type of company: Exempt Company. 3. Standard capital: GBP 10,000 is the maximum figure for which minimum costs apply. 4. Annual fees paid to authorities: GBP 150 filing fee plus GBP 600 exempt tax. 5. Taxation rates applied to companies generally: 20%, but flat annual rate of GBP 600 payable for exempt companies. 6. Length of time to incorporate: 14 working days. 7. Minimum members: Minimum two, who may be individual or corporate. 8. Registered office: Yes, must be maintained in Jersey at the address of a licensed management company or law firm. A local registered agent must also be appointed. 9. Directors: Minimum one, individuals only. A register of directors must be filed with the Registrar but is not open to public inspection. Must a director / secretary be resident? No. 10. Is AGM required? No. 11. Annual return: Each company must file a short statement indicating that it has traded mainly outside the islands and has complied with the various statutory requirements. Must financial statements be prepared and/or audited? Company is required to keep financial records reflecting financial position of the company. 12. Is disclosure of profits required by filing balance sheets with annual returns? No. 13. Necessary to keep share register? Yes, at registered office. Necessary to file share register with Registrar? Yes. Share register open to inspection by public? Yes.

96 Jurisdiction Profiles 14. Any exchange controls or other financial restraints imposed? None. 15. Is redomiciliation into the jurisdiction allowed? Yes. 16. Is redomiciliation out of the jurisdiction allowed? Yes. 17. Language of incorporation: English. 18. Confidentiality: No specific statutory provisions governing confidentiality in relation to companies, but English law, which applies within the jurisdiction imposes a common law duty on professionals to keep the affairs of their clients confidential. 19. Are bearer shares allowed? No. 20. Advantages: Blue chip reputation. 21. Disadvantages: Expensive – most Jersey practitioners now use cheaper jurisdictions. Details on beneficial owner must be disclosed to the authorities prior to registration. Time-consuming and cumbersome to arrange.

“Many forms of conduct permissible in a workaday world for those acting at arm’s length, are forbidden to those bound by fiduciary ties. A Trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honour the most sensitive, is then the standard of behaviour. As to this there was developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the ‘disintegrating erosion’ of particular exceptions . . . Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd. ” C. J. Cardozo, Meinhard v Salmon, 1928

Jurisdiction Profiles 97 8.13 Malta

1. Company Law: Companies Act, 1996. 2. Type of company: International Holding Company (IHC) and International Trading Company (ITC). 3. Standard capital: Euro 1,200, of which 20% paid up. 4. Annual fees paid to authorities: Euro 165. 5. Taxation rates applied to companies generally: 35%, but may be reduced to 4.2% for ITC’s and between 0 and 6.5% for IHC’s when applying tax refund provisions to non-resident shareholders. 6. Length of time to incorporate: 2 weeks. 7. Minimum members: Minimum of two shareholders are required. May be corporate or individuals. 8. Registered office: Yes, must be maintained in Malta. 9. Directors: Minimum one, who may be individual or corporate. A register of directors must be filed with the Registrar and is open to public inspection. An individual must be appointed as secretary. Must a director / secretary be resident? No, however the Company is resident in Malta by reason of its incorporation. 10. Is AGM required? Yes. 11. Annual return: Must be filed. Must financial statements be prepared and/or audited? Yes. 12. Is disclosure of profits required by filing balance sheets with annual returns? Yes. Accounts must be submitted with Annual Return. 13. Necessary to keep share register? Yes, at registered office. Necessary to file share register with Registrar? All changes in shareholding to be filed with Registrar of Companies. Share register open to inspection by public? Yes.

98 Jurisdiction Profiles 14. Any exchange controls or other financial restraints imposed? None. 15. Is redomiciliation into the jurisdiction allowed? Yes. 16. Is redomiciliation out of the jurisdiction allowed? Yes. 17. Language of incorporation: English. 18. Confidentiality: Confidentiality is governed by the Professional Secrecy Act which has established a high common standard of confidentiality for all professional practitioners. Those who violate professional secrecy may be prosecuted under Section 27 of the Criminal Code and on conviction may be liable to fine or imprisonment. 19. Are bearer shares allowed? No. 20. Advantages: Full member of European Union can take advantage of EU Directive 90/435. Ideal holding company location and recipient of royalties and interest from EU. Within EU VAT area and VAT registration number easy to obtain. Ideal location for holding property in Portugal. Unusual tax system. High tax rates are actually paid but reclaimed by non-residents shareholders upon distribution of dividends, so no question of the company being a low tax entity. Good range of tax treaties which should be effective due to high tax paid by Malta companies – see above. 21. Disadvantages: Full audit required but costs relatively low. Slightly cumbersome incorporation due to necessity of opening a local bank account for company in formation.

“There are many Settlors today who, in the light of their financial circumstances, prefer having their estate pass relatively intact to grandchildren and great grandchildren to seeing most of it go to the government, and this preference is stronger than the desire to give financial autonomy (as opposed to security) to children. ” Laurence M. Friedman, The Dynastic Trust, 1964

Jurisdiction Profiles 99 8.14 Mauritius – Global Business Company – Category 2 (GBC2)

1. Company Law: Companies Act 2001 (repealing and replacing Companies Act 1984 and International Companies Act 1994) and the Financial Services Development Act 2001. 2. Type of company: GBC2 Global Business Company – Category 2. 3. Standard capital: USD 100,000 is the norm. Shares need not have a par value. Authorised Share Capital is described as the Stated Capital and fractional shares are permitted. 4. Annual fees paid to authorities: USD 265. 5. Taxation rates applied to companies generally: Nil. 6. Length of time to incorporate: 48 hours. Ready-made companies are available. 7. Minimum members: One, who may be individual or corporate. 8. Registered office: Yes, must be maintained in Mauritius at the address of a licensed management company or law firm. A local registered agent must also be appointed. 9. Directors: Minimum one, who may be individual or corporate. A register of directors must be maintained at the registered office but only members have a right of inspection. Must a director / secretary be resident? No. 10. Is AGM required? Yes. 11. Annual return: No annual returns need to be filed if a company holds a Global Business Licence. Must financial statements be prepared and/or audited? No. 12. Is disclosure of profits required by filing balance sheets with annual returns? No. 13. Necessary to keep share register? Yes, at registered office. Only members have a right of inspection. Necessary to file share register with Registrar? Yes. Share register open to inspection by public? No.

100 Jurisdiction Profiles 14. Any exchange controls or other financial restraints imposed? None. 15. Is redomiciliation into the jurisdiction allowed? Yes. 16. Is redomiciliation out of the jurisdiction allowed? Yes. 17. Language of incorporation: English. 18. Confidentiality: The Companies Act 2001 and Financial Services Development Act (FSDA) require that information be kept confidential except on proof that the information is required for the purpose of enquiry into specified criminally related activities. The Registrar and all his officers have taken an oath of office to protect confidentiality. No company search is allowed. 19. Are bearer shares allowed? No. 20. Advantages: No need to set out objects in a Constitution, as they are optional. Well-regulated jurisdiction from inception and therefore has largely remained free from scandal. Can be converted to a GBC1 and access tax treaties. Can be incorporated as limited by both shares and guarantee. 21. Disadvantages: Becoming cumbersome, therefore time-consuming, because additional declarations are required over and above those used in most other areas.

“If a person marries in order to reduce his tax burden he is practising tax avoidance; if he tells the Inland Revenue that he is married, when he is not, he is guilty of tax evasion and may be prosecuted. ” Tiley Revenue Law 1981

Jurisdiction Profiles 101 8.15 Netherlands BV

1. Company Law: Netherlands Civil Code. 2. Type of company: BV. 3. Standard capital: Minimum authorised capital of Euro 90,000 of which Euro 18,000 must be paid up. 4. Annual fees paid to authorities: None. 5. Taxation rates applied to companies generally: 25.5%. 6. Length of time to incorporate: 12 weeks. Ready-made companies are available. 7. Minimum members: Minimum one, who may be individual or corporate. 8. Registered office: Yes, must be maintained in the Netherlands at the address of a licensed management company or law firm and register itself with a local Chamber of Commerce. A local registered agent must also be appointed. 9. Directors: Minimum one, who may be individual or corporate. A register of directors must be filed with the Registrar and is open to public inspection. Must a director / secretary be resident? No, but this is advisable. 10. Is AGM required? No. 11. Annual return: An annual return which gives details of all those who have held shares throughout the year and the current directors must be filed with the Chamber of Commerce and the local tax department. Must financial statements be prepared and/or audited? Yes. 12. Is disclosure of profits required by filing balance sheets with annual returns? No. 13. Necessary to keep share register? Yes, at registered office. Necessary to file share register with Registrar? Yes. Share register open to inspection by public? Yes.

102 Jurisdiction Profiles 14. Any exchange controls or other financial restraints imposed? None. 15. Is redomiciliation into the jurisdiction allowed? No. 16. Is redomiciliation out of the jurisdiction allowed? No. 17. Language of incorporation: English. 18. Confidentiality: There are no confidentiality laws in the Netherlands. Exchange of information may take place under the terms of the many tax treaties to which the Netherlands is a party. 19. Are bearer shares allowed? No. 20. Advantages: Stable high tax country – not a tax haven. Massive range of tax treaties. The jurisdiction for licensing and finance companies. Historically one of the better jurisdictions for participation exemption (holding) companies. 21. Disadvantages: Expensive. Civil law system is cumbersome.

“Tax avoidance is the art of dodging tax without actually breaking the law. ” Professor Wheatcroft (1995 18 MLR 209)

Jurisdiction Profiles 103 8.16 Samoa

1. Company Law: International Companies Act 1987 regulates the formation and operation of international companies. 2. Type of company: International Company (IC). 3. Standard capital: The incorporation fees are fixed irrespective of authorised share capital. 4. Annual fees paid to authorities: USD 300 for 1 year; USD 1,000 for 5 years; USD 1,500 for 10 years; and USD 2,000 for 20 years. 5. Taxation rates applied to companies generally: Nil. 6. Length of time to incorporate: 24 hours. 7. Minimum members: Minimum one, who may be individual or corporate. 8. Registered office: Yes, must be maintained in Samoa at the address of a licensed management company or law firm. A local registered agent must also be appointed. 9. Directors: Minimum one, who may be individual or corporate. A register of directors must be filed with the Registrar and is open to public inspection. Must a director / secretary be resident? A local secretary is necessary. 10. Is AGM required? No. 11. Annual return: Yes. Must financial statements be prepared and/or audited? Company is required to keep financial records reflecting financial position of the company. Audit not required. 12. Is disclosure of profits required by filing balance sheets with annual returns? No. 13. Necessary to keep share register? Yes, at registered office. Necessary to file share register with Registrar? No. Share register open to inspection by public? No, but can be inspected by other members.

104 Jurisdiction Profiles 14. Any exchange controls or other financial restraints imposed? None. 15. Is redomiciliation into the jurisdiction allowed? Yes. 16. Is redomiciliation out of the jurisdiction allowed? Yes. 17. Language of incorporation: English. 18. Confidentiality: No specific statutory provisions governing confidentiality in relation to companies, but English law, which applies within the jurisdiction imposes a common law duty on professionals to keep the affairs of their clients confidential. 19. Are bearer shares allowed? No. 20. Advantages: User-friendly legislation. As Samoa is across the international dateline, incorporation can be achieved yesterday. 21. Disadvantages: Almost total lack of professional services.

“Every man is entitled if he can to arrange his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them as to achieve that result, then so as to secure that result, then however unappreciative the Commissioners of the Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax. ” Lord Tomlin in IRC v Duke of Westminster, 1936

Jurisdiction Profiles 105 8.17 Seychelles

1. Company Law: International Business Companies Act, 1994 as amended by the International Business Companies (Amendment) Act, 1995 and subsequently in 2000, 2005 & 2007. 2. Type of company: International Business Companies (“IBC”) and companies commonly known as CSLs incorporated under the Companies Act, 1972 which can access the Seychelles tax treaty network. 3. Standard capital: There is no minimum. Capital may be denominated into any currency. Shares may be issued at par or no-par value and for any valuable consideration. The incorporation fees are fixed irrespective of authorised share capital. 4. Annual fees paid to authorities: For an IBC, the annual fee is of USD 100 (excluding taxes) irrespective of its authorised capital. The annual fee is fixed for life. 5. Taxation rates applied to companies generally: IBCs are tax-exempt in Seychelles and have no Treaty access. CSLs may have DTA access and are subject to a tax rate of 1.5% on their worldwide income. 6. Length of time to incorporate: 24hrs for IBCs. Ready-made companies are available. 7. Minimum members: One, who may be individual or corporate for IBCs. 8. Registered office: Yes, registered office must be located in the Seychelles. A local registered agent must also be appointed. 9. Directors: For an IBC – a minimum of one director, who may be individual or corporate. A register of directors must be maintained and need not be filed at the Registrar. The register may be kept at the registered office or outside Seychelles. In the latter case, the registrar needs to be made aware of the address where the register is kept. Must a director / secretary be resident? No. 10. Is AGM required? No. 11. Annual return: Not required. Must financial statements be prepared and/or audited? An IBC is only required to keep financial records reflecting financial position of the company. These need not be filed with any Authority in Seychelles. 12. Is disclosure of profits required by filing balance sheets with annual returns? No, since there is no requirement to file annual returns.

106 Jurisdiction Profiles 13. Necessary to keep share register? Yes, at the registered office. Necessary to file share register with Registrar? The register may be kept outside Seychelles, in which case the registrar needs to be made aware of the address where the register is kept. Share register open to inspection by public? No. 14. Any exchange controls or other financial restraints imposed? No exchange controls or other financial controls are imposed. 15. Is redomiciliation into the jurisdiction allowed? Yes. 16. Is redomiciliation out of the jurisdiction allowed? Yes. 17. Language of incorporation: English or French. Names and M&As in any other languages are allowed provided there is a valid translation from a professional, identified translator. 18. Confidentiality: Confidentiality is guaranteed by law. No public disclosure of shareholders/owners or directors. 19. Are bearer shares allowed? Yes. 20. Advantages: Popular jurisdiction with a user-friendly legislation. Fast name approvals and incorporations with only 44,000+ names on the register. Ideally located for dealings with Asia, Middle East and Europe. Competitive low government fees being fixed for life. All civil proceeding in respect of IBC’s may be heard by a judge in chambers. Can be easily converted to a CSL and access tax treaties. Amicable and communicative relationship between the Seychelles government and the offshore industry private sector. 21. Disadvantages: Poor legal and banking services. Lack of big four firms for accounting and audit.

Jurisdiction Profiles 107 8.18 Singapore

1. Company Law: Companies Act, Cap 50. 2. Type of company: The concept of authorised share capital has been abolished. 3. Standard capital: SGD 100,000 is the standard incorporation capital. 4. Annual fees paid to authorities: SGD 50. 5. Taxation rates applied to companies generally: 20% with appropriate structuring. 6. Length of time to incorporate: Incorporation usually takes around 2 weeks. Initial incorporation can in fact be achieved and confirmed within 48-72 hours with computer-generated verification whilst awaiting formal certification. Delays may occur where permission from the Singapore statutory authorities is required. 7. Minimum members: Minimum one, who may be individual or corporate. 8. Registered office: Yes, must be maintained in Singapore. 9. Directors: Minimum one, individual only. One director must be resident in Singapore. A register of directors must be filed with the Registrar and is open to public inspection. Must a director / secretary be resident? Yes. 10. Is AGM required? Yes. 11. Annual return: Non-exempt Singapore companies must prepare full audited accounts and must keep a copy of such accounts at the registered office address. All except exempt private companies must file accounts on the public register. For financial years commencing on or after 15 May 2003, the audit requirement is also removed for Exempt Private Companies. Must financial statements be prepared and/or audited? Companies are required to keep financial records reflecting financial position of the company. 12. Is disclosure of profits required by filing balance sheets with annual returns? Yes.

108 Jurisdiction Profiles 13. Necessary to keep share register? Yes, at registered office. Necessary to file share register with Registrar? Yes. Share register open to inspection by public? Yes. 14. Any exchange controls or other financial restraints imposed? None. 15. Is redomiciliation into the jurisdiction allowed? No. 16. Is redomiciliation out of the jurisdiction allowed? No. 17. Language of incorporation: English. 18. Confidentiality: Section 47 of the Singapore Banking Act provides for banking secrecy and makes unauthorised disclosure in Singapore or elsewhere an offence, except as provided for by the Monetary Authority of Singapore’s anti-money laundering regulations. 19. Are bearer shares allowed? No. 20. Advantages: Not a member of the OECD. Not affected by EU savings directive. Good banking secrecy and ease of account opening with wide range of international banks in Singapore. Good range of tax treaties. English legal system. Good range of professional services. 21. Disadvantages: Quite slow and bureaucratic. Directors personally liable for statutory compliance.

Jurisdiction Profiles 109 8.19 The Turks & Caicos Islands (TCI)

1. Company Law: Companies Ordinance 1981 (as amended). 2. Type of company: Exempt Company. 3. Standard capital: USD 5,000 is the maximum capital for which minimum registration fees apply. 4. Annual fees paid to authorities: USD 300 for 1 year; USD 1,000 for 5 years; USD 1,500 for 10 years; and USD 2,000 for 20 years. 5. Taxation rates applied to companies generally: Nil. 6. Length of time to incorporate: 24 hours. Ready-made companies are available. 7. Minimum members: Minimum one, who may be individual or corporate. 8. Registered office: Yes, must be maintained in TCI. A local registered agent must also be appointed. 9. Directors: Minimum one, who may be individual or corporate. Details of directors do not appear on the public file, except when filed voluntarily. Must a director / secretary be resident? No. 10. Is AGM required? No. 11. Annual return: Each company must file a short statement indicating that it has traded mainly outside the islands and has complied with the various statutory requirements. No audit required. Must financial statements be prepared and/or audited? Company is required to keep financial records reflecting financial position of the company but there is no need to lodge or record these with the authorities. 12. Is disclosure of profits required by filing balance sheets with annual returns? No. 13. Necessary to keep share register? Yes, at registered office. Necessary to file share register with Registrar? No. Share register open to inspection by public? No, but can be inspected by other members.

110 Jurisdiction Profiles 14. Any exchange controls or other financial restraints imposed? None. 15. Is redomiciliation into the jurisdiction allowed? Yes. 16. Is redomiciliation out of the jurisdiction allowed? Yes. 17. Language of incorporation: English. 18. Confidentiality: Companies Ordinance and the Confidential Relationships Ordinance 1979 make it an offence for anybody to reveal confidential information, including details of the owners and directors, about a TCI exempt company or to threaten to reveal such information. 19. Are bearer shares allowed? Yes, but must be immobilised by lodging with an approved custodian. 20. Advantages: Governing legislation modelled on the law of the Cayman Islands, widely regarded as the premier offshore jurisdiction. The TCI therefore provides a similar, yet relatively inexpensive alternative to the Cayman Islands. All companies get a 20-year guarantee of exemption from future taxes and increases in government taxes. Very quick formation procedure. Good name availability. Good legal services. 21. Disadvantages: Due to a lack of marketing the TCI does not have as high a profile as many of its Caribbean competitors.

Jurisdiction Profiles 111 8.20 Uruguay Sociedad Anónima Usuaria De Zona Franca (SAZF)

1. Company Law: Company Law No. 16,060 of November 1989 applies to all legal and administrative matters. The SAFI is regulated and taxed by Law No. 11,073 of June 1948. 2. Type of company: Sociedad Anonima Usuaria De Zona Franca (SAZF). 3. Standard capital: Minimum authorised capital is USD 50,000, and minimum paid in capital is 5% of the authorised amount. Ready-made companies have a standard authorised capital of USD 100,000. 4. Annual fees paid to authorities: Varies depending on which free zone is used. 5. Taxation rates applied to companies generally: 0.3% on existing SAFI’s and varies for SAFZ’s. 6. Length of time to incorporate: 3 to 4 months. Ready-made shelf companies are available. 7. Minimum members: One shareholder. 8. Registered office: Yes, must be maintained in Uruguay. A local registered agent must also be appointed. 9. Directors: One, individual or corporate. Details of directors and any changes must be registered at the National Register of Commerce. Must a director / secretary be resident? No. 10. Is AGM required? Yes. Must be held in Uruguay, not later than four months after end of fiscal year. 11. Annual return: Yes. Financial statements must be presented to tax authority. Must financial statements be prepared and/or audited? No. All corporations must complete a tax filing by reporting financial statements in a format prescribed by tax authorities. 12. Is disclosure of profits required by filing balance sheets with annual returns? Yes. 13. Necessary to keep share register? Yes, at registered office. Necessary to file share register with Registrar? Yes. Share register open to inspection by public? No, but can be inspected by other members.

112 Jurisdiction Profiles 14. Any exchange controls or other financial restraints imposed? No. 15. Is redomiciliation into the jurisdiction allowed? Yes. 16. Is redomiciliation out of the jurisdiction allowed? Yes. Usual procedure is to nominate an already existing foreign company as a shareholder and then liquidate the Uruguayan company, transferring all assets to the shareholder. 17. Language of incorporation: Spanish. 18. Confidentiality: Legislation imposes strict duty on banks to keep details of clients and their transactions confidential. Professionals adhere to international client confidentiality principles. 19. Are bearer shares allowed? Yes. 20. Advantages: Not affected by EU savings directive. Not a member of the OECD. 21. Disadvantages: Slow and cumbersome procedures for incorporation and for changes to a company’s constitution. Spanish documentation and Civil Law Code.

“The development from century to century of the trust idea . . . [is] . . . the greatest and most distinctive achievement performed by Englishmen in the field of jurisprudence. ” F. W. Maitland, Historian and Jurist, 1936

Jurisdiction Profiles 113 SovereignGroup.com Proud sponsors of The Sovereign Art Foundation

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Strumenti del Pittore by Livio de Marchi 8.21 Further Information

The previous pages contain details of the corporate structures available in a variety of jurisdictions. These details were correct at the time this brochure went to press but may have subsequently changed. Sovereign also offers a wide range of further products and services. More recent information can be found in our comprehensive information sheets, which also include details of applicable fees. The information sheets listed below can be obtained from our website www.SovereignGroup.com or by calling your most convenient Sovereign office.

Anguilla – International Business Companies. Liberia – Companies. Bahamas – International Business Companies and Liechtenstein – Family Foundations. Hybrid Companies. Luxembourg – Holding Companies and SOPARFIs. Belize – International Business Companies and Malta – Residency and International Trading / Ship Registration. Holding Companies. Bermuda – Exempt Companies. Mauritius – GBC 1 and GBC 2 Companies. British Virgin Islands – International Business The Netherlands/Netherlands Antilles – Companies. Tax Planning and Companies. Canada – Non-Resident Companies. Nevis – International Companies. Cayman Islands – Exempt Companies. Panama – Companies. China – Representative Office, Joint Venture and Portugal – Property Purchase. Wholly Foreign-Owned Enterprise. St Lucia – International Business Companies Cyprus – International Business Companies. and Banks. Delaware, USA – Corporations and Samoa – International Companies. Limited Liability Companies. Seychelles – International Business Companies. Denmark – Holding Companies. Singapore – Companies. Dubai, United Arab Emirates – Registration South Africa – Companies. and Offshore Companies. Spain – ETV Holding Companies. Gibraltar – Exempt and Hybrid Companies. Switzerland – Companies and Branches. Germany – Tax Planning and Companies. Turks and Caicos Islands – Exempt Companies Guernsey – Exempt Companies. and Exempt Hybrid Companies. Hong Kong – Companies and Part XI Registrations. United Kingdom – Property Purchase in the UK. Isle of Man – New Manx Vehicle and United Kingdom – Tax Planning and Hybrid Companies. Companies using LLPs. Jersey – Exempt Companies. Uruguay – SAZFs and SAs. Labuan – Offshore Companies. Vanuatu – International Companies.

Jurisdiction Profiles 115 Looking for a Free Zone? Let Sovereign be your guide...

Setting up a business in one of the many Free Zones in the United Arab Emirates can be a highly tax-efficient option for foreign investors as part of an international structure.

Free Zone companies are treated as being offshore, or outside the UAE, for legal purposes.

Dubai-based Sovereign Corporate Services has unrivalled experience and expertise in the UAE’s 36 Free Zones. We are also a registered agent for both the Jebel Ali and Ras Al Khaimah Free Zones.

The international reach of our global office network also ensures that we can meet the worldwide business or personal needs of our clients from a local point of delivery.

Please contact John Hanafin, Alasdair Johnston or James Oliver for an initial consultation, without fee or commitment, and let them put you in the Zone. Tel: +971 4 397 6552 [email protected]

SovereignGroup.com Offshore & Freezone Specialists since 1987 © The Sovereign Group 2008 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of The Sovereign Group. The information provided in this report does not constitute advice and no responsibility will be accepted for any loss occasioned directly or indirectly as a result of persons acting, or refraining from acting, wholly or partially in reliance upon it. Sovereign Trust (Gibraltar) Limited is licensed by the Financial Services Commission – Licence No: FSC 00143B. Sovereign Trust (Isle of Man) Ltd is licensed by the Isle of Man Financial Supervision Commission as a Corporate Services Provider. Sovereign Trust (TCI) Limited is licensed by the Financial Services Commission – Licence No: 029. Sovereign Group Partners LLP is regulated by the FSA – No. 208261. Design by Alan Pitchforth - www.kamilian.com

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