International Fiduciary Structure
- Last updated on . Written by Offshore Protection.
What is an International Fiduciary Structure?
This differs from our typical IBC/Foundation package in that it also offers full management of the company and foundation, and includes a complete set of foundation bylaws, which, among other things, will be your 'living will.' These bylaws not only can they detail all your estate planning requirements, but they can also include detailed instructions for the ongoing operation of the foundation, if a multi-generational legacy is planned for. Also if you have more charitable goals in mind for the foundation those can also be included.
The main components of this package are as follows:
- A Belize, Nevis, Seychelles or Panama Corporation (or any other IBC type) whose shares are held by...
- A Panama Private Interest Foundation, and...
- Professional management of the Corporation and Foundation with customized Foundation bylaws
Table of Contents:
- What is an International Fiduciary Structure?
- Why Choose an International Fiduciary Structure?
- How Do I Set Up An Offshore IFS?
- International Fiduciary Structure FAQs
Why Choose it?
Our clients have many different reasons for setting up an IFS. Some choose it for:
- Asset protection of real estate, securities, retirement accounts, cash, etc.
- Tax reduction benefits
- Freedom and privacy found in offshore investing
Tax laws in the majority of countries around the world do not require foreign corporations, which are not directly involved in business activities domestically (i.e. the corporation does not have physical offices or conducts business domestically), to pay tax on capital gains obtained through investment in that country’s markets (stocks, bonds, futures, options, commodities, etc.)
Belize, Nevis, Seychelles or Panama law (as well as that of other popular IBC jurisdictions) do not require such corporations to pay tax on any income generated from business activities conducted outside of these countries, nor do they have a tax on capital gains generated from investment in securities of companies outside of those countries.
An International Fiduciary Structure allows you to legally invest through the corporation, in many different global markets, without the burdensome capital gains taxes. The structure also provides some of the basic entities necessary for the protection of assets such as real estate, securities, domestic businesses and just about any other asset you can think of.
There are a number of other tax deferral techniques through offshore structuring that can be utilized for your business or consultancy income, sale of real estate, real estate rental properties, retirement plans, and many other forms of income.
The Foundation's main purpose is to hold the shares of the IBC, but also to provide valuable asset protection and estate planning advantages.
If the company is to be used for active business activities then the foundation can also be utilized for passive investment activities and the building of a private 'nest egg' hidden from the outside world. By hidden we mean that all transfers, in or out, only occur via the company bank account, which is the only conduit to use.
How do I set it up?
The process begins with selecting a name for the IBC and the Panamanian Foundation. You will then be asked to submit a fully completed order form along with a legible scanned or faxed copy of your passport. Payment can be sent a variety of ways including bank wire, credit card and Western Union transfer.
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Why do we not recommend that you hold the shares of the IBC?
If you maintain ownership of the IBC, then it is considered under the tax laws of most countries, to be a 'Controlled Foreign Corporation' (U.S. terminology), and therefore you would be required to pay tax on the capital gain income resulting from the investment activity of that Corporation.
If you do not own the IBC (the foundation owns it), then you are not required to pay tax on the capital earned by it. Visit our Panama Foundation and IBC Combined page for further details and benefits of the IBC-Foundation combination concept; in particular, read our caveats that apply to residents of certain jurisdictions, especially the United States.
Why use a Foundation instead of a Trust?
Previous to the enactment of antitrust laws in many countries, the use of a foreign trust as the entity that held the shares of an offshore company was recommended by many experts as an asset protection strategy.
The new laws required that any assets held in foreign trusts be reported and taxed. As a result, many offshore legal experts recommend that the Foundation be used in place of the Trust. Foundations are less easy to classify since they have both company and trust features so, in many jurisdictions, they fall into a welcome 'grey area.'
How do I maintain control over the assets held by the IBC?
Under the Panama Private Interest Foundation laws, you control the foundation as the 'Protector,' thus indirectly controlling all of the assets owned by the foundation, including the Corporation.
Written into the protector agreement is the ability to replace the foundation council at any time. The foundation does not have an owner, only a Founder, a Foundation Council and beneficiaries of the foundation which are listed in the bylaws.
Upon your death, the assets held in the foundation are distributed to the appropriate beneficiaries, as listed by you in the foundation bylaws, without legal delays or deductions. Alternatively the foundation can continue to operate through multiple generations, if desired; operational continuity instructions would also be contained in the bylaws.
Do I have to report assets held in the Foundation?
Laws around the world typically do not require that you report any assets held in a foreign foundation, especially if you are not a beneficiary and/or the foundation is set up with charitable aims. However, as stated elsewhere, U.S. taxpayers should seek expert tax advice on this issue.
How do I stay protected and completely confidential?
Offshore-Protection.com's goal is to offer you complete confidentiality. In order to do this correctly, there cannot be a trace of any of your information on any of the public records when registering the Private Interest Foundation.
This is why we offer you a nominee foundation council for the Foundation as well as a nominee founder, since all Panama entities require disclosure in the public registry of the required minimum three directors (or a single corporate structure).
According to the bylaws of the foundation, the 'protector' is not required to be registered publicly and therefore the protector document can be kept private and confidential. Though we find this to be an unnecessary step, you do have the option of setting up your own anonymous company to act as founder and/or council.
Once I establish an offshore structure, how can I send funds to the IBC for accomplishing my investment objectives?
If you are going to invest a large amount of funds, we normally recommend you purchase a Private Annuity of equal value from the IBC, in return for the funds you send to it. The reason for this is simple – if you send funds to the IBC without a reason or something in return of equal value, then the funds will not be considered a 'gift' and therefore a gift tax could be imposed in some jurisdictions.
When you send funds in return for the annuity of equal value, the transaction is a legitimate purchase of a Private Annuity from the IBC and the funds are not taxed. This is a completely legal transaction and taxation on the funds in the annuity investment (assuming they have yet to be taxed) are deferred until the client begins to receive payments from the annuity.
The annuity can be arranged to begin making monthly payments in 5, 10, 15, or 20 years. If you choose, you can also use the Annuity payments as a method of repatriating the funds back to your home country, although a tax consequence would then occur. Once the funds are in the IBC, they can be directed or invested in whatever you wish.
How can I get funds back to my home country without tax liability?
There are several techniques you can use to repatriate funds without the tax liability. One way to repatriate a large amount of funds at one time is to obtain the funds in the form of a loan from the IBC.
You can arrange the loan in the form of a balloon note, payable in 20 years, then renegotiating the loan when the loan matures. This would be a completely legal transaction, if structured properly, but should be verified with a tax expert in your own country of residence. Typically, the loan would be backed by real estate equity, shares in their business, or some other form of collateral.
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If I want to transfer securities to the IBC and later sell the securities without tax consequences, can this be done?
Yes, this can be done. The procedure is as follows:
- The client establishes an IFS and a brokerage account
- The client sends the statement of the brokerage account, from which they wish to transfer the securities, to Offshore-Protection.com
- We prepare Depository Transfer Check (DTC) instructions for the client and send them to the client for his/her signature
- The client returns the signed DTC instructions to us
- Offshore-Protection.com sends the instructions to the client’s broker
- The broker transfers the securities to the Corporation's broker
- The Corporation issues an annuity of equal value to the client, in return for the securities (Read our Private Annuity Contract article for expanded coverage on its value for international financial planning).
Once the securities are in the Corporation's possession, they can be re-invested or sold by the client without tax consequences. Normally, the client would be set up as the investment advisor of the Corporation, thus given signatory authority over the brokerage account.
How can I use the IFS to reduce taxes from domestic business income?
There are many ways that the IFS can be used to reduce taxes on business income. One way is to arrange that the IBC invoices the domestic business for services provided.
This enables the domestic business to send funds offshore as payment for services rendered by the IBC and at the same time creates an expense that can be used to reduce the domestic business' income, thus paying less tax. However, to effectively make use of this, the IBC will need to have a physical offshore presence, and be providing legitimate business services.
We do not recommend the use of dummy invoicing for fictitious services. For import/export businesses, we recommend a separate IBC be set up to serve as a re-invoicing company, thus creating a middleman between the domestic importer and the foreign supplier. This offshore company buys or receives the goods to be imported from the exporting company at specific price, which is then sold to the importing company at a separate price, this leaves less income for the domestic business with the difference ending up offshore. See re-invoicing services.
Another way for reducing a large amount of taxes is to set up a captive insurance company that would invoice the domestic business for insurance premiums. The domestic business sends payments for these premiums offshore and, at the same time use these premiums as expenses, thus paying less tax; the funds are then invested, however the client chooses once the funds are offshore.
How can real estate be protected through the IFS?
Normally, depending on the client’s objective, we would recommend a domestic corporation or limited liability company to hold the title for the real estate. A mortgage on the property can be placed on it by the IBC, thus absorbing any equity in it. As long as there is no equity in the property, it will not be attractive to creditors in the case of a frivolous lawsuit or dispute.
If it was a U.S. based client, for instance, a Delaware or Nevada LLC would own the real estate, which would in turn be owned by a separate Private Interest Foundation for secure asset protection purposes. In other words the Foundation becomes the single member of the LLC and the property becomes 'bullet proof' in the event of a lawsuit.
There are many creative tax strategies possible – each country has its own variants. Here are two examples, from the U.S. and France using partnership, that illustrate the different ways each country uses a similar corporate vehicle:
- A U.S. Delaware LLC or a French SCI would own free and clear title to real estate worth say $1M. They could issue a bond to the IBC, which would transfer $900,000 against the issuance of a reverse mortgage on the real estate.
- The funds would never actually reach your account, because you would request that the funds go directly to the IBC to purchase a Private Annuity from it. You then subsequently sell the house for $1 million and pay the Delaware LLC/French SCI $900,000 for the mortgage.
The Delaware LLC/French SCI then pays the IBC $900,000 to pay the bond off. The funds are now offshore and can be invested tax free, and your tax liability has been reduced or eliminated.
NOTE: These and other aggressive tax strategies need to be examined carefully in conjunction with competent tax counsel to ensure that it complies with all interpretations of the applicable tax code in the country where the real estate is owned.