International Fiduciary Package
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Unlike other smaller offshore firms in our industry, we offer complete privacy because we offer all of our services from
in-house. Incorporations, Investments/Brokerage Services, Banking, etc. can all be done under one roof without going through several different firms, thus keeping all of your information confidential and private.
Our clients and members have many different reasons for setting up an International Fiduciary Structure (IFS). Some for asset protection (of real estate, securities, retirement accounts, cash, etc) or simply for the purpose of investing in an environment that gives them the tax benefits that offshore investing does.
International Fiduciary Structure (IFS)
The 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, Costa Rica, Nevis 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.
Our upgraded International Business Corporation / Panama Foundation combination with professional management is often referred to as an "International Fiduciary Structure". This differs from our other professional management IBC/Foundation package in that it also includes a Testamentary Trust. The main components of this package are as follows:
• Belize or Nevis or Panama Corporation whose shares are held by a
• Panama Private Interest Foundation, and a
• Panama Testamentary Trust is used as the sole beneficiary of the Private Interest Foundation and lists all of the client’s beneficiaries.
This 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 through your business or consultancy income, sale of real estate, real estate rental properties, retirement plans, and many other forms of income.
The basic structure we recommend consists partly of a Panama Private Interest Foundation. The Foundations main purpose is to hold the shares of the IBC but also to provide valuable asset protection and estate planning advantages. .
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 the client would be required to pay tax on the capital gain income resultant from the investment activity of that Corporation. If the client does not own the IBC (the foundation owns it), then they are not required to pay tax on the capital earned by it. Click here for further details and benefits of the IBC/Foundation combination concept and in particular read our caveats that apply to residents of certain jurisdictions, and in particular, the United States.
Why use a Foundation instead of a Trust?
The use of the International Private Interest Foundation for asset protection does not exclude the possibility of using a
testamentary Trust, but it would be used in a different way. Previous to the enactment of antitrust laws in several countries, the use of a foreign trust as the entity that held the shares of an offshore company was recommended as an asset protection strategy. The new laws required that any assets held in foreign trusts be reported and taxed. As a result almost all offshore legal experts recommend that the Foundation be used in place of the Trust.
How does the client maintain control over the assets held in the IBC?
Under the Panama Private Interest Foundation laws, the client controls the foundation as the "Founder/Protector", thus
controlling all of the assets owned by the foundation, including the Corporation. The foundation does not have an owner, only a Founder (Protector), a Foundation Council and beneficiaries of the foundation which are listed in the Testamentary Trust. The founder/protector creates a letter of wishes, which will designate the Testamentary Trust as the instructional guide to specify beneficiaries of the foundations assets. Upon the client’s death, the assets held in the foundation will be distributed to the appropriate beneficiaries as the client has listed accordingly, without legal delays or deductions.
Why does the client not have to report assets held in the testamentary trust?
The trust is not funded until the client’s death. If the trust is not funded, then there are no assets in it that can be required to be reported.
Does the client have to report assets held in the Foundation?
Laws generally around the world do not require that the client report any assets held in a foreign foundation. However, as stated elsewhere, U.S. taxpayers should seek expert tax advice on this issue.
How does the client stay protected and completely confidential?
Our goal is to offer our clients complete confidentiality. In order to do this correctly, there cannot be a trace of any of the client’s information on any of the public records when registering the Private Interest Foundation. This is why we offer a nominee foundation council for the Foundation since all Panama entities require disclosure in the public registry of the required minimum three directors. According to the by-laws of the foundation, the "founder/protector" is not required to be registered publicly and therefore the founder/protector document can be kept private and confidential.
Once the client establishes an offshore structure, how can they send funds to the IBC for accomplishing their investment objectives?
If the client is going to invest a large amount of funds, we normally recommend that the client purchase a Private Annuity of equal value from the IBC in return for the funds the client sends to it. The reason for this is simple. If the client just sends funds to the IBC without a reason or something in return of equal value, then the funds could be considered a "gift", and therefore a gift tax could be imposed. When the client sends 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 the funds in the annuity investment 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 the client chooses, they can also use the Annuity payments as a method of repatriating the funds back to their domestic country, although a tax consequence would then occur if the client chooses to do so. Once the funds are in the IBC, they can be directed or invested in whatever the client wishes. For those seeking a deeper understanding on how the many uses of the Private Annuity Contract can assist in providing tax postponement, savings, asset protection and estate planning click here.
How can the client get funds back to their domestic country without tax liability?
There are several techniques the client 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. The client 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. Normally the loan would be backed by real estate equity, shares in their business, or some other form of collateral.
If the client wants 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, and sends the statement of the brokerage account they wish to transfer securities out of, to us. We prepare DTC instructions for the client and send them to the client for the client’s signature. The client returns the signed DTC instructions to us and we send 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. (Click here for more expanded coverage on how the Private Annuity Contract can be such 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 the IFS be used 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 Panama or Costa Rican Corporation be set up to serve as a re-invoicing company, thus creating a middleman between the domestic importer and the foreign supplier. This company marks up the cost of the goods to be imported, thus leaving less income for the domestic business, and the difference ends 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. For more information on the many potential advantages of forming a captive insurance company click here. The domestic business sends payments for these premiums offshore and at the same time uses 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 is an example of something that has been done in the U.S. and France to use two contrasting countries using a similar corporate vehicle both which function like a partnership. A U.S. Delaware LLC or a French SCI would own free and clear title to real estate worth say $1M and 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. 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.