Excellent Tax Advantages

An IBC / Foundation combination provides you with a way to safely avoid any taxation issues until you need to take income or capital gains (as appropriate). This is because most countries look to the ownership question to determine if their taxpayer is liable for any tax on an offshore corporation. If that taxpayer clearly does not have a legal ownership in the company most countries’ tax rules clearly state that no tax is payable on the unrealised (i.e. un-repatriated) earnings of that company. Even then there are ways to set it up whereby you can take earnings in the form of a loan (to be paid back over time). This is a highly complex area and since each country has different tax rules it is important to get assistance from a tax professional to determine your own possible tax liability in light of your nation’s tax regime.

As mentioned before a big issue for citizens of North America, Australa, asia and the E.U. as well as other nations is the proper use of an offshore IBC - so that any tax advantages are not deemed to be "tax evasion". The primary issue here is whether such a corporation is deemed "controlled" or "not controlled". And depending upon the verdict - the tax consequences will vary.

Let's take the United States Internal Revenue Service as a good example. Their code defines a Controlled Foreign Corporation (CFC) as: "any foreign corporation of which more than fifty percent of its value or voting stock is owned by United States shareholders on any one day during the taxable year of such Foreign Corporation." A US shareholder is also specifically defined as a US citizen or entity holding or controlling more than 10% of the shares.

Here's an example of a Controlled Foreign Corporation:

Imagine that US shareholder "Bob" owns 50% of the voting stock of the foreign corporation "X". US shareholder "Sue" owns 11% of the voting stock. The remaining 39% is owned by an offshore shareholder "Chris". Under the existing IRS rules, this is a CFC because more than 50% of the voting stock is held by US shareholders.

As you can see, the simplest way to avoid ending up with a CFC is to ensure that less than 50% of the voting stock is held by US shareholders - and that no individual shareholder holds more than 10% of voting stock. This can be done by using a Foundation to own the majority of the stock, or any variant where the end result is the required "less than 50%" holding.

Consequently, for business and investing purposes carried on outside of the jurisdiction of residency, the simplest solution is to subscribe the shares of an IBC to a Foundation. This puts ownership into the hands of another legal entity, away from the actual beneficial owner. So long as it is possible to prove, (or impossible to disprove) that the Foundation is acting as the agent of the client in forming the IBC, the IBC itself is truly non-controlled and is why we offer Signatory Service. For complete details on this service click here.

The bearer or registered shares, in an offshore corporation can therefore be owned by this other entity which we recommend as having a charitable beneficiary. (We think registered shares are a much better option because of pressure on certain offshore jurisdictions to place restrictions on their disposition, plus registered shares make the ownership of the IBC completely unambiguous, which in offshore matter is usually a plus).

Why use a Foundation instead of a Trust?

The Foundation exists purely as a passive entity. It’s purpose is to remove ownership of the company from your hands so that you are not subject to your country's reporting and tax requirements. This is possible as long as you are not a beneficiary of the Foundation in any way. For maximum safety, you must conduct the business of the corporation at "arms length".

Since this Shareholder entity acts in a passive role there is no day-to-day involvement necessary with it, since all day-to-day business is carried out by the IBC through its bank and brokerage accounts. You can be the signatory on the bank account if you wish or even better you can appoint a Nominee Ditector to be the signatory, while you act as an advisor or consultant. See Account Signatory Services.
To view pricing, the components of our special offshore packages and to order, click here.

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 Corporation?

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 IBC (Nevis 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 do not require that the client report any assets held in a foreign foundation.

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 offshore structure is established, how can funds be sent to the IBC (Corporation) for accomplishing their investment objectives?

If there is going to be investment of a large amount of funds, we normally recommend the purchase of a Private Annuity of equal value from their Corporation in return for the funds the contributor sends to it. The reason for this is simple. If the contributor just sends funds to the Corporation 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 contributor sends funds in return for the annuity of equal value, the transaction is a legitimate purchase of a Private Annuity from the Corporation, and the funds are not taxed. This is a completely legal transaction and the funds in the annuity investment are deferred until the contributor 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 contributor 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 contributor chooses to do so. Once the funds are in the Corporation, 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 contributor get funds back to their domestic country without tax liability?

There are several techniques the contributor 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 contributor can arrange the loan in the form of a balloon note payable in 20 years, then renegotiating the loan when the loan matures. This is a completely legal transaction. Normally the loan would be backed by real estate equity, shares in their business, or some other form of collateral.

If the contributor wants to transfer securities to the IBC (Corporation) and later sell the securities without tax consequences, can this be done?

Yes, this can be done. The procedure is as follows: The contributor establishes an IBC Structure and a brokerage account, and sends the statement of the brokerage account they wish to transfer securities out of, to the account manager. We prepare DTC instructions for the contributor and send them to the contributor for the contributor’s signature. The contributor returns the signed DTC instructions to us and we send the instructions to the contributor’s broker. The broker transfers the securities to the Corporation's broker. The Corporation issues an annuity of equal value to the contributor in return for the securities. Once the securities are in the Corporation's possession, they can be re-invested or sold by the contributor without tax consequences. Normally, the contributor would be set up as the investment advisor of the Corporation, thus given signatory authority over the brokerage account.


How can real estate be protected?

Normally, depending on the contributor’s objective, we would recommend a trust or limited liability company (LLC) to hold the real estate or place a mortgage on the property, 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 contributor, a trust or LLC would be owned by a separate Private Interest Foundation to minimize taxes on the sale. The Foundation in effect establishes a LLC. The LLC issues a bond to the IBC, and the IBC transfers funds to the LLC. The LLC then issues you a reverse mortgage on the real estate for $900,000. The funds never actually reach the contributor’s personal account, because he/she has requested that the funds go directly to the IBC to purchase a Private Annuity from it with those funds. The house is sold for $1 million. The LLC is paid $900,000 for the mortgage. The LLC pays the IBC $900,000 for the bond. The funds are now offshore and can be invested tax free, and the contributor’s tax liability has been reduced or eliminated.

How to establish an offshore program?

The first step is to select a name for the Nevis Corporation and the Panamanian Foundation. These names are indicated on the order form (Click here to go to the Order Form). The order form is submited to us, and the instructions on the order form are followed. The payment is made pursuant to requested wired instructions.

To view pricing, the components of our special offshore packages and to order, click here.