Going Offshore: What Type Of Entity Will You Need?

Corporations, LLCs, Trusts, And Foundations—A Layman’s Guide

A reader wrote last week asking me to name the best jurisdiction for setting up an offshore entity. I can’t answer that question, at least not simply, especially for a U.S. person. We U.S. people have complicated tax rules to consider and remember no matter where we and our money go.

Before trying to identify where might be the best place for you to open an offshore entity, first consider what type of entity you need—a trust, a foundation, an LLC, or a corporation? The answer to that question will point you in the direction of the jurisdictions that might suit best.

I can’t answer the question which jurisdiction is best, but put the same question to an offshore attorney, and he’ll generally have quick and specific recommendations, typically one or two countries. Ask another attorney or offshore professional, and he’ll likely do the same, naming, maybe, two different jurisdictions from the first guy.

Who’s right? Neither. Most offshore advisors find a couple of favorite jurisdictions and stick with them. It allows them to become intimately familiar with the specifics of the entity rules for those countries. In other words, most offshore attorneys specialize when it comes to jurisdictions.

The truth is, though, that most countries are essentially the same with regard to functionality and asset protection. Pricing varies, and some countries carry more cache than others making it easier for you to impress your friends at the country club with references to your Cayman Islands corporation, for example. But I’d say don’t worry about what your friends think. Choose a destination because it works for you.

A jurisdiction can work because it’s the jurisdiction the attorney you’re working with (and trust) uses. A jurisdiction can work because it’s close to where you want to bank or do business. Most of my colleagues in Asia, for example, use Hong Kong or Singapore for their offshore entities. Being in a similar time zone can be an advantage sometimes.

Here’s a primer to help get you started…

Going Offshore: Corporations And LLCs

First, note that not all countries offer LLCs.

The important thing here is that anywhere you consider for a corporation or an LLC should be a no-tax jurisdiction for companies not operating in the country. The list of such countries is long and includes Belize, Panama, BVI, Seychelles, Hong Kong, Singapore, Nevis, Bermuda, and Anguilla.

Also, you shouldn’t have to hold annual shareholders meetings if you don’t want to. If these are required, at least be sure you can hold them outside the country. You dGoing Offshore-Corporationon’t want to have to fly to the country for shareholders meetings, and, bottom line, you want the administration involved with sustaining any corporation to be minimal.

Most countries require only one or two directors for a corporation, and most don’t require said directors to be resident in the country. Panama is an exception; it requires three directors. This can be a headache if your intention is to set up a company with you and your spouse as the only shareholders.

You will need a registered agent for your corporation or LLC, and usually the attorney or formation company you use to set up the entity can also act as its registered agent. This means you’ll have an ongoing and long-term relationship with that person or group, so choose carefully. Don’t just go with the first group you come across.

Also consider how you will pay the annual (agent and government) fees. Some registered agents can’t take credit cards, which means you’ll have to pay by local check or wire transfer (which can be costly and a nuisance).

Going Offshore: Trusts

Trusts aren’t as straightforward as other entities, as the laws establishing them vary more country to country. You should seek legal advice from an experienced attorney in your home country (especially if you’re an American) before setting up on offshore trust to make sure the trust does what you want it to do and doesn’t create complications for you in your home country.

Assuming asset protection is the primary goal, you want to choose a jurisdiction where the trust is all but impossible to break… and where, if, somehow, a plaintiff does break the trust (put it under “duress”), your trustee can move the trust to another jurisdiction.

Going Offshore: Foundations

Foundations are civil code versions of trusts and can function just like a trust. However, few countries offer foundations. Panama and Liechtenstein are two that do. If you’re an American, note that the IRS doesn’t specifically address foundations, and, from a U.S. tax point of view, a foundation can function like either a trust or a corporation. Therefore, you want to work with an attorney to make sure your foundation is formed in such a way as to be considered as a trust under IRS code. If you want a corporation, don’t use a foundation. Set up a corporation.

I told you I couldn’t give a single answer to the reader’s question I opened with above; however, now I will. If on the spot to recommend one jurisdiction above all the others (there are many), I’d choose Nevis.

Nevis offers trusts, LLCs, and corporations. It’s a fairly easy place to set up an entity. The annual costs are in line with other jurisdictions. And few people can find it on a map.

Lief Simon

P.S. Right now, I’m trying to figure out how to hold the apartment that I’m buying in Portugal. My go-to jurisdiction for this kind of thing is Nevis; however, this doesn’t work in this case, as Nevis is on the Portugal tax authorities’ tax haven black list, meaning holding the property in a Nevis entity would create tax consequences in Portugal (higher transfer and property taxes). I’m seeking alternatives that won’t create tax consequences either in Portugal or in the country where the entity is based. Unfortunately, Portugal’s black list is long…


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