Offshore Structures—What Do You Need, How Much Is Too Much?
A consulting client came into our office yesterday to ask me some questions about how to structure property investments he’s making in Panama and Colombia. This client has been working with attorneys in both of these countries as well as in the country where he set up his LLC, but he wanted to make sure he’s fitting all the pieces together as advantageously as possible in the context of his big-picture goals.
“In the context of his big-picture goals” is the critical phrase here. No single entity or set of entities fits every situation. What you find, though, is that whatever advisor you work with has his or her individual experiences and advises based on what he or she is familiar with.
Most Panamanian attorneys, for example, will advise you to put any property purchase into a corporation. Because that’s what they do in Panama, both locals and foreigners. Historically, this has been to avoid capital gains tax, which is not imposed on the sale of company shares. You could set up a single-purpose corporation to hold a piece of property, then, when you wanted to sell that piece of property, you were in fact selling the company that owns it…meaning no capital gains tax issue.
Panama changed the relevant tax rule years ago, but people in this country still put real estate they buy into Panama corporations. There are other reasons why using a Panama corporation to hold your Panama real estate can be a good idea, but you should understand them before taking a Panamanian attorney’s blind recommendation. Don’t let custom dictate how you organize your affairs. Question the reasons why you’re being advised to do whatever you’re being advised to do, in Panama or anywhere.
The client who came in to meet with me yesterday had been advised by his Colombian attorney that, if he wants to have the title for the property he’s investing in in that country issued in the name of his offshore LLC, he’ll need to have the LLC documents officially translated and apostilled. That is mostly accurate. I confirmed with my attorney in Colombia that, yes, the LLC documentation must be officially translated but only the certificate of formation…not all 20 pages of the articles of formation. That difference saves money and time on the translation.
Maybe the attorney this client is working with in Colombia was trying for a few extra bucks from the translation gig or maybe, to give him the benefit of the doubt, he didn’t understand what’s really required. Impossible to say. This is why, unless I have recent firsthand experience doing the thing I’m about to do again, I try to get at least two sources when it comes to process details.
Returning to structures, my overriding recommendation is to keep things as simple as possible. While the client who came in to speak with me yesterday could have set up a Panama corporation that his LLC could own (with the Panama corp holding the property), that is more structure than he needs. Putting the property straight into the LLC is sufficient in his case, under his circumstances, and considering his objectives. That gives him asset protection in Panama, which is the real point.
It also reduces his carrying costs, perhaps, this time, to the disappointment of his Panamanian attorney. Attorneys make money both setting up corporations and acting as resident agents for those entities.
If my first advice regarding structures is to keep things simple, my second is to have a plan. As much as possible, have some idea where you expect to invest and in what. This can help save you investing in structures, translations, or other costs you don’t need.
An attendee at a conference last year asked me what I thought she should do with her Panamanian corporation.
“Well, why did you set it up in the first place?” I asked.
“All my friends told me I needed a Panamanian corporation,” she replied.
So, on her first trip to Panama years ago, she set up a corporation. She had no intended use for it and no understanding, really, of what it might eventually, possibly ever be used for. Not surprisingly, therefore, in the several years she’d held it, she’d never done anything with it. This after paying to set it up and then paying the annual fees to maintain it.
After talking with this conference-goer about her plans and goals as an offshore investor, my advice was that she walk away from the Panamanian corporation. Just stop paying the annual fees. If she found herself needing a Panamanian corporation sometime down the line, the cost of setting up a new one is only about two years’ worth of annual fees.
Fortunately, the wasted investment amount in this case wasn’t great. I’ve known people over the years who’ve had similar stories to do with complicated trusts, which can cost tens of thousands of dollars to set up. For many people, a trust is overkill.
With the help of several attorney colleagues from different jurisdictions, I’ll be covering structures in one of the workshops at my Global Asset Protection and Wealth Summit in Belize next month. Avoiding the cost of setting up an unnecessary structure will pay for the cost of being in the room with us in Belize City, but I’d say you’ll get a lot more out of the event than that.
Who should join me and my team of experts in Belize? Anyone considering options for banking, establishing residency, obtaining second citizenship, investing, or doing business offshore. We’ll spend time discussing taxes, too, as well as the big-picture objectives and strategies for diversifying your life, your portfolio, your assets, and your business interests offshore.
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