Offshore Structures 101—A Getting-Started Guide To Offshore Corporations, LLC’s, Trusts, And Foundations
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 who has complicated tax rules to consider.
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, namely, maybe, two different jurisdictions from the first guy. Who’s right? In fact, 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 when it comes to functionality and asset protection. Pricing varies, and some countries carry more cache than others and will do a better job impressing your friends at the country club. But I’d say not to 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…
For Corporations and LLCs
First, note that not all countries offer LLC’s.
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 don’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 generally 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).
For 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 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.
Foundations are civil code versions of trusts and for the most part 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 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, your letter about ‘Moving Money Around the World’ was an unexpected eye-opener to me. I am planning to travel in the Americas for several months, possibly find a new home. I only have one checking account. Can you recommend the best American bank to have a second checking account in?
“I thought I was OK to access all my financial accounts online until I read that information about the U.S. IP address. So this letter was an important education for me.”
I recommend Schwab. They have great customer service (which is uncommon), and I’ve never had a problem using my Schwab ATM debit card anywhere in the world.
A U.S. IP address is usually only required for special “high” security transactions, such as large dollar wire transfers. However, as I wrote, it’s something to be aware of.