Could a private offshore foundation and offshore trust help you effectively protect your assets?
Еffective way to protect capital and optimize taxation in the world is to place assets in private funds. An offshore fund is known as a “corporate alternative” to a trust. An offshore trust provides a generally accepted system of asset protection in a wide variety of situations- read more >>. Usually, a foundation is created in cases where jurisdiction does not have the ability to recognize a trust since this is contrary to the legislation of such jurisdiction. However, many offshore investors consider the fund a first-class choice for investment protection and tax planning. An offshore fund is similar to trust but has the form of a corporation. Immediately after its establishment, an offshore fund becomes a unique legal entity and acquires the qualities of a legal entity. This means that the fund does not belong to any one person, but operates under its own name, which allows it to enter into agreements with third parties, act as a plaintiff or defendant, open bank accounts and numerous companies of their own. A foundation may be created for charitable activities or not for charitable activities. Many founding organizations want to maintain a high degree of anonymity, and this is effectively achieved by creating a fund that manages the assets of the corporation. The fund provides a centralized and important asset management system for the fund and, in fact, provides optimal results by using effective tax planning within the framework of the legislation in force in the selected jurisdiction. Like a trust, a foundation can establish certain requirements that should be followed for the benefit of the beneficiaries under the act of establishing the foundation, which ensures compliance with current standards.
There are three main types of funds:
O Charitable Foundation, which is created for charity purposes, as a charitable organization.
O Private Foundation. Used as a tool for inheritance planning, like a will. It is also effective for personal protection of assets from potential lenders, lawsuits, and other claims.
O Corporate funds serve corporations to finance and manage social programs (ex. Retirement plans)
The concept of a fund is a product of continental European law, therefore it is closer to Ukrainian legislation. The foundation structure consists of the Founders, the Board of Governors, the Protector and the Beneficiaries. The main documents of the Foundation: Memorandum of Association, Charter, internal rules. Memorandum of Association – the decision to establish a fund. Charter – a constituent document, which is registered in the state register. The charter indicates the general principles of the foundation and the necessary provisions, in accordance with the goal that the founder of the true beneficiary wants to achieve. The development of internal rules of the fund is not necessary, but they allow to detail the individual legal relations of the fund. This is a confidential document that is not registered with state authorities and can be changed at any time by the person controlling the fund. The fund is a more sustainable asset retention tool, as the fund is a separate legal entity. When registering a foundation, the main provisions of the foundation agreement are checked by the state registration authority for compliance with the requirements of the law. In this case, registration of a fund with serious legal defects is practically excluded, given that, by its nature, there are two levels of control: on the one hand, the state registration authority, on the other, the registration agent (according to the law, a company with special administrative powers and representation interests of the fund to the state). Therefore, when issuing a certificate of registration of the fund, the beneficiaries and founders can talk about securing their powers. Compared to the foundation, assets placed in a fund may be protected from tax burden through registration in classic offshore jurisdictions (subject to certain conditions discussed below), where funds are required to pay only annual fees in the form of annual support. Tax trusts are most often structured through the personal incomes of the beneficiaries at the place of their tax residency.
The property of the foundation is separate from the property of the founder of the foundation. Thus, the property of the fund cannot be withdrawn, except in those cases in which the debt obligations arose or were damaged in the course of activities consistent with the objectives of the creation of the fund. The property of the fund may not be used to repay the obligations of the founder or beneficiary. The beneficiary’s creditors are entitled to object to the distribution or transfer of the fund’s assets for a limited time (three years for Panama and Seychelles) after making a contribution or transfer of the fund’s assets.
As general characteristics of offshore funds, it should be noted that all of them are characterized by almost complete exemption from taxes, while observing the requirements of doing business and owning assets outside the country of registration; the overall low prestige of jurisdictions and the increased attention of the tax authorities of the country from which the assets of the fund are transferred or into which payments are received, for example, to the beneficiaries; low government control.
The founders of the fund can be both legal entities and individuals, there are no legal requirements for their residency. The possibility of preserving the confidentiality of the founder of the fund is solved by establishing it by a corporate structure that has a closed register of shareholders, that is, any offshore company. This solution allows you to maintain strong control over the fund and its property through the possibility of reserving a number of powers for the founder of the fund.
The activities of the funds do not imply daily business operations, but the fund may engage in investment activities and receive passive income if provided for in its charter. If you need a form of organization that allows you to engage in active commerce and at the same time reliably protect your assets, then you can register an offshore company, and then a fund to which the founder transfers the shares of this company. The second option is to register a multifunctional fund in Nevis, which can change its shape throughout the entire period of its existence. For example, if you need to protect assets, but do not stop commercial activities. You can register a fund in the form of a company, and if after a few years you make a decision,
In accordance with the Law on Private Funds, the minimum value of the initial assets of a fund should not be less than $ 1 or equivalent in another currency. As assets of the fund can be any property or right subject to property valuation, with the exception of real estate and other property registered in the territory of the jurisdiction of the fund, including shares and bonds of companies incorporated or registered in this jurisdiction (offshore or companies of “international business” under these restrictions are not subject to). For the purpose of confidentiality, the Memorandum of Association may contain a description of the minimum amount of property, and the transfer of the following assets should be recorded in the internal documents of the fund, for example, in the charter.
A fund may exist for a limited or unlimited time, and the moment of the termination of the existence of the fund may be associated with the occurrence of any circumstances or with the fulfillment of the goals of the fund. In this aspect, the foundation has a great advantage over trusts, since the latter is usually limited to the time frame of their existence, which are fixed or definable (death of the last known beneficiary founder, etc.);
For more control over the foundation, the founder can designate himself as the protector of the foundation. The main function of the protector is to monitor the activities of the foundation in terms of its implementation of the constituent goals.