Captive insurance companies have been created by many multinational companies to insure and re-insure the risks of subsidiaries and affiliated companies. Captive insurance companies are particularly suitable for the shipping and petroleum industries and for the insurance of risks which might be insurable only at prohibitive premiums.
A very popular practice is that a real property item is purchased by an offshore company which is registered as the proprietor in the Land Registry, and if the proprietor of this company (i.e. The beneficiary owner of the real property in question) wants to sell the real property, it is sufficient to sell the shares of his or her offshore company and thus avoid the real property transfer tax. The above mentioned structure is only possible in those jurisdictions where it is possible that a foreign entity owns the real property in question. In the jurisdictions where this is not possible, the real property can be owned in such a way that it is purchased by a company there which is owned by a foreign offshore company.
This way it is possible to achieve:
- Asset protection (nowhere are you listed as proprietor)
- You can avoid tax inheritance (after the death of the proprietor the bearer of the shares becomes a new proprietor)
- real property transfer tax, etc. (the proprietor is the person who owns assets of the offshore company)
- protection from forced inheritance or from heirs at law.
Another form of offshore holding company that has gained a lot of interest and popularity in recent years is using a company to hold property and property rights in an offshore location. Advantages of offshore property ownership include avoidance of inheritance tax, avoidance of capital gains tax, ease of sale which is achieved by transferring the shares in the company (and thus avoiding stamp duty payable by the purchaser) rather than transferring the property owned by the company and reduction of property purchase costs to the onward purchasers.
In certain circumstances there are significant tax advantages in having properties held by appropriate domestic and/or offshore mechanisms. For example, for non-domiciled individuals in the UK, a local company owned in turn by a tax-free company can legally avoid all capital gains taxes. The reason for this is that "shares" are considered "moveable" property under British law and capital gains realised by a non-domiciled individual through his or her interest in the offshore 'tax free' company is not a British taxable event unless the gains are directly remitted.
Further, by using appropriate tax treaties it may also be possible to arrange "back-to-back" loans to virtually eliminate domestic tax liability on rental payments. In respect to Continental property acquisitions, even in jurisdictions such as France, Spain and Portugal is also possible - with correct planning - to avoid CGT or equivalent taxes and various property acquisition duties (which are extremely high in the case of France) by using double taxation treaties/companies.
It should be remembered, in particular, that when a non resident company disposes of a property investment, no capital gains tax is charged and holding through an offshore company removes the application of inheritance tax which would apply if a non-domiciled investor held a UK property in his personal name.
The main benefits of the property holding company are:
- Avoidance in most cases of local inheritance taxes on the property in the event of death of the beneficial owner.
- Avoidance in most cases of local succession laws which can, in certain countries, stipulate to whom the property must pass.
- Elimination in most cases of local transfer and capital gains taxes upon resale of the property.
- Simplification of procedure upon resale of the property through the sale of the real estate holding company to the buyer saving both time and costs.
- Exclusion of foreign exchange controls restrictions, in certain countries, in the event of the beneficial owner taking up residence in the property.
- Ease of transfer to heirs in the event of the beneficial owner’s death.
- Confidentiality of ownership.
A high net worth individual with properties or other assets in a number of countries may wish to hold these using a personal holding company so that upon their demise the need to obtain probate in each country is avoided. This will save on legal fees and avoids publicity.
Shifting business to an Offshore Haven removes restrictions, regulations and taxation. What can you do with 50% more time and money?