“On Why One Should Separate Duties”

Why it’s important to Separate Corporate from Legal Services

If you’re contemplating the incorporation of a local company or International Business Company (IBC), then you may wish to consider the concept of separating your corporate and legal services. The basis for this is continuity of business. More often than not, corporate services form a portion of the legal services rendered by the client’s attorney. Unfortunately, there are times when expectations are not met and the client and his attorney are forced to end their relationship. If the termination is not amicable, it could lead to disruption of the registered office and agent services previously provided by the client’s attorney. I.e. Regulatory requirements such as annual fees and filings will not be maintained due to the inability to collect disbursements from the client.

By using a Financial Corporate Service Provider to act as registered agent and office exclusively, no matter how dysfunctional the…

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The Common Reporting Standard (CRS)

The Common Reporting Standard

In 2014, the Organisation for Economic Co-operation and Development (OECD) proposed a global initiative that focused on the exchange of information concerning tax matters. The premise being, the automatic exchange of information between governments should theoretically allow for more thorough scrutiny of information presented on taxpayer returns. Increased scrutiny would then act as a deterrent to tax avoidance.

To date, more than 90 countries have agreed to automatically exchange information provided to them by financial institutions operating within their borders. The Bahamas is on schedule to begin its CRS participation in 2018.

As a follow on from the Foreign Account Tax Compliance Act (FATCA), the Common Reporting Standard or CRS is a definite game changer for the offshore financial services industry due to 3 main reasons:

• The cost of implementation.

• The attrition associated with implementation; and

• Offshore compliance fatigue by both clients and service providers.

Implementation costs:

After the mammoth FATCA review exercise that most offshore financial service providers conducted last year, it became very apparent that the cost associated with these types of reviews placed significant strain on the resources of some firms. Expenses were mostly associated with software upgrades, communication fees and temporary labour costs. It has been suggested that the cost of implementing FATCA, turned out to be ten times more than the revenue it generated due to compliance.

The fact of the matter is that financially, firms are not prepared to sustain yet another costly review of their client base and this has caused a paradigm shift in the way we expect to manage the introduction of the CRS.

There will always be inherent risks associated with any solution. However, in an attempt to minimize the expenses associated with a paper review, some firms have resorted to the terms and conditions by which they provide fiduciary services. Essentially, the “the devil is in the detail”. The principal contractual agreement between the client and the fiduciary service provider should allow for the disclosure of critical information to avoid noncompliance with the standard and at the same time, compel the client to self-certify that he or she has complied with all local tax regulations in their home country.

Attrition:

The CRS will no doubt reduce the volume of clients that maintain offshore trusts because the practical attributes usually associated with being offshore. I.e. Confidentiality, will no longer be available. Practitioners estimate that firms may lose up to 40% of business, with attrition focused on the directed, smaller, less sophisticated structures. Nonetheless, we will come out on the other end of the CRS with an industry that is smaller, more specialized, transparent and more costly for the client.

Compliance Fatigue:

Clients receive a copious amount of correspondence concerning regulatory changes. At some point it begs the question, why maintain the structure? The first quarter volatility in the markets, coupled with administration expenses, erode the value of having an offshore structure especially if the assets under management are relatively small. With the “Base Erosion and Profit Sharing” or (BEPS) initiative on the horizon, it has now become debatable as to whether preferential treatment will continue for offshore holding companies that use W8-BEN Forms to defer withholding; All of which support good arguments for the repatriation of offshore funds and has spurned a resurgence in the insurance industry as an alternative to offshore investment wealth planning.

Ultimately, once the CRS is fully implemented, at the very least, you know that your local tax authority will seek to verify the accuracy and completeness of your tax returns. Whilst the current tax season is underway, now is a good time to have a discussion with your planner.

FATCA & Hold All Mail

Foreign Account Tax Compliance Act and Hold All Mail

By now, most major financial institutions and service providers are winding up the review of their client base to ensure that undocumented US centric clients are properly identified as it relates to the Foreign Account Tax Compliance Act (FATCA) and its regulations.

From our own experience, this exercise allowed us to reconfirm that our clients were still non U.S. persons by obtaining new W8-BEN forms. However, we found examples of third party power holders and beneficiaries that were deemed US resident for FATCA purposes and these persons were properly documented by obtaining new W9 forms.

In an attempt to cure all inferences of US indicia, we reviewed all of our customers mailing addresses. Many of whom had Hold All Mail (HAM) addresses in the U.S. to assist with the copious amounts of mail sent to each client monthly. This inference of U.S. residency had to be cured to eliminate any doubt of the client being a non U.S. person. The cure process involved sending a letter to the client to have them confirm that the U.S. HAM address was only being used to facilitate the management of mail.

As an alternative to a US HAM address, we recommended the FidPro Hold All Mail Service, one of few Hold All Mail providers not located in the U.S. FidPro Hold All Mail clients did not require a cure letter. This turned out to be a significant saving for the firm and our clients were not required to send followup confirmation.

If there is an indication that your client is a US person, this should be explained. In the absence of a plausible explanation for the US indicia, you may want to recommend to your client that they seek independent tax advice to confirm their status before the 17th of August 2015.

For all Bahamian Financial Institutions or BFI’s the local FATCA Portal can be accessed here.

“On Why One Should Separate Duties”

Why it’s important to Separate Corporate from Legal Services

If you’re contemplating the incorporation of a local company or International Business Company (IBC), then you may wish to consider the concept of separating your corporate and legal services. The basis for this is continuity of business. More often than not, corporate services form a portion of the legal services rendered by the client’s attorney. Unfortunately, there are times when expectations are not met and the client and attorney are forced to end the relationship. If the termination is not amicable, it could lead to disruption of the registered office and agent services previously provided by the client’s attorney. I.e. Regulatory requirements such as annual fees and filings will not be maintained due to the inability to collect disbursements from the client.

By using a Financial Corporate Service Provider to act as registered agent and office exclusively, no matter how dysfunctional the relationship between the client and his legal support might become, the company is able to continue without disruption. This element of continuity is important. It saves the client money, it’s more efficient and augments the robust attribute of limiting the liability of the company’s beneficial owner.

If you’re about to start a new business and you want to hire an attorney to represent you and your company’s interest, consider meeting with your Corporate Service Provider first. Chances are, they’ll save you money in the long run.

Chile and Voluntary Disclosure

“In September 2014, Chile entered into force its Voluntary Disclosure Mechanism”

Provided that the taxpayer is deemed resident in Chile prior to the 1st of January 2014, he or she can declare during this current 2015 fiscal year, unreported assets and income that they directly or indirectly own abroad. However, there is a caveat. The assets to be voluntarily declared will have to be domiciled or managed from jurisdictions that have anti-money laundering rules, adhere to the Financial Action Task Forces’ recommendations and whose Financial Intelligence Units subscribe to the Egmont Group.

If the taxpayer is eligible for voluntary disclosure, they will also have to fulfill the exchange control regulations if not already done so. Taxpayers will also have to substantiate with “prima facie” evidence that they acquired the assets on or before the 1st of January 2014.

After the declaration is filed, Chilean revenue will advise on the portion of the 8% single and substantive tax that will have to be paid. Once notice is received, the taxpayer will have 10 days thereafter to settle the outstanding tax amount. Once paid, Chilean revenue will have 12 months from the tax settlement date to request an audit. Such audit could result in a different amount for the tax payment.

Chilean tax attorneys have given mixed opinions on how to respond to this very important initiative. Some advisers have NOT recommended the amnesty route on the basis that clients would expose themselves to extreme scrutiny from Chilean revenue and other associated agencies.

Others have recommended compliance with the amnesty rather than the proverbial “sticking ones head in the sand”. Most tax advisers who recommend this route have also advised that it might be best to change the jurisdiction of the offshore structure to a high tax jurisdiction and once done, declare the structure. It is perceived that a transfer to a higher tax jurisdiction will place the structure in better standing when the declaration is made to Chilean revenue.

From a wealth planning perspective, a good place to start the conversation with your client is to consider a pure insurance policy (no wrapper) or perhaps a restatement of the existing grantor trust to an irrevocable structure with Letters of Wishes. Both solutions appear acceptable according to Chilean tax advisers. More on this soon…

The De-Offshorisation of Russia

Russia’s Anti-Offshore Measures

If you’re an international wealth planner working with Russian resident clients, you need to review the structures used by your clients for personal and corporate use. If you are a fiduciary of a foreign trust or foundation with Russian resident settlors, beneficiaries or controlling persons or a director of a foreign company holding Russian assets controlled by Russian persons, you need to review your wealth planning and corporate structure to ensure that you are able to remain compliant with the Law.

The main purpose of the Law is to set the framework and instruments for the Russian government to clamp down at tax avoidance by Russian taxpayers using international structures. The changes will impact all international corporate groups and wealth planning structures that are controlled or established by Russian resident individuals or companies.

On International Business Companies or IBCs as Split Share Companies

The Split Share International Business Company (IBC)

A Bahamian International Business Company or IBC can be used as a split share company that is both effective and affordable to administer.

The process for creating a split share company involves amending the Articles and Memorandums of the IBC so that the Ordinary shares of the company represents the future income and/ or any type of future gain of the structure and the Preferred shares represent the existing assets and liabilities that are treated as capital.

The IBC can also be split into the same class of shares as indicated above but instead of income and capital, the shares are used to delineate between a charitable purpose (ordinary shares) and a directed purpose (preferred shares).

In both examples, the setup of the IBC represents a form of planning that can shelter clients against tax exposure as well as provide succession planning. A revocable, fully directed trust owns the redeemable, preferred shares corresponding to the capital of the company, and a second irrevocable, discretionary trust is used to hold the ordinary shares corresponding to the income.

The “Split” between the income and capital of the company via issuance of different classes of shares, theoretically allows the client to segregate himself from the income generated by the holding company.

Provided that the client has fully relinquished control and benefit of such income (due to the irrevocable trust), neither the settlor or beneficiaries are subject to tax reporting obligations in their home country. I.e. No income tax reporting obligation until receipt of an income distribution.

In summary, as long as the Trustee retains full discretion on the income trust, there are no tax or reporting obligations in most jurisdictions.

Is Global Multinational Tax Reporting on the horizon?

Switzerland Agrees to Common Reporting System or (“CRS”)

On November 19th Switzerland signed a multilateral component authority agreement to implement the new global standard on automatic exchange of information in tax matters, a move the OECD hailed as a “landmark decision”. (tax analysts)

This is a tremendous development, countries that have sat on the fence whilst determining CRS policy will now move forward with intent. It is uncertain whether the US and many other countries will become a signatory in the near future, as revenue laws will have to be amended to provide for the disclosure of beneficial owners.

Bahamas Registered Office & Agent

Registered Office & Agent

The FidPro Registered Office & Agent service is a very crucial offering. This service allows the client to act as Director and Shareholder for his/her personal investment companies. These companies often hold the bulk of the client’s wealth or shares of the family business. The ability to act as Director gives the client ultimate control and is often a practical solution when objectives are not being met by the current service provider.

The client as Director arrangement is most suitable when transparency is required e.g. Tax reporting purposes, whereby the company is considered a “walk through” and the client is deemed the beneficial owner and operator.

Provided that the appropriate KYC requirements have been met and the arrangement is tax compliant in the client’s home country, FidPro can provide Registered Office & Agent services from the Bahamas.

On the Benefits of Hold-All-Mail

Some clients prefer not to receive mail pertaining to their financial and banking products through the post or via courier. FidPro offers a Hold-All-Mail service (HAM), whereby FidPro holds bank and financial statements and other mail concerning the FidPro family office relationship for a period. Whilst more private for clients, this service may defer or prevent routine reviews of account activity by clients. FidPro recommends such reviews to avoid any chance of error or unauthorized transactions.

HAM clients acknowledge and agree that receipt of mail by the Hold-All-Mail service will constitute CONSTRUCTIVE NOTICE OR RECEIPT by the client. Therefore, the client assumes all risk associated with this service, including damages and waiver of rights due to delay or failure to collect the mail.

Release Address or Destroy Order:

Release Address: If the client after a maximum retention period, does not collect the mail in the Hold-All-Mail facility as FidPro recommends, then FidPro will arrange to have such mail delivered to a client approved mailing address referred to as a “Release Address”.

Destroy Order : The client agrees to contact FidPro to confirm balances before destruction. The client recognizes and assumes the added risk of never seeing their mail, yet agrees to be deemed to have constructive notice of its contents. By selecting Destroy Order, FidPro will arrange destruction of the unread mail. Such mail will be shredded and disposed of in a manner whereby confidentiality will be maintained.

Our Approved Hold-All-Mail P.O.Box Address is:

FidPro HAM, N4045, Nassau, Bahamas.

Do let us know how we can help you manage the copious amounts of mail you receive monthly…