To help you decide whether UJ may be of service, we have set out answers to the questions most often asked by potential clients. If you have a query that is not answered here, please contact us.
- What can UJ do for me?
- What is the difference between tax avoidance and tax evasion?
- What are the benefits of using offshore structures?
- Can I act as a director of an offshore company?
- If I am a director must I report the liability of the offshore company to the tax authority in my home country?
- Can UJ provide directors?
- Will I lose control of my assets?
- What other safeguards do I have where UJ provides directors?
- Can I act as a shareholder in an offshore company?
- What if the shares in the offshore company are held by an offshore trust?
- Can I hold shares in an offshore company anonymously?
- So is there any confidentiality left offshore?
- If there is no anonymity, why set up an offshore structure?
- How might going offshore affect my beneficiaries?
- Can I protect my assets from creditors?
- Will the costs be prohibitive?
- Does it matter where I live?
- What do I have to tell my home tax authority?
- What is the best offshore finance centre for me?
- Will I have to travel regularly to an offshore finance centre?
- Is there less regulation offshore?
- Why do I have to explain the source of my assets?
- Why do I have to give proof of my identity?
QWhat can UJ do for me?
AUJ gives specialised tax advice with an emphasis on offshore possibilities. Our services will be useful to anyone who wishes to save current or future tax for their company or themselves.
To assist in this, UJ establishes and administers secure and efficient corporate and trust structures for expatriates, businesses, entrepreneurs, private individuals and families.
QWhat is the difference between tax avoidance and tax evasion?
ATax avoidance is simply doing everything possible within the law to reduce your tax bill. Learned Hand, an American judge, once said, "There is nothing sinister in so arranging one's affairs as to keep taxes as low as possible - nobody owes any public duty to pay more than the law demands." Tax evasion means paying less tax than you are legally obliged to -
normally by concealing the true facts by failing to complete your tax return correctly.
There may be a thin line between the two but, as former UK chancellor Denis Healey put it, "The difference between tax avoidance and tax evasion is the thickness of a prison wall."
QWhat are the benefits of using offshore structures?
AOffshore structures can be used to save tax, increase confidentiality and help preserve assets. Offshore Financial Centres (OFCs) were traditionally characterised by low or no taxes, less onerous compliance requirements and secrecy. Recent initiatives, led by the Organisation for Economic Co-operation and Development (OECD) against so-called "harmful" tax competition and the Financial Action Task Force (FATF) against money laundering, have forced most OFCs to increase transparency and regulation, and to permit the exchange of information for both criminal and fiscal matters. This means that the beneficial ownership of an OFC structure can and must be revealed, upon request, to an enquiring tax authority.
But confidentiality will not be of paramount importance to those undertaking tax avoidance rather than evasion. This does not mean that offshore structures are any less useful, but it is absolutely critical to arrange ownership of an offshore structure correctly. For instance, it is usually imperative that they are administered by a board of directors that is based offshore. Using a mixture of offshore companies, life insurance contracts and offshore trusts, UJ is able to create offshore structures that legitimately and legally defer or avoid tax in the taxpayer's home country. Legal opinions confirming the effectiveness of these structures can be obtained on behalf of clients and are available upon request.
QCan I act as a director of an offshore company?
AYes, but this will generally make the offshore company liable to tax on its worldwide income in the taxpayer's home country because it would be managed and controlled in the taxpayer's home country.
For example, an offshore company with UK resident directors will be subject to UK tax on its worldwide income because it is managed and controlled in the UK. That's the law in the UK and most high tax countries follow this principle.
QIf I am a director must I report the liability of the offshore company to the tax authority in my home country?
AThe rules vary from country to country but normally yes, and failure to do so may be an offence and the directors may be prosecuted. In the recent UK cases of R v. Allen and R v. Dimsey, a UK-resident shadow director and his advisors were prosecuted under criminal law for failure to report the liability of the company to tax in the UK.
The case involved a Jersey company that was deemed liable to tax in the UK because it was, as a matter of fact - managed and controlled from the UK - not by the directors but by other persons. It was found that the directors took instructions from others, so those others were the people who really managed and controlled the company. All the defendants received lengthy custodial sentences.
QCan UJ provide directors?
ADirectors provided by UJ will consider and generally agree to all commercial suggestions that would be of benefit to the company but they will not act in any way that is improper, illegal or immoral. It is not sufficient for the directors to merely appear to manage and control the affairs of the company from offshore. It is vital that the directors are able to clearly demonstrate that they do manage and control the company from offshore.
For this reason professional directors should not delegate their authority back to the beneficial owner of anyone else for that matter. To do so would create potential liabilities for the directors, lead the company into adverse tax consequences and may cause the management company that provides the directors to lose its licence to operate. There is no such thing as a nominee director!
QWill I lose control of my assets?
AYou must give up control of your assets by placing them in the company and, for the reasons explained in the previous answer, the company must be managed and controlled by the offshore directors.
But you will retain the ability to regain control whenever you wish as the agreement with UJ would state that all officers provided by UJ will resign upon request.
QWhat other safeguards do I have where UJ provides directors?
AYou must have a certain level of trust in your service provider and for that reason you should only use companies which can demonstrate: a good track record of providing fiduciary services; that they are properly
licensed in well-regulated jurisdictions and have professional indemnity insurance; and they have appropriate expertise, integrity and an unblemished reputation. UJ can meet all these criteria.
QCan I act as a shareholder in an offshore company?
AYes, but this will almost certainly have tax consequences. Controlled Foreign Corporation (CFC) rules and other anti-avoidance legislation common to most "onshore" jurisdictions, mean that the income and capital gains of an offshore company may be attributed to a shareholder, who will then be taxed on the proportion of profits of the company equal to his percentage shareholding.
There is a duty to declare the shareholding and account for the tax due. For most shareholders, therefore, offshore companies on their own will be ineffective in reducing tax, but an offshore company as part of a more complex structure will often be extremely effective.
QWhat if the shares in the offshore company are held by an offshore trust?
AThis may work, but in sophisticated jurisdictions the same sort of anti-avoidance legislation will often also apply to offshore trusts and render them ineffective for deferring or reducing income and capital gains tax.
There will generally be a way of structuring an offshore company to be highly effective in reducing tax but it will rarely be simple. If it were so simple, nobody would pay tax!
QCan I hold shares in an offshore company anonymously?
AShares can be issued to nominee shareholders provided by UJ and this would, at the moment, ensure anonymity although this does not relieve the beneficial owner of his liability to report his interest if this is required by his home tax authority. The OECD now requires all OFCs to implement exchange of information procedures so that details of the beneficial ownership of offshore companies may be revealed to an onshore tax authority on request.
These procedures were to be implemented by 2003 in relation to criminal tax matters and by 2005 for civil tax matters. Any OFC that fails to follow these procedures is unlikely to be able to do business with any OECD member state.
QSo is there any confidentiality left offshore?
AAll professionals and directors who are entrusted with somebody's personal or private matters owe a duty of confidentiality to that person. Where professional directors and nominee shareholders are employed, information about beneficial ownership is not available for public inspection. This is the case both onshore and offshore. What has changed in recent years, and particularly since 11 September 2001, is that barriers to the exchange of information in criminal and fiscal matters are in the process of being dismantled.
This does not affect the duty of confidentiality owed to clients but does mean that, where correct procedures have been followed, information regarding beneficial ownership must be passed to any requesting authority to enable that authority "to collect the correct amount of tax from its residents".
QIf there is no anonymity, why set up an offshore structure?
AOffshore structures that rely only on secrecy are probably being used for illegal tax evasion rather than legal tax avoidance. There is nothing illegitimate or immoral in setting up an offshore structure but failure to make the correct reporting to the home country tax authority is illegal and the onshore world is demonstrating a growing
intolerance of those who evade tax by failing to make the reports required by law. There are many ways in which an offshore structure may help to mitigate or avoid taxation but proper advice and correct implementation is essential.
QHow might going offshore affect my beneficiaries?
APositively. If you are able to arrange your affairs in a tax-efficient way then beneficiaries under a trust (or will) stand to receive more than would otherwise be the case.
Provided that the planning you undertake is legitimate and compliant with your local tax laws then large savings in tax can be made to the advantage of your beneficiaries.
QCan I protect my assets from creditors?
AYes. A properly structured trust will provide some protection from creditors but only if the trust is set up before both the debt has arisen, and before the facts and circumstances that would give rise to the debt are known. In other words, if you do something that is likely to lead a creditor to make a claim,
it is already too late to set up an asset protection structure. Such structures should be set up well in advance of any creditor claim being contemplated.
QWill the costs be prohibitive?
ANo. The fees paid should be a small fraction of the tax savings that will result. The fees you will pay for setting up a particular structure will vary considerably depending on whom you use. It is unlikely that the cheapest service provider will be the best, but the most expensive may not be the best either. You need to select a service provider who holds professional licences, has professional indemnity insurance, has a proven track record of setting up and administering offshore structures correctly, and can show that they have the necessary expertise and resources to provide an efficient and solid service.
You must also take into account that there are likely to be two costs involved - the cost of the structure itself and, secondly, the cost of the advice leading to the structure being set up and subsequently used. You would be unwise to set up an offshore structure without first receiving comprehensive advice about the effects in respect of tax or other matters.
QDoes it matter where I live?
AYes, it matters greatly. Anti-avoidance legislation varies enormously from country to country. It is of enormous importance to understand this legislation and how it will affect you and any structure you might set up. Not surprisingly, a structure that is effective, compliant and legal for a resident of the UK may be completely different to a
structure that achieves the same result for a resident of South Africa. It is vitally important to understand the legislation in your country of residence and how it affects any offshore structure you may be contemplating.
QWhat do I have to tell my home tax authority?
AThis will vary depending on your country of residence. Sometimes it is possible to create a structure in such a way that your interest in that structure does not have to be reported. Sometimes it is possible to create a structure that has to be reported but is still effective.
And sometimes it is possible to create a structure which doesn't have to be reported but would be effective even if it were reported. The latter is the ideal solution but any of the three possibilities should assist in legally mitigating tax.
QWhat is the best offshore finance centre for me?
AThe answer to this will vary considerably depending on a number of different factors:
- Your country of residence
- Your nationality
- Purpose for which you are setting up the structure
- Location of your customers or anybody who deals with your entity
- Changing perceptions of the general public and foreign governments (an offshore centre with a very good reputation may not keep that reputation).
UJ has offices or agents in all major offshore financial centres and is therefore well placed to advise on this aspect without partiality.
QWill I have to travel regularly to an offshore finance centre?
ANo. There should be no need to travel regularly to your offshore centre, so the choice of OFC need not be limited by geographical considerations. As explained earlier, to be effective for residents of most countries, the offshore structure will almost certainly have to be managed offshore. The administration of your offshore company need not take place in the jurisdiction of incorporation. For example, a Hong Kong company could have a bank account in the Isle of Man and directors based in Monaco.
The beneficial owner of that company could, subject to relevant anti-avoidance legislation, be resident anywhere in the world and need never travel to Monaco, the Isle of Man or Hong Kong. It would however be prudent to visit the offshore service provider who is going to have control over the affairs of your company to make sure that you are compatible and that they have the expertise and infrastructure to ensure that your company can be run smoothly and effectively.
QIs there less regulation offshore?
ANo, quite the opposite. OFCs are more heavily regulated than onshore jurisdictions. For example, a company in the UK that sets up and manages UK companies is not required to have any form of licence or authorisation. The same is not true offshore. Providers of offshore corporate services are heavily regulated and are required to
obtain a licence before commencing business and to renew that licence every year. The conditions under which licences can be obtained and retained are increasingly onerous.
QWhy do I have to explain the source of my assets?
AFor many years the leading industrial countries through supranational organisations such as the OECD and FATF have been trying to combat money laundering, particularly in relation to drug trafficking. This process was accelerated and refocused after 11 September 2001 with the major objective being preventing terrorists from receiving funds.
All financial institutions of any description, both onshore and offshore, now have to identify their clients, monitor their transactions, understand their business and know where, when and how a client has accumulated wealth.
QWhy do I have to give proof of my identity?
AFor the same reason that you must prove your source of assets. It is part of the due diligence required before any regulated operator is allowed to take you on as a client. Criminal activities and terrorist financing can only function with access to untraceable funds.
The need to provide due diligence is a source of irritation to many clients and represents a major cost to the service provider. Unfortunately, there is no way round this. It is a legal requirement to obtain this information before doing business.