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Dear Clients,

Welcome to the Palladium newsletter of Autumn 2017. 

Our hearts reach out to the BVI!

 
Following the tragic desolation of Hurricane Irma in the BVI and the Carrebian, we extend our heartfelt condolence and prayers to the families affected.

Would you like to contribute? Aide efforts such as https://bvirelief.com/ and https://www.youcaring.com/familiesofthebritishvirginislands-942545 have been contributing towards helping the and getting the livelihood back to normal.

 

Trust in US?

 
For the past few years, any suggestion of setting up a trust in the US for a non-US client may have had advisors laughing and clients running for the hills. 

For some advisors, the US was just synonymous with ‘hassle’.  When FATCA was first introduced, many trust firms decided that taking on clients with any US connection (even indirect connections) was just more hassle than what it was worth. Increased compliance burdens on non-US firms made it incredibly difficult for offshore trusts with US beneficiaries or Settlors to hold any kind of US situs assets, including US securities.  

The beneficiaries did not even necessarily have to be US nationals or passport holders - even temporarily studying in the US was a sufficient enough connection to cause a problem.  

The difference in terminology also meant that a specialist was often required to navigate the FATCA rules, which often threw up that US tax and legal advice would be required.  A very onerous and expensive process! 


For clients, many automatically assume that the US is an “onshore” jurisdiction and is consequently subject to both high levels of tax and reporting requirements.

The reality is, however, that most offshore jurisdictions are subject to more reporting requirements than onshore jurisdictions and are becoming increasingly even more regulated. For example, it is near impossible to find banks who are now
willing to offer services to offshore entities, as it is only worth them undertaking the onerous compliance and CRS procedures if the client or entity can commit to at least £1,000,000 of banking products – either by way of asset management or financing and loans. Usually banks ask for deposits far in excess of £1 million.

This is fine for  ultra-high-net worth clients who continue to benefit from services offered by a reputable, well capitalised and stable bank.  Where, however, does it leave clients who already have a particular choice of asset manager to look after their investments who now has to let them go as clients, or clients who have mainly immovable assets like property or artwork? 

Corporate and fiduciary firms are therefore looking to new jurisdictions to meet the needs of different levels of client with different types of assets.  

And in this respect, the states of Delaware, Nevada and Wyoming, do have some attractive features which mirror many of those found in traditional offshore jurisdictions, including some of those which have been eroded by the CRS.  These include:
  • No exchange of information as the US isn’t participating in the CRS – whilst there may be reporting obligations under FATCA, this is only to the IRS and is not transmitted back to the client’s home jurisdiction
  • No state tax on income/gains in the trust
  • In general, no federal tax provided property is situated offshore and there are no other US connections
  • Robust asset-protection law, with only a two year statute of limitations against creditors.
For truly international trusts, with no US assets, settlors or beneficiaries, the US is a viable option and is certainly worth exploring.
 
We are able to operate structures in Delaware, Nevada and Wyoming and would be happy to provide further information on the practicalities of US trusts.

BVI funds

 
In the BVI, it is possible to set up a fund without having to be regulated, provided (among other factors) that the investors do not have redemption rights and there are less than 50 investors.   This type of entity is styled like a normal BVI business company, except for certain requirements such as those in the company’s constitution and each shareholder having to agree to the terms of various agreements.

If investors will have a right to redeem their shares, this is classed as a mutual fund and will require a licence in the BVI.   This is something Palladium can also help with also.  

Three main categories of mutual funds are offered in the BVI, namely private, public and professional.  What category they fit in depends on various factors such as: 

•    The number of investors
•    The required minimum investment
•    The net worth of the investors

Note that a private fund can only have up to 50 investors, and a professional fund requires each investor to invest at least £100,000 and to sign a declaration stating that they are worth at least $1 million.

Professional funds are essentially open-ended funds which are not private or professional funds.  These have a more stringent licensing procedure.  

Our fees for setting up a close-ended fund (i.e. one that doesn’t require a licence) start from USD 9,000 depending on the nature of the investment, number of investors and how the fund will be administered and managed.

 
 

Maltese Funds
 

Malta hosts over 580 investment funds which have a combined Net Asset Value of almost $10 billion and have a growing demand.

As well as the European Union passporting rights, funds domiciled in Malta benefit from a world class banking services, robust yet efficient regulation, competitive fees and a compatible time zone. 

Key Features of Maltese Funds

  • Efficient licensing process– all Maltese funds must have a licence granted by MFSA, which provides comfort and reassurance to investors. The license can be granted in as little as 2 months.
  • Funds may be self-managed by an in-house investment committee
  • No requirement to appoint a local administrator
  • Low set-up and operational costs
  • Passporting rights for retail fund products allowing them to market within the EU. 

Professional Investor Funds (PIFs)

 

This is the most popular type of fund in Malta and can be formed in a variety of corporate vehicles, including open-ended and close-ended corporate vehicles, trusts and limited partnerships. The investment company with variable share capital (SICAV), however, is still the most widely used vehicle.

PIFs are generally are used for private investment, with investors usually being high net worth individuals or family offices.


Benefits and Features of PIFs

  • Fast-Track licencing – usually approved within two to three months 
  • May be self-managed 
  • Can investment in a range of different assets including transferable securities, private equity, immovable property and infrastructure, debt financing and derivatives
  • Set up time of 2 to 3 months
  • Favorable tax regime for SICAVs

Alternative Investment Funds (AIFS) and Managers (AIFMs)

 

The Alternative Investment Fund Management Directive (“AIFMD”) came into effect in all EU Member States in 2013 and regulates both alternative fund managers and the promotion of alternative funds within the EU.

The definition of Alternative Investment Funds is wide and covers all legal forms, whether open or close-ended and applies whatever the asset class invested in. Therefore hedge funds, private equity funds, real estate funds, venture capital funds and others all fall within the definition.

PIFs with fund managers can also benefit from the AIFMD and benefit from cross-border management and marketing provided the minimal capital is EUR 125,000.


Benefits and Features of PIFs

  • Self-managed AIFs must have a minimum initial capital of EUR 300,000, those managed by a manager must have EUR 125,000
  • Appointment of a custodian is mandatory, which can be a credit institution in any other EU member state
  • Exempt from income tax and capital gains tax at fund level and at a non-resident investor level as long a more than 85% of the value of its assets are located outside of Malta
  • No withholding tax on dividends paid out to non-residents 
  • No tax payable by non-resident on disposal of their investment
  • No stamp duty on share issues or transfer
  • Licencing time frame of about three months
  • Once authorisation is granted, this will be valid in all EU Member states

More Articles

 

CRS: here begins the flow of information:
http://www.oecd.org/tax/first-automatic-crs-exchanges-between-49-jurisdictions-to-take-place-over-2000-bilateral-exchange-relationships-in-place.htm

‘Tax havens’ now ask for help – the positive role of these overseas territories of the UK is still unappreciated and they deserve help:
https://www.theguardian.com/world/2017/sep/16/hurricane-irma-bvi-uk-government

Is Bitcoin the nemesis it is made out to be just as authorities close in on other unreported sources of income and wealth?:
https://www.bloomberg.com/news/articles/2017-09-12/jpmorgan-s-ceo-says-he-d-fire-traders-who-bet-on-fraud-bitcoin

Goodbye Europe and hello Asia for Indian private wealth – but is it good news for Asian standards?:
http://timesofindia.indiatimes.com/business/india-business/indian-offshore-wealth-parks-itself-in-tax-havens-of-asia/articleshow/60504767.cms

Refresher on how the US must uphold global compliance standards:
https://www.bloomberg.com/news/articles/2016-01-27/the-world-s-favorite-new-tax-haven-is-the-united-states

 


What do you think? We’d love to hear from you.

Palladium specialises in setting up and providing legal, fiduciary, corporate and administrative services for wealth structuring vehicles from all major financial centres. Ask us to quote for a service and see how we compare.
 
We hope you all have had excellent year and all the best toward the rest of the year.

Stephen and the Palladium Team

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