Buying property using offshore companies
Offshore Companies have a multiple of uses but for this
article we are going to discuss their relevance when buying
property. Historically, people's perception of offshore
companies has been for the exclusivity of wealthy individuals
or indeed those who business practices were considered somewhat
shady. This is clearly not the case and with the advent
of so much anti-money laundering and counter terrorism measures
in the world, offshore companies provide an invaluable business
service. Offshore companies can feature in most financial
planning scenarios when trying to mitigate tax exposure
and/or with regards to passing assets on to beneficiaries
freely in the event of death. Sometimes referred as Special
Purpose Vehicles (SPV), there is an array of scenarios where
an offshore company becomes invaluable and this article
relates to their uses when buying property.
There are many jurisdictions where offshore companies are
offered. Some of the more mainstream locations are the Isle
of Man, Bermuda and the British Virgin Islands (BVI). The
aforementioned are more established and tend to offer better
services, good communication and client confidentiality.
When establishing such an entity, you need to determine
which jurisdiction is going to be most suitable for your
circumstances, which a good agent can guide accordingly.
Moreover, is the company providing the service suitably
positioned to handle your enquiries, ongoing services, audit
requirements maybe and indeed having the capacity to make
you feel comfortable.
Here are a few questions that we regularly field for those
buying property utilizing an offshore company:-
Why should I use an offshore company?
There are numerous reasons but with regards to property
it achieves 3 main objectives if established correctly.
1. You may wish to buy in the name of the offshore company
in order to conceal the name of the beneficial owners. This
is particularly useful when estate planning for investors
who have death tax issues to mitigate. Of those Governments
that impose death taxes, (e.g. Inheritance Tax in the UK)
you will be taxed on your worldwide estate in the event
of death. "Worldwide estate" is the key word since
it is not just the assets you have at home. So for example,
if you are a British domiciled person with houses in the
UK, Dubai and Monte Carlo, on death you will be taxed at
40% on all assets including property after an allowance
of £263,000. Since the average cost of a house in
the UK now is about £250,000 then there is a fairly
big tax bill coming for your beneficiaries. The other key
word is "domicile" - it does not matter how long
you have lived overseas, if you were born or have spent
a substantial period in the UK you are deemed domicile.
Trying to lose your domicile status is very difficult indeed.
So, if an offshore company was established perhaps with
nominee Directors and written in to Trust, this potentially
huge tax bill can be mitigated somewhat.
2. When buying in Dubai for example, very few investors
appreciate that the legal system here is different to that
they may have at home. In the event of death, the property
does not necessarily pass to the wife since Sharia Law (the
governing law of the UAE) determines otherwise as laid down
in the Koran (An-Nisa Chapter 4 para 7 onwards). In order
to ensure the property is passed on to those you wish, an
offshore company could be established with the spouses as
Directors. In the event of their demise the shares of company
are passed on to the surviving spouse and beneficiaries.
Although the spouse has died, the offshore company has not
thereby an internal transfer of shares circumvents this
potential Sharia issue.
3. Many speculative investors who purchase property with
a view to re-selling after a profit is secured have to overcome
the issues of transfer costs. Sometimes referred to as stamp
duty, associated transfer costs with regard to creating
the new ownership of property can be quite high and thereby
eat into your re-sell profits. Dubai will shortly introduce
its own form of stamp duty and at present fees can range
from 2-8% depending on which project you are selling. If
the property was bought in the name of the offshore company
then the transaction of ownership can be achieved by selling
the company. In essence, you sell your offshore company
that owns a property(s) and not the property itself. Furthermore,
you may want to reinvest your gains in your home country
but want to avoid the potential taxes associated. In the
UK for example, as a tax resident you would pay 40% CGT
(Capital Gain Tax) on any gain (after allowances) on property
disposal outside your prime residence. An offshore company
would not be liable since it is non-resident for tax purposes.
How much does it cost?
Predictable question I know but the answer is not clear-cut.
Fees for this kind of service can vary dramatically depending
on jurisdiction, amount of services required and the agent
you use. Globaleye will keep fees to a minimum since we
find it far simpler to arrange your international property
finance, loan protection and offshore company formation
under one roof. If we have an understanding of your overall
financial affairs then it is easier to select the right
solution for our clients. Most offshore solutions start
at around $2500 and can go upwards from there dramatically,
particularly if you instruct your lawyer to arrange it since
they could also charge for their time too.
Whatever options you choose, the fees become negligible
when compared the potential bill from death tax, capital
gains tax and transfer fees (stamp duty).
Does Dubai provide Offshore Companies?
In addition to the jurisdictions around the world, Dubai
too provides this service. Regulated from the Jebel Ali
Free Zone, the Offshore Company can have a number of useful
applications to resident and foreign investors. It can be
used as a special purpose vehicle for property purchase
in the United Arab Emirates with a view to mitigating foreign
taxes and/or ensuring the asset is passed on as per your
wishes in the event of your demise. Very few foreign investors
consider the implications of Sharia Law in the event of
their demise on their assets in the UAE. The company can
be used to purchase assets elsewhere in the world too and
can facilitate an application as a Branch in the JAFZ (Jebel
Ali Free Zone) for a full trading license. Salient features
are as follows:-
• 100% foreign ownership is allowed.
• Company can own real estate properties on Palm Islands,
or any properties owned by Nakheel Company LLC or any other
real estate properties approved by the JAFZ Authority.
• Company can hold an account in a bank in the United
Arab Emirates for the purpose of conducting routine operational
transactions. The account can have a Gold Card ATM facility
if required.
• One residence visa will be issued for one Director
if the Offshore Company maintains an office in the JAFZ.
• The Company will not be allowed to carry on business
with businesses that are resident in the UAE or carry out
any trade in the JAFZ or in the UAE, unless they have first
obtained an appropriate license from the relevant competent
authority.
How do I send money to my offshore company to purchase
property?
Most will establish their offshore company with a bank
account too. Obviously it makes sense to obtain an offshore
account and bank accounts in Dubai can be provided as well.
Thereafter you can wire (TT) the monies to your account
to be allocated as required.
It is worth noting that the new EU transparency laws dictate
that if you are an EU resident with monies offshore in the
EU (namely Isle of Man, Channel Islands and the like) you
are either liable to an account surcharge (15% tax) or alternatively
the account details will be forwarded to your Tax Authority.
This is a move by the EU to polarize tax treaties between
jurisdictions and to flush out offshore money held by EU
residents. If you have established an offshore company to
retain your offshore banking facilities then you can circumvent
this issue.
Similarly, when sending monies overseas as an EU resident,
your bank manager is duty bound to report such transactions
to your relevant Tax Authority. For example, if you are
resident in the UK and sending money to Dubai to buy a place
on the Palm - the Inland Revenue know! I have found many
investors from the UK are sending money here thinking they
are escaping the grasp of the Revenue for either capital
gains or inheritance tax purposes. They are likely to get
a nasty shock sooner or later. Perhaps if they had obtained
professional advice this situation could be avoided. By
using a loan arrangement with your offshore company, it
can be positioned with the Revenue that the monies you send
overseas are for a loan and therefore will be repatriated
in accordance with the loan agreement. Structured correctly,
you can avoid a run in with the Revenue.
What shall I call the offshore company?
Call it what you like within reason but remember if you
are looking to avoid attention of your Tax Authority then
it is not a good idea to include your name in the offshore
company title - gives the game away a bit! You cannot make
Banking or Investment references either since this will
require specialist licensing in the jurisdiction in which
you are looking to establish.
If I die, who takes over my offshore company?
Generally husband and wife can be appointed Directors of
the entity and in the event of death the surviving spouse
will absorb the offshore company equity. This can be affected
either by using specialist Trustees or indeed an undated
share transfer letter. Additional Directors can be appointed
at anytime so children could be included in due course as
a means of passing on the assets in your offshore company.
If you have established your offshore company to team up
with other investors so you can collectively increase your
position in the property market, then there are a number
of measures to ensure the interests of all Directors are
met. This can be done through a double-option agreement
whereby in the event of death an insurance policy pays out
the value of the deceased shares. Conversely, if each property
is bought under a separate entity then the proceeds from
the sale would be passed to the deceased's estate or the
surviving Directors can offer to purchase the value of the
remaining shares.
In summary, offshore companies are flexible, tax efficient
and essential vehicles to ensure your property portfolio
grows without undue hindrance. Get independent advice that
can cater for your overall financial requirements to ensure
the best solution is tailored to you. Whether you are buying
Shanghai, Mumbai or Dubai - consider the offshore company
solution carefully.
For more information on Offshore Companies, the fee structure
and other uses for these types of vehicles, please contact
Globaleye for a full appraisal.
Globaleye, has been in Dubai for 10 years providing financial
services to investors in the Middle East. Globaleye boast
over 3500 clients and is also part of Inter-Alliance WorldNet,
a joint venture between OFS WorldNet and Inter-Alliance
International part of Inter-Alliance PLC. As the largest
IFA in the UK, with over 1000 practitioners and some 35
offices, Inter-Alliance PLC has won numerous awards and
is approved by the Law Society and ACCA. For more information
please phone 8004558 (+9714 3979550) or admin@globaleyegroup.com
or visit www.globaleyegroup.com
or www.inter-alliance-int.com
and www.iaworldnet.com
