Globaleye.com

Using an offshore company has a variety of uses and at Globaleye we aim to find the right solution to meet your needs. Whether you need an offshore company to reduce your exposure to tax, ensure your estate passes quickly in the event of your demise or to avoid local legal issues, we have a solution for you.

Offshore Companies have multiple uses, particularly when buying property. Historically, people's perception of offshore companies has been for the exclusivity of wealthy individuals or indeed those whose 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, British Virgin Islands (BVI) and more recently Dubai. The aforementioned are the 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.

Why should I use an offshore company?

There are numerous reasons but with regards to property it achieves 3 main objectives if established correctly.

• 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. The 40% charge has been muted to raise to 50% very soon. 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 (more than 17years) 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.
  
• 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 Islamic 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. Few investors in Dubai realty realise this potential problem.
  
• Once gain in Dubai, 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. Referred to as stamp duty in the UK, associated transfer costs when obtaining new ownership of property can be quite high and thereby eat into your re-sell profits. Dubai has transfer fees ranging from 2-8% depending on which project you are buying/selling. However, if the property was bought in the name of the offshore company then the transaction of ownership can be achieved by selling the offshore company. In essence, you sell your offshore company that owns a property and not the property itself. An offshore company should be used for each property you purchase to manage a portfolio effectively.

How much does it cost?
Predictable question I know but the answer is not clear-cut. Fees for this kind of service can vary depending on jurisdiction and service required. Globaleye keeps fees to a minimum. We can also help you arrange your international property finance and loan protection too if required. 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 - please refer to our Dubai Offshore Company Application Form fee schedule for more info. We will definitely beat a lawyer on cost since if you instruct your lawyer to arrange it, they could 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). A full list of our fees is in the "Download" section under Offshore Company Application Form.

I never knew Dubai provided 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. You cannot trade with this license and there are potential restrictions depending on developer chosen and whether you intend to lease/rent.

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 investors 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 EU Savings Directive on transparency law 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 with holding tax (starting at 15% tax) or alternatively the account details will be forwarded to your Tax Authority. This is a move by the EU to polarise 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! Many investors from the UK are sending money overseas 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. 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 a 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.