BENEFITS OF AN OFFSHORE STRUCTURE
Where a property is acquired in the name of an offshore company, it is that company's name which appears in the Property Register and the Deeds to the Property. If you instruct us to act as directors of the company, it is our name which will appear on any Powers of Attorney, Deeds etc. There are many legitimate reasons why you should not wish your ownership to be a matter of public record, and the interposition of a company can ensure such anonymity.
Capital Gains Tax
If the property is registered in your name, and you decide at some future date to sell the property or transfer ownership, it is likely that the value of the property will have increased and that tax will be payable on the value of the gain. If, however, the property is owned by an offshore company, it
is not the property itself which is sold but the shares of the company. This takes the transaction offshore and, since there is no capital gains tax in Gibraltar, no tax will be payable on the transfer of the shares either in Gibraltar or the country where the property is located (although you may have a tax liability in your country of residence).
If the property is registered in your name, it is probable that, in the event of your death, Inheritance tax in the country where the property is situate will have to be paid before the property can be transferred to your heirs. Furthermore, your heirs may find themselves tangled in a legal system of which they have little or no knowledge. However, if the property is owned by a Gibraltar company, arrangements can be made for the ownership of the shares in the company to pass without tax on your death. In addition, the company can be made exempt from payment of any Inheritance Tax in Gibraltar.
If you are a citizen of any one of a number of European states known as "civil law" countries (such as Portugal, Spain, Italy etc) you are almost certainly bound by your country's "forced heirship" provisions. This means that your estate will have to pass to your immediate family in certain fixed proportions on your death. By forming a company to hold the property and establishing a trust to hold the shares in the company, such potentially difficult restrictions can be avoided.
If the property is registered in your name, in the event of your death the Executors of your Will or your personal representatives, may find it very difficult to arrange the transfer of Title to your heirs. There may be differences in inheritance law between your country and that of Portugal; there may be a conflict of laws in determining which country the deceased was domiciled in at the date of death; there will almost certainly be significant bureaucracy in obtaining recognition of the validity of a non-Portuguese Will in Portugal.
Most of these difficulties can be avoided from the outset by placing the ownership of the property in the name of an offshore company. It may also be appropriate for the company to be owned, in turn, by a trust to ensure the smooth transfer of the shares on death.
WHAT IS AN OFFSHORE COMPANY?
An offshore company is a company formed in any country where there is a zero or very low rate of tax payable by the company. There are many offshore centres now available such as Jersey, Cayman Islands and Gibraltar. In many cases, therefore, offshore companies are formed as trading entities which pay a low rate of tax. However, as the purpose for forming a company in this context would be simply to own a property in Portugal, the rate of tax paid by the company is largely irrelevant.
WHAT IS MEANT BY AN "OFFSHORE STRUCTURE"?
At its simplest, an offshore structure is a company, located in an offshore centre, which holds your property. You might be both director and shareholder of the company, and your name would therefore appear on the company's Deeds and other documentation, including documents filed at the Companies Registry which is usually a public record.
A very common improvement of such a structure is where you, the "beneficial owner" ask your company manager (us, we hope) to provide the Board of Directors of the company in order to ensure that, at least superficially, your name does not appear in any connection with the company.
The next level of sophistication is that you require your company manager to provide nominee shareholders for the company. In common with other company managers, we own companies the sole activity of which is to hold shares on behalf of our clients. The share certificates are issued in the name of the nominee companies which then issue a Nominee Agreement to you. This is a document which you will hold stating that the shares are held by us on your behalf.
This arrangement may well be satisfactory throughout your lifetime or until the property is sold. Once you decide to sell, you may agree a private contract with the purchaser for the sale of the shares. When the sale is concluded, the Nominee Agreement is surrendered and a new Nominee Agreement is issued by the nominees to the new owner.
Matters become more complex on the death of the beneficial owner. If the shares are held by the nominees for a beneficial owner who dies, there are only two ways in which ownership of the shares may pass from the deceased to his designated heirs. Firstly, the Executors of the deceased's Will or his personal representatives can obtain probate or a grant of letters of administration respectively which would then have to be re-proved in Gibraltar. Inevitably, this takes time and can be expensive. Moreover, the Gibraltar probate court is a public record and there may be perfectly legitimate reasons why a beneficial owner would not wish his non-Gibraltar Will to be proved in Gibraltar. Finally, the possibility that the deceased has not advised anyone of his ownership of the shares or included it in his Will cannot be ignored. The consequence of this would be that the nominees would be left holding the shares indefinitely or until such time as a court order is obtained.
A relatively simple solution for such problems is the use of a trust to hold the shares of the company. In these circumstances, the ownership of a property (or in this case the shares representing the property) is entirely divorced from you and is vested in the trustees you appoint. When the trust is established, you (the Settlor) will define how we are to deal with it in your lifetime and express your wishes as to how we shall deal with it on your death and, where appropriate, on the later death of your spouse. For all legal purposes, the property belongs to the trustees, but they are bound in law to deal with it for the sole benefit of the person or persons specified in the Trust Deed (and in subsequent modifications, known as Letters of Wishes).
On your death, there is no change of ownership - the property is still owned by the same trustees - and in consequence there is no Inheritance Tax to pay or bureaucratic processes to suffer. The shares can continue to be held by the trustees during the lifetime of the surviving spouse and subsequently distributed to children or other beneficiaries. Such arrangements can be totally flexible and this remains one of the principal attractions of using a trust to own the shares.
Gibraltar is a sophisticated offshore centre offering the same services as, for example, the Channel Islands and the Isle of Man. One of the principal differences between Gibraltar and these other centres, however, is that Gibraltar is part of the European Union and in consequence is subject to stringent regulation to guarantee the security of the assets entrusted to company managers who operate within it. Other than Luxembourg, it is the only centre within the EU and hence subject to such regulation, which is much stricter than that of nearly all other centres. This is your guarantee, together with the name of Coopers & Lybrand.
Compared with the cost structure of most other offshore centres, Gibraltar is a relatively low cost jurisdiction, and total costs in Gibraltar are likely to be somewhat lower than in longer established centres such as the Channel Islands.
As to its location, Gibraltar is a natural choice for anyone living in the South of Spain or in Portugal. Unusually for an offshore centre, it is most conveniently located for people in this catchment area and because of its specialisation in serving their needs, has people who are intimately familiar with the problems facing property owners in the area, whilst most other centres deal with a wide variety of foreign jurisdictions and cannot be familiar with them all.
There is a cost to the offshore structure. This is of course unavoidable for as long as the offshore structure is maintained, and it should be stated at the outset that there is probably a cost to `unwinding' the offshore structure if, at some future date, you decide it is no longer to your benefit. This could arise from circumstances entirely beyond your control; for instance, if your personal circumstances have changed, or if the law in your country of residence or the country where the property is located has been amended.
For this reason, one should carefully weigh up the benefits versus the costs and risks before setting up an offshore structure, almost certainly taking competent professional advice prior to doing so. The modest objective of this brochure is to set out in clear terms what benefits might legitimately be sought from the use of an offshore entity and what, in general terms, the cost might be. If, having read and weighed up the pros and cons, you think that such a structure might be of interest to you, please contact us.