Tax Residency in Germany

German taxation system is based on residence, rather than on citizenship principles. Individuals, German nationals and aliens, having their domicile or place of abode in Germany, are considered residents for tax purposes. If you are a German tax resident, you have an unlimited German tax liability, including your worldwide income, even if you are resident abroad.

Non-resident aliens have a limited tax liability covering only income from German sources.

A company with the central management and control functions being executed from Germany is a resident for tax purposes. A foreign company is considered a German tax resident, if its management functions are shifted to Germany.

Change of Domicile

If you leave Germany and change your domicile, you become a non-resident national keeping a limited tax liability (with income from German sources). However, additionally you may get an extended limited tax liability, if the following conditions are met:

• you used to live in Germany for 5 years during the 10 year period preceding the change of domicile;
• you have retained essential economic ties with Germany;
• you changed your domicile from Germany to a low-tax jurisdiction, or you cannot prove any tax residence at all;

In short, the extended tax liability, with certain exceptions and conditions, involves 10 more years of tax liability with all income, that would not be otherwise taxed after you left Germany, as if you would be staying its resident.

For the purposes of individual income tax estimation, a foreign jurisdiction is considered to be a low-tax one, if the overall tax burden on the individual in that jurisdiction constitutes less than two-thirds comparing to what it would be in Germany for a single person with an annual income of EUR 77,000.

If you leave Germany after you have been subject to unlimited German income tax liability for at least 10 years prior to emigration to another country, you are subject to tax on emigration. The tax is being charged on unrealized gains from the increase in the value of your share in a domestic company in which you, directly or indirectly, have owned at least 1% of the share capital at any time within the preceding 5 years.

Anti-Avoidance Regulations

German tax law provides for the following substantive instruments to prevent German taxpayers from using low-tax jurisdictions to avoid German tax liability:

• add-back taxation, or Controlled Foreign Company (CFC) Regulations,  or intermediate companies regulations - sections 7-14 of the Foreign Tax Act;
• case law in respect of the “foreign-base companies”;
• general misuse provision - section 42 of the Tax Code.

Add-Back Taxation

Following the general rule, a foreign company qualifies as an intermediary company for the purposes of German tax liability, if all of the below conditions are met:

• a German taxpayer, individual or corporate body, has a participation in a foreign company, directly or indirectly;
• German shareholders control more than 50% share in that foreign company, directly or indirectly;
• this foreign company is from a low-tax jurisdiction, and
• this company has income stemmed from passive sources.

The passive income of an intermediate company in the amount attributable to the German shareholder’s share is treated as deemed dividend or imputed income. It is to be included in the personal income report as income from capital investments or business income, depending on the case, subject to full taxation in Germany. This rule applies even if that income was not yet distributed to the shareholder (add-back taxation principle).

Herewith, no regular domestic tax incentives apply. Although the income of intermediate company is generally treated as dividends, domestic German exemption rules do not apply. The add-back amount is fully taxable at the regular flat rates. Also, in case the company’s activity brings losses, they are not allowed for reduction of the German tax basis of the shareholder.

Any dividends, being paid to the shareholder from the respected income during the year of liability or the next seven years, are tax-exempt as they have already been taxed in full under the add-back principle.

Ownership and control aspects are being checked in the end of the reported year. Cross ownership doesn’t save the shareholder from tax transparency. Even the shares legally owned by the trustee are being attributed to the beneficial owner.

In case of mixed income, if passive income of the intermediate company does not constitute more than 10% of its gross receipts and it’s not more than EUR 60,000, it is disregarded for tax purposes under CFC regulations (petty provision).

If the intermediate company has its place of management in Germany, the CFC regulations are not applicable. All income of such company would be in any way fully taxable at source under the regular German taxation rules.

Low-Tax Jurisdictions

For the purposes of corporate tax estimation, a foreign company is deemed to be low-taxed if its corporate tax burden at the place of its management (or business residence) is less than 25%, be it a consequence of a regular taxation system in the whole country or in a separate free economic zone, or due to a special regime for certain types of activities (like tax exemption of holding companies’ income or income from offshore activities) etc.

A list of low-tax jurisdictions issued by tax authorities exists for indicative purposes. It is not definitive and other jurisdictions not appearing on the list might be recognized low-tax. Even in case of the existing double tax treaty add-back amount is not treaty protected.

Passive Income

Passive income is everything apart from the active income defined by the Section 8 of the Foreign Tax Act.

Active income sources include among others the following:

• agriculture and forestry, manufacturing and assembly, exploration of mineral resources;
• banking and insurance (where physical presence is proved and except for transactions with the related parties);
• trading (except for transactions with the related parties when the company cannot pass the test of carrying on independent business activities);
• services (except for transactions with the related parties);
• renting and leasing, except for:
  • intellectual property, unless it is a result of the company’s own research with no assistance of the related German taxpayer or persons related to the latter;
  • real-estate, unless German residents can prove that their income proceeding from such business would be exempt by a tax treaty;
  • movables, unless the company can prove carrying on its own independent business without cooperation with the related German taxpayer or persons related to the latter;
• inter-company financing activity (as income from borrowing and granting the capital), but only in case the company can prove that the funds originate from foreign capital markets and not from the related German taxpayer or persons related to the latter;
• dividends and dividend-like distributions from other corporations;
• gains from sale of shares in or liquidation of or decrease of share capital in other companies, providing these gains are not being allocated to the assets serving investment activities.

Anything else is passive income. However, only a low-taxed passive income qualifies under the CFC regulations.

General Misuse Provision and Foreign-base Companies

Even if the company escapes the CFC regulations, it should take into account the general misuse provision and court law.

The general misuse provision, Section 42 of the Tax Code, applies to the structures whose first aim is to bypass the German tax. The fact of lowering foreign tax burden does not trigger application of this provision.

It restricts using of foreign-base companies in low-tax jurisdictions. Foreign-base company is generally a company that was created to avoid German tax liability. Foreign entity can be recognized a foreign-base company if it cannot provide economic justification or other reasons for its interposition, and has no own business.

The burden of proof is imposed on the tax liable shareholder.

Federal Tax Court ignores foreign-base companies for tax purposes and attributes their activities and income directly to shareholders liable to German tax.

Foreign companies trading actively should not be concerned, even if based in low-tax jurisdictions.

Foreign Personal Holding Companies

Foreign personal holding companies generally escape the add-back taxation due to the reason dividends and dividend-like distributions of profits are recognized as active income. However, they will not be useful if the company’s central management and control is located in Germany – it will be taxed in full at source. Same as it cannot be used for employment purposes, if the employee is working in Germany - any work performed in Germany results in taxation in Germany.

Additional Regulations

More instruments aimed to prevent relocation of income and property to offshore territories include:

• transfer pricing regulations (Section 1 of the Foreign Tax Act);
• taxation of founders, beneficiaries and other members of offshore family foundations (Section 15 of the Foreign Tax Act);
• thin capitalization rules (Section 8 of the Corporation Income Tax Act);
• deemed profit distributions (Section 8 of the Corporation Income Tax Act);
• relocation of the corporation’s seat outside Germany (Section 12 of the Corporation Income Tax Act).

The above is a brief and non-technical summary of the German anti-avoidance regulations and should not be used as guidance without professional advice.

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Anti-avoidance regulations refer to situations where a UK individual undertakes a transfer of assets in favor of a non-resident person (company, trust) under the following conditions:

• as a result of that transfer, the income becomes payable to an offshore person/entity;
• the transferring individual (the transferor) has power to enjoy that income in some way;
• the transferor is ordinarily resident in the UK in the year of liability.

If all of the above conditions are met, the income payable to that offshore person (offshore company or trust), whether received from UK or foreign sources, is deemed to be the income of the transferor, to the extent he has power to enjoy that income.

These rules can apply if you settle an offshore trust, or subscribe to shares in a foreign company, or simply transfer assets or property to an already existing foreign trust, or a company, or a person abroad.

If you fall under the above regulations, all deductions and allowances are applicable to the reported income of the foreign entity, same as to your personal income. Further dividends and distributions from the same income of the offshore entity are free of tax, given they are already included in and taxed as your personal income. In case more than one UK person are likely to be charged on the same income, the HM Revenue and Customs (HMRC) will seek to agree with the taxpayer a “just and reasonable” division of liability.

Power to Enjoy Income

It doesn’t matter if you didn’t enjoy any income yet from such transfer, the key factor is to have the power to enjoy income in some way and/or be entitled to the capital sum. So far, even if no factual distributions are made by the foreign entity in your favor, you are still liable with its income in the amount attributable to you.

Same regulations refer to the transfer of assets where another UK resident receives the right to enjoy the income. With the only difference, that now it’s that other person, beneficiary, becomes liable for tax instead of the transferor.

Transfer of Assets

From the point of view of the HM Revenue and Customs, the transfer of assets can be done directly or indirectly, including by means of a sale or purchase, or a gift.
These regulations also involve situations when the UK individual is not only transferring but also is associated with the transfer. If you consider arranging a transfer through a chain of companies, or any other series of transactions contemplated as one scheme and developed to masquerade the transfer, this will not save you.

Exemption from the Rule – Motive Test

The exemption, which in practice can be difficult to get, is being granted by the Section 741, if you persuade the HMRC:

• that the transfer transactions had a non-fiscal purpose and did not have a tax avoidance purpose, or
• that the transfer was a genuine commercial transaction and, again, was not constructed to avoid UK tax.

The latter option, being called “bona fide commercial”, is meant to apply only to the furtherance of trade or business, and not to the making or managing of investments.

Non-UK Domiciliaries

One more exemption to the rule is non-UK domiciled individuals. Individuals who are ordinarily resident but not domiciled in the United Kingdom may be assessable under Section 739 or 740. However, the legislation restricts the liability of a non-domiciled individual, broadly applying a “remittance basis” to income and benefits received outside the UK. In fact, that means that the rule does not apply to non-domiciliaries until they remit their offshore profits to the UK.

The above is a very brief and non-technical summary of the regulations and should not be used as guidance without professional advice.

Sources:

Transfer of Assets Abroad - HM Revenue & Customs

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Israel Facts and Benefits

• The State of Israel, located at the east coast of the Mediterranean Sea, is a respectable jurisdiction, enjoying the confidence and support of the international community.
  Israeli law is a civil law based system.
• Official languages are Hebrew and Arabic, with English being the primary language for international relations. Among those non-official languages, Russian is one of the most widely spoken. Generally, you can hardly have any language barrier when doing business with Israel.
• Israeli banking system is known as highly developed.
• The country is not part to EU Savings Tax Directive or other EU regulations.
• Israeli companies enjoy protection of a wide network of double-tax treaties.

Israel Foreign Trust

Israel foreign trust, or Israel offshore trust, is a trust, where the settlor (or grantor) and the beneficiaries are non-residents of Israel during the tax year. The structure obviously requires a local Israeli trustee. All parties to the trust deed, settlor, trustee and beneficiary, can be individuals or corporate bodies.

You can incorporate a local company to serve as the trustee. As soon as the Trust Deed is signed, the settlor can transfer its assets to the corporate trustee, and the Israeli company becomes then a front company for all business transactions. From a third person’s point of view, the company is acting in its own capacity. Trust agreement and real beneficiary is behind the curtain.

Offshore income of such trust, that is any income from sources outside of Israel, is free of tax in Israel.

Israeli Trustee company is a regular limited company entitled to formal remuneration for its trustee services and subject to Israeli tax and reporting with this income. There are no statutory requirements in this regard, but the company’s remuneration should be economically reasonable. As a matter of example, you may count on the figures of 5% of income in case of passive investments and 10% in case of active trading operations.

Israeli company may have its bank accounts in Israel, as well as in any other country of the world without extra permissions from Israeli authorities.

There is no requirement for such a company to have local directors/managers. Unless a local stuff is hired, the company is only to report to tax authorities once, in the end of the year. Annual audit is also required.

You can use Israeli trust structure as the owner of your international business, for asset protection purposes, and as an active business instrument, for tax savings.

List of Double-Tax Treaty Countries

Availability of protection by a double tax treaty provisions makes this legal structure even more attractive. The list of DTT countries covers:

Austria, Belarus, Belgium, Brazil, Bulgaria, Canada, China (People’s Rep.), Croatia, Czech Republic, Denmark, Ethiopia, Finland, France, Germany, Greece, Hungary, India, Ireland, Italy, Jamaica, Japan, Korea (Rep.), Latvia, Lithuania, Luxembourg, Mexico, Moldova, Netherlands, Norway, Philippines, Poland, Portugal, Romania, Russia, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, Thailand, Turkey, Ukraine, United Kingdom, United States, Uzbekistan.

Each treaty requires individual consideration by professionals.

Israel Agency Company

The jurisdiction of Israel provides for one more tax efficient option for active international trade operations. You can use an Israeli company as an intermediary under an agency agreement with the principal located in a tax-advantageous zone. Here again Israel contributes to attractive international image of your business and allows you to save on taxes.

It is worth to mention that Israeli trust or an agency company is a cost-effective solution, keeping in mind its benefits and comparing to similar options from other jurisdictions.

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A U.S. taxpayer investing in a foreign corporation, trust or account is generally subject to the same rules as domestic investors, even if the foreign entity’s business activity is conducted only offshore.

Report of Foreign Bank and Financial Account (FBAR)

A US person who has a financial interest, or signature authority, or other authority over any financial account in a foreign country, must file an FBAR, if the aggregate value of such accounts exceeds $10,000 at any time during the calendar year.

An FBAR is a Report of Foreign Bank and Financial Account. The form number is TD F 90-22.1. It is due by June 30th of the year following the year that the account holder meets the $10,000 threshold.

For the purposes of FBAR, the term “US Person” includes a citizen or resident of the United States, or a person in and doing business in the United States. The term “person” includes individuals and all forms of business entities, trusts, and estates.

Reporting on offshore accounts is required even if there are no activities on such accounts and they do not bring any income.

A person holding the power of attorney granting him signature authority over an offshore account is to report it on FBAR, even if he didn’t execute his signature right.

Investing In a Foreign Corporation

Being a shareholder of an offshore company (directly or indirectly), you are not required to file special tax reports on it, unless the company qualifies for one of the following criteria:

• It is a personal holding company, or
• It is a controlled foreign corporation; or
• It is a passive foreign investment company.

Foreign Personal Holding Company

A personal holding company is defined in chapter 26, section 542 of the US Code. A corporation is treated as a personal holding company if it derives more than 60 percent of its income, after allowed adjustments, from dividends, interest, rent, royalties, and certain personal service contracts, and herewith more than 50 percent of its stock belongs up to five individuals.

Controlled Foreign Corporation

If US taxpayers own (directly or indirectly) in total more than 50 percent of a foreign company, the company qualifies as a controlled foreign corporation (CFC).

Each shareholder with at least 10 percent interest in a CFC is to file the form 5471 (Information Return of US Persons With Respect to Certain Foreign Corporations) along with the personal annual tax return.

In the case the CFC has any Subpart F income, such shareholder is required to include the part of this income attributable to his share, even if the company has not yet distributed this income to the shareholders.

Subpart F Income

Subpart F income is a category of mainly passive income from foreign sources subject to taxation in the United States. In the case of a CFC, it includes, among other things:

• certain insurance income;
• foreign personal holding company income (FPHCI), including dividends, interest, royalties, rent, annuities, capital gains, and income from certain personal contracts;
• foreign base company sales income, which, in general, means income (whether in the form of profits, commissions, fees, or otherwise) derived in connection with purchase or sale of personal property to, from, or on behalf of a related person, whereby such property was produced or is being sold or purchased in order to be consumed outside of the home country of the CFC;
• foreign base company services income, which, in general, means income (whether in the form of compensation, commissions, fees, or otherwise) derived in connection with the performance of technical, managerial, engineering, architectural, scientific, skilled, industrial, commercial, or like services, which are performed for or on behalf of any related person outside the home country of the CFC. This position includes substantial assistance contributing to the performance of services by a CFC that has been furnished by a related person or persons.

Substantial assistance includes, but is not limited to, direction, supervision, services, know-how, financial assistance (other than contributions to capital), and equipment, material, or supplies, if such assistance furnishes skills being a principal element in producing the income, or if the assistance constitutes 50% of the service cost.

Herewith a related person is a person (individual, corporation, partnership, trust, or estate), which controls or is controlled by the CFC, or a person, which is controlled by the same person, which controls the CFC. Control means direct or indirect ownership of stock possessing more than 50 percent of the total voting power in the legal entity.

The law also provides for a de minimis rule. If the sum of foreign base company income (determined without adjustments as to deductions allowed to be taken into account) and the gross insurance income for the taxable year is less than the lesser of 5 percent of gross income or $1,000,000, then no part of the gross income for the taxable year shall be treated as foreign base company income or insurance income.

In the case of a CFC, Subpart F income does not include any item of income from sources within the United States, which is effectively connected with the conduct by such corporation of a trade or business within the United States (unless such item is tax exempt or subject to a lower tax under a tax treaty).

Foreign Passive Investment Companies (PFIC)

Following § 1297 of the US Code, a foreign-based corporation qualifies for treatment as a foreign passive investment company, if it has one of the following attributes:

• 75 percent or more of the gross income of such corporation for the taxable year is passive income, resulting from investments rather than from active operating business, or
• 50 percent or more of its assets produce passive income or are held for the production of passive income (dividends, interest, royalties, rents, and annuities).

For tax purposes, the PFIC concept includes foreign mutual funds and other pooled investment vehicles with at least one US shareholder.

PFIC is subject to quite complicated tax guidelines. The shareholders are required to keep accurate records on dividends, including undistributed income of the company. Most investors must pay the income tax on all such undistributed income attributable to their share in PFICs.

Other Information Reporting Obligations

You may also need to file the following information with the IRS:

• Form 926 - Return by a US Transferor of Property to a Foreign Corporation;
• Form 3520 - Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts;
• Form 3520-A - Annual Information Return of Foreign Trust With a US Owner;
• Form 5472 - Information Return of a 25 percent Foreign Owned US Corporation or a Foreign Corporation Engaged in a US Trade or Business;
• Form 8865- Return of US Persons with Respect to Certain Foreign Partnerships.

The law provides for severe penalties for non-reporting and/or non-payment of the due tax on your offshore income or offshore income attributable to you directly or indirectly. The IRS policy is definitely not encouraging offshore investments in general.

If you are a “genuine trader”, which fairly requires an offshore entity in the work process, you might find your way through such economic obstacles. In any way, you need thorough consulting by a local CPA experienced in US tax law.

Disclaimer: pursuant to Internal Revenue Service guidance, please be informed that any information given in this article has been provided for academic purposes only; it was not intended and is not to be used as an advice to any person or entity for the purpose of avoiding taxes and penalties imposed under the Internal Revenue Code.

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Covered Expatriates and Exit Tax Threshold

The law applies to US citizens who expatriate, as well as long-term US permanent residents who give up their green cards, which they have held for 8 of the last 15 years. Both categories are subject to immediate “exit tax” on unrealized gains on all their assets in the US and worldwide, including grantor trusts, as well as on any future gifts or bequests to US citizens and residents, if any.

You qualify for the covered expatriate and the related exit tax, if you meet any of the following criteria:

• you have a net worth of US$ 2 million or more;
• you have an average net U.S. income tax liability of greater than US$ 139,000 for the five year period prior to expatriation; or
• you fail to certify that you have complied with all U.S. federal tax obligations for the preceding five years.

The exceptions are dual nationals from birth, who have not lived in the US for more than 10 years from the last 15, and persons younger than 18½ who have not lived in the US for more than 10 years.

Mark-to-market Tax on Unrealized Gains

The exit tax is being applied to the net unrealized gains on the covered expatriate assets estimated on the “mark-to-market” basis, as if the assets were sold on their fair market value on the day preceding the expatriation. The first US$ 600,000 gains are exempt from the tax. Any gain over US$ 600,000 is subject to US income tax.

The tax payment is due within 90 days after giving up your US citizenship. Expatriation is considered effective for tax purposes even if you fail to file the Expatriation Information Statement (form 8854).

The exceptions from the main rule are certain deferred compensation items, specified tax deferred accounts, and non-grantor trusts.

Specified tax deferred account is subject to immediate inclusion in the expatriate’s income subject to exit tax. This provision covers among all certain individual retirement plans, tuition programs, Coverdell education savings accounts, and health savings account, Archer MSA. No further tax, such as early distribution tax, is to be applied to these items thereafter.

30% Withholding Tax

Deferred compensation items, depending on their nature, are either subject to 30% withholding tax at the moment of payment, or to be included in the personal income of the expatriate subject to exit tax. Those items, that are subject to 30% withholding tax by being a distribution to covered expatriates, are also most likely to be taxed again at the 30% rate as payments to non-resident aliens. Such treatment may cut certain pension plans and retirement accounts by up to 51% net tax.

Withholding tax rate is not subject to reduction under any of the existing tax treaties between the US and other countries.

Distributions of non-grantor trusts are treated the same way with certain exceptions.

Future Gifts and Bequests

If being a covered expatriate you make a gift or bequest to a US citizen or resident in the amount exceeding US$ 12,000 in any calendar year, the recipient, including in case it is a US trust, is to withhold the tax at the highest marginal estate or gift tax rate existing on the moment of the gift or bequest, with no regular allowances for the same taxes granted to US persons. Though, any tax already paid to a foreign country in regards with the covered gift or bequest is allowed for credit in the US.

The covered gift or bequest is exempted from the tax, if the recipient is a US spouse or a qualified charity.

This provision is effective for your lifetime.

Furthermore, if you were not a covered expatriate at the moment of exit, but you qualify as such following the same criteria at the moment of making gift or bequest, the latter fall into the category of covered.

Procedure to Relinquish the US Citizenship or Residence

Basically, you need to undertake the following:

1. Get a second citizenship in another country.
2. Leave the US.
3. Appear before the US Consul in that country to renounce your US citizenship.
4. File the form 8854, Expatriation Information Statement.
5. Pay the due exit tax.

As a covered expatriate, you will be able to visit and even stay for certain time in the United States, and the mere fact of being an expatriate does not make you a US tax resident. You still can become taxable in the US under the normal US tax rules.

Best Time to Exit

Interestingly, but entry into force of the new rules concurred with development of the global financial crisis. The real property and other assets values are really depressed right now. The lower is the fair market price, the smaller unrealized gains it’s bringing, the easier it is to fit into the US$ 600,000 threshold.

If you have thought it well, you better do it now.

Disclaimer: This article is being published for informative and recreational purposes. No information from this article should be taken as counsel or recommendation. Professional advice should be sought in each particular case.

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The Federation of Saint Kitts and Nevis, also known in its Constitution as the Federation of Saint Christopher and Nevis, is a small two-island nation in the Caribbean Basin. This is exactly that kind of luxuriant tropical paradise associated with the South Pacific: sunlight, beaches, sea air, lush vegetation, spectacular scenery, mellow culture and friendly atmosphere.

The Citizenship-by-Investment Program of St. Kitts and Nevis was established in 1984 and actually it is the oldest and most respectable one of three currently existing programs of this kind in the world. The other two are being run by the Commonwealth of Dominica, in the Caribbean, and by Austria, in Europe.

The Government is looking for foreign investors of sound character, and any person can apply for naturalization and may be eligible for citizenship, if the Government is satisfied that such person has invested substantially in St. Kitts and Nevis.

Investment Requirements

There are two types of the qualifying contribution for the purposes of St. Kitts and Nevis citizenship by investment: cash donation to the Sugar Industry Diversification Foundation (SIDF option) and investment in real estate, one of governmentally approved real-estate developments (real-estate option).

SIDF option involves US$ 200,000 to US$ 400,000, depending on the number of applying members of the family. It covers all registration and due diligence fees, except for service and legal fees of the promoting agent, which are extra.

The qualifying investment under real-estate option starts with US$ 350,000. There’s a nice choice of apartments in several resort projects on the beaches of St. Kitts. You can resell this property in five years, though it will not qualify the next buyer for citizenship.

The registration fees under this option are US$ 35,000 for the head of the household (male or female) or any other adult, US$ 15,000 for either spouse, US$ 15,000 for each child under 18 years, and US$ 35,000 for unmarried dependent child of the applicant between the ages of 18 and 25. Service and legal fees of the promoting agent also apply. Extra expenses associated with the purchase of real estate include fees for the real estate closing, insurance, tax on land and property.

Benefits and Advantages of St. Kitts and Nevis Citizenship and Passport

If you don’t feel safe and comfortable with your current passport, St. Kitts and Nevis is a good alternative. The country has a good international image, provides for a number of benefits and can contribute vastly to your personal and business freedom.

First of all, you obtain citizenship “instantly” - with no permanent residence requirement. You and your family get full and irrevocable citizenship for the lifetime. The expired passport can be easily renewed on the basis of the certificate of naturalization. St. Kitts and Nevis recognizes dual citizenship, meaning you don’t have to renounce your current citizenship. Also, St. Kitts and Nevis will not notify your home authorities of your second citizenship.

With passport of St. Kitts and Nevis, you will be able to travel to around 125 countries where no visa is required or you get it on arrival. The list includes Canada, Schengen States, United Kingdom, Switzerland, Hong Kong and most British Commonwealth member countries. Where visa is required, you can normally obtain it with minimum formalities on a common basis.

You get a better choice of places to live. You may permanently live in St. Kitts and Nevis, if you want so. There are no taxes on income, capital gains, gift, wealth and inheritance. You may get a residence permit in many countries, probably with fewer formalities than with your current citizenship. You have certain privileges for staying and working in CARICOM member-countries. You have privileges in the UK, as St. Kitts and Nevis is a member of the Commonwealth of Nations.

You have a choice of investment: either make a non-refundable cash donation, or buy a real estate that you can further use for living or renting, which at the same time qualifies you and your family for citizenship.

You don’t need to visit St.Kitts and Nevis, it’s only at your discretion. If there is no possibility to travel, all formalities in St. Kitts and Nevis can be fulfilled by an authorized local agent on your behalf. Even later, when you need to renew the expired passport, the agent can do this for you remotely.

This program can be of particular interest to nationals of such countries as Afghanistan, Iraq, North Korea, Pakistan, Saudi Arabia, Somalia, Sudan, Yemen, which by different reasons may be restricted from acquiring citizenship through naturalization in any other country. St. Kitts and Nevis administration has no specific restrictions on any particular nationals to participate in the citizenship and passport program. All applications are being accepted on a common basis and are subject to common vetting procedures.

Last but not the least, the Citizenship-by-Investment Program of Saint Kitts and Nevis is a legal program based on the statute. The granted citizenship may not be revoked, no matter of changes in the governmental executives or policy. Beware of second citizenship scams offering cheap and quick assistance with passports from a number of Latin and Central American countries that have never had any economic citizenship program in place.

Generally and as a matter of conclusion, St. Kitts and Nevis citizenship through investment is quite a unique opportunity for many of you looking for a decent, legal and reliable second passport and citizenship. This might become a real insurance for you and your family in stormy times.

Contact us now to proceed or obtain more information.

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The following tiny guide to using offshore instruments should be of assistance to you to setup your offshore solution.

Step 1. Define Your Reasons for Going Offshore

• Protect your assets from claims, lawsuits, or excessive taxation.
• Optimize taxation on your business proceeds.
• Increase your financial privacy and confidentiality with offshore banking.
• Expand your business freedom worldwide and enjoy less bureaucratic laws of another jurisdictions.
• Secure yourself for times of personal or governmental strife with second passport and citizenship.
• State your own reason if not listed.

Step 2. Contact an Independent Advisor

to build a proper offshore scheme including the most appropriate:

a. Offshore instrument

• Personal bank account for savings and investments
• Business account for your company
• Tax-free offshore company (International Business Company, IBC, non-resident company)
• Offshore insurance company (”captive” insurance company)
• Holding company
• Offshore trust or investment fund
• Shelf or vintage company
• Low-tax solution through incorporation in a high-tax jurisdiction
• Second citizenship and second passport
• Nominee service
• Virtual office (telephone answering, message and fax forwarding) and mail-forwarding services

b. Offshore jurisdiction

Anguilla, Belize, BVI, Cyprus, Denmark, Dominica, Gibraltar, Hong Kong, Isle of Man, Labuan (Malaysia), Mauritius, New Zealand, Panama, Seychelles, UAE, UK or else.

Step 3. Choose a Bank for You or Your Company

Define your requirements to the banker’s profile: minimum deposit requirement, monthly fees, transaction charges, internet banking, credit cards, cheque facilities, necessity to visit the bank personally, required KYC documents.

Choose a decent bank from available options in one of the popular international financial centers:

Cyprus, Dominica, Isle of Man, Latvia, St. Vincent and the Grenadines, Panama, Seychelles, Singapore, Switzerland and others.

It is always recommended to define yourself with the bank before you go for incorporation. Knowing opening procedure and requirements of your bank of choice will save you time and money for making necessary company documents. Naturally, it would be prudent to establish a contact with the banker in advance to get reliable information.

Note that many registered agents in different jurisdictions often offer bank introduction services for some extra charge. Consider these options in the first turn, but bear in mind that this service is quite nominee. In most cases, you will get applications and minimum instructions how to proceed with the account opening, other than that it is still between you and the bank. If you have to go on your own, why to pay for what you can get free.

Step. 4. Go for Incorporation

• Place an order for incorporation with the registered agent in the jurisdiction of choice.
• Get and pay your invoice.
• Prepare and provide the agent with the necessary ID documents.
• Receive the company’s documents by courier mail.
• Check if the received papers correspond with what you originally requested from the agent in your order for incorporation.

Step 5. Proceed with Bank Account Opening

• Complete the necessary application forms.
• Prepare the required client’s ID documents.
• Enclose the required company’s documents.
• Visit the bank if a personal interview is required, or ship the prepared documents by courier mail (like Fedex, UPS or else), if the bank of choice accepts applications by mail.

The bank officer will contact you back and hold your hands through the further process up to the moment the account is activated.

Step 6. Keep the Company in Good Standing

After you successfully setup your offshore solution and it’s working as you planned, don’t forget about ongoing maintenance of your structure:

1. Pay annual fees and follow annual reporting requirements to your offshore company.
2. Keep it in good standing with your banker to maintain your bank account active. Some bankers may want to see a certificate of good standing for your company on annual basis or request other documents.

We only name here our preferred jurisdictions and instruments, but the choice is much wider. Should you have not found the desired instrument or jurisdiction among the above listed, please feel free to ask.

We can assist you with every step. If you need help, please contact us.

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New Zealand Facts and Benefits

• New Zealand is a first world highly developed country, with high living standards, low crime and stable political system.
• Its legislation is based on the Common (English) Law.
• Being a member of the O.E.C.D., it’s not part of the EU and not subject to EU Savings Tax Directive.
• New Zealand domestic law and its wide network of double tax treaties offer vast opportunities to legally reduce your business tax burden with no connotations of using tax haven instruments.

New Zealand Foreign Trust

The concept of New Zealand Foreign Trust or New Zealand Offshore Trust exists since 1988. It is not subject to official registration to be recognized and have binding effect in New Zealand. It also has a trans-national effect being recognized by the Hague Convention on the Recognition of Trusts. It is being recognized in any country having English Common Law Country and/or a double tax agreement with New Zealand.

New Zealand Foreign Trust is a scheme involving a non-resident Settlor and a local New Zealand Trustee, individual or corporate.

In practice, you can either arrange for a trust agreement with a qualified New Zealand Trustee, or register your own New Zealand Trustee company.

The New Zealand Trustee Company conducts any offshore activity, including trading and owning the property, on behalf of its own name but in favor of the beneficiary. All offshore income of the Trust is tax exempt in New Zealand. Non-resident beneficiaries of the Trust are only subject to tax with the part of income that has New Zealand sources.

We will further refer this construction as a NZ Foreign Trust or Trust.

How to Benefit from using NZ Foreign Trust

NZ Foreign Trust is good to use as a stand-alone vehicle or in conjunction with New Zealand’s network of double tax treaties:

1. NZ Foreign Trust can be used for international operations in any business. It is cost-effective in setup and maintenance. New Zealand has no image of blacklisted tax haven and is not oppressed by other first world countries. An important issue to have in mind, while being exempt in New Zealand, the Trust’s income still might be taxed at source or where the effective management is conducted. In this regard, all day-to-day operations of the Trust should be arranged the way for the company not to be recognized a permanent establishment in a country imposing high taxes.
2. Another attractive feature is that NZ Foreign Trust may claim the benefits of 35 double tax treaties with the following countries: Australia, Austria, Belgium, Canada, China, Chile, Czech Republic, Denmark, Fiji, Finland, France, Germany, India, Indonesia, Ireland, Italy, Japan, Korea (Republic of), Malaysia, Mexico, Netherlands, Norway, Philippines, Poland, Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, Thailand, United Arab Emirates, United Kingdom, and United States.

To be entitled to protection of a DTT, the NZ Foreign Trust is to be recognized a New Zealand tax resident in terms of “management and control test”. Current policy of New Zealand authorities comprises that the company is resident for taxes where its effective (practical day-to-day) management is conducted, rather than where its overriding control is located.

If the Trust qualifies for these provisions, you can count on reduced withholding tax rates for dividends, interests and royalties in the DTT country and no further taxation of this income in New Zealand. Every double tax agreement needs interpretation by a local lawyer.

Other Useful Instruments offered by New Zealand

New Zealand Agency Company

A standard company incorporated in New Zealand can act as an agent for an offshore company located in a tax efficient jurisdiction, such as Dominica or Panama. The NZ Agency Company pays taxes as any other regular New Zealand’s company, from any of its worldwide income. It can receive its 5-10% commission fee under an agency agreement and pay the due taxes from this income. The balance of its earnings is tax-free as it belongs to the principal, an offshore company.  This structure works similar to a UK Agency Company.

New Zealand Limited Partnership

New Zealand Limited Partnership is a more recent development introduced in 2008. A similar structure exists in many other countries. It must have at least one limited partner and one general partner. There is no requirement to have resident partners. Provided all limited partners are non-residents, and all income is generated offshore, the partnership is not subject to tax in New Zealand.

Striking a balance, New Zealand is a very attractive jurisdiction for international business, offering you an excellent international image, and providing for exclusively beneficial tax regime at the same time.

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Tax Advantages

Withholding Tax on Incoming Dividends from Non-Cyprus Subsidiaries

Cyprus is a part of the EU’s Parent-Subsidiary directive providing for withholding tax exemption of dividends remitted by a EU subsidiary to its Cypriot holding company. The qualifying shareholding requirement is 25%.

If the subsidiary company doesn’t fall under the EU’s Parent-Subsidiary directive, you may count on one of 45 double tax treaties providing for 0 or reduced withholding tax rates on dividends in favor of the parent company in Cyprus. Its extensive double tax treaties network covers many countries from Eastern and Western Europe.

Dividends Received

Cyprus domestic law provides for full exemption from tax on dividends received by a Cypriot holding company from foreign participations. The qualifying shareholding requirement is 1%.

The only exception for this rule are dividends from a subsidiary engaged in more than 50% activities resulting in investment income, and that investment income, from which the subsidiary is paying dividends, is subject to tax at a rate lower than 5%. Dividends directly or indirectly derived from trading subsidiaries are not considered investment income.

Dividends Paid

Further declaring of the dividends by a Cypriot company to its foreign parent company is again free of withholding tax, irrespective of the country of residence, further taxation of the receiving parent company and existence of a double tax treaty, be it a corporate body or a physical person.

Capital Gains on Disposal of Shares

The law provides for full exemption of a Cypriot holding company from capital gains and income tax on income from disposal or liquidation of its participations in foreign subsidiaries (unless the subsidiary owns immovable property in Cyprus).

Disposal of Shares, or Liquidation of a Cypriot Company

No capital gains or income tax or else are triggered in Cyprus upon disposal or liquidation of participation in a Cypriot holding company by its non-Cyprus shareholders. The rule does no exceptions for parent companies from tax haven jurisdictions, and pays no attention to provisions of a double tax treaty, if any.

Unilateral Tax Credit Relief

If certain income is subject to tax in Cyprus, its domestic law gives unilateral relief for the already paid foreign tax.

There are no annual capital tax or annual net wealth tax in Cyprus.

Other Incentives for Cypriot Holding Companies:

• no substance requirements
• no minimum holding period requirements to be eligible for either tax exemption
• no thin capitalization rules
• no debt-equity restrictions
• no time restrictions on carrying forward of tax losses. A group relief for utilization of tax losses is available.
• no requirement to register for VAT in Cyprus if the company’s main purpose is to hold participations with no involvement in management and administration of subsidiaries directly or indirectly
• no CFC or equivalent legislation
• if re-organizational transaction falls into the EC Merger Directive definition, it is exempted from capital gains and corporation taxes, as well as from transfer fees
• advance tax law interpretation and prior approval are available from the Commissioner of Income Tax in certain cases upon request
• Cyprus is a full European Union member and enjoys the reputation and privileges attached to a European company.

It is appropriate to mention that Cyprus is striving to create a tax incentive company rather than a tax haven. Therefore, incorporating in Cyprus, you may count not only on multiple tax advantages, but also on its status of a reputable business center.

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Tax Residence

Though it might not yet be obvious for everyone, but transparent tax residency is becoming more and more important for any company involved in international business. Striving to pay no taxes at all may be a short-sighted position. If a part of your income is currently subject to taxation, and you intend to avoid it by mere hiding behind an offshore company, this is not really wise.

An offshore company not taxable in the place of incorporation (e.g. Bahamas, BVI, Hong Kong, Belize etc.) still may be charged on tax at the source of income, and in very special circumstances it can avoid paying any tax at all. But if the company didn’t get to prove being a resident for tax purposes in the country of incorporation/assumed business residence, it will definitely be taxed in full in the country of source of income. Besides, in case the company is properly paying taxes in a non-double tax treaty country, it is risking to be charged again with the same income in a high-tax country.

Benefits of double tax treaties

Presence of a double tax treaty (DTT or DTC) provides for the following advantages:

• double taxation relief - a tie breaking article infers dual resident companies to be considered residents solely of one of the contracting states, where the place of effective management is located;
• if  the company has no permanent establishment in the other contracting state, its business profits sourced in that other state are secured from the source country taxation; plus its interest, royalties and unfranked dividends are subject to withholding tax at lower rates;
• dividends to corporate shareholders in the other contracting state are normally exempt from taxation in that contracting state.

Using a double tax treaty country may be particularly beneficial in the course of financial holding and investment activities, leasing and franchising (royalty collection) and a number of other activities.

Not every DTT provides same opportunities for every company though. Professional advice is strictly recommended to allow for your particular case.

Below is the list of countries offering your company tax resident status, low rates of taxation (and thus referred to as tax havens) and a wide network of double tax agreements with high tax countries.

Cyprus DTTs: Armenia, Austria, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Canada, China, Czech Republic, Denmark, Egypt, France, Germany, Greece, Hungary, India, Ireland, Italy, Kuwait, Kyrgyzstan, Lebanon, Macedonia, Malta, Mauritius, Moldova, Montenegro, Norway, Poland, Qatar (signed, not in force), Romania, Russia, San Marino, Serbia, Seychelles, Singapore, Slovak Republic, Slovenia, South Africa, Sweden, Syria, Tajikistan, Thailand, Turkmenistan, Ukraine, UK, Uzbekistan.

Labuan, being a part of Malaysia, enjoys Malaysian DTTs* with: Albania, Argentina, Austria, Bahrain, Bangladesh, Belgium, Canada, China, Chile, Croatia, Czech Republic, Denmark, Egypt, Fiji, Finland, France, Germany, Hungary, India, Indonesia, Ireland, Italy, Jordan, Korea, Kuwait, Kyrgyzstan, Lebanon, Malta, Mauritius, Mongolia, Morocco, Myanmar, Namibia, New Zealand, Pakistan, Papua New Guinea, Philippines, Poland, Romania, Russia, Soudi Arabia, Seychelles, Singapore, South Africa, Spain, Sri Lanka, Sudan, Sweden, Switzerland, Syria, Thailand, Turkey, UAE, USA, Uzbekistan, Vietnam.

* Six countries have expressly excluded Labuan companies carrying on offshore trading business subject to s2 (1) of LOBATA from DTT protection: Australia, Japan, Luxembourg, Netherlands, Norway, UK.

Mauritius DTTs: Barbados, Belgium, Botswana, China, Croatia, Cyprus, France, Germany, India, Italy, Kuwait, Lesotho, Luxembourg, Madagascar, Malaysia, Mozambique, Namibia, Nepal, Oman, Pakistan, Russia (signed, not in force), Rwanda, Senegal (signed, not in force), South Africa, Sri Lanka, Switzerland, Sweden, Thailand, Tunisia (signed, not in force), Uganda, UAE, UK, Zimbabwe.

To be updated.

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