A Delicate Affair - Part II

From the case files of Peter Macfarlane:
A DELICATE AFFAIR - PART II
In the second of our series, our non-resident banking consultant, Peter Macfarlane, writes in-depth about real life case studies from his files, and real life solutions to difficult problems, implemented for clients. Of course all identifying details have been changed to protect the clients’ confidentiality, but the essential facts are here.
Having covered legacy IBCs (International Business Corporations) in the last article of this series, we move on to modern solutions and which jurisdictions are best for IBCs today. Then, we look at an asset-protection structure that’s much more low profile and at the same time highly respectable: the New Zealand Trust.
When it comes to forming an IBC, international tax planners have dozens of jurisdictions to choose from. If you’re thinking of forming a new offshore company, you, too, may be overwhelmed by the numerous options.
Many islands and small countries around the world passed IBC legislation in the 1980s and early 1990s. A few examples include the Bahamas, Belize, the British Virgin Islands, the Turks and Caicos, St Kitts, St Vincent and Vanuatu.
In the majority of cases, these jurisdictions have legal systems based on British common law, which traditionally served to inspire confidence. More recently, however, close relationships to London have become something of a burden in the offshore industry. The British government has been under significant pressure from two powerful forces, the USA and the European Union, to increase ‘transparency’ in the islands. Although some of the jurisdictions are independent states no longer tied to the old colonial master, in practice they still tend to rely heavily on aid payments, trade agreements and other forms of indirect support from the UK. Therefore, they have had little choice other than to cave in to demands from Whitehall.
An example is the Bahamas. Like many jurisdictions, they have now effectively outlawed bearer shares. Although the right to issue bearer shares still exists in theory, there are so many restrictions and legal complications that they can no longer be used for the purpose for which they were originally intended - passing ownership of shares in an easy, anonymous and tax-free manner. (In case you are not familiar with bearer shares, they are simply anonymous share certificates where whoever holds the physical certificate is regarded as the legal owner of the shares represented by the certificate). Killing off bearer shares was not a popular move in the Bahamas, but was regarded as something that ultimately had to be done.
More interesting for our purposes - which jurisdictions refuse to play ball with the tax-harmonizers and still allow traditional privacy tools like nominee directors and bearer shares?
One is the Republic of Panama. Panama is the grandmother of all offshore centres. Having been in the offshore business for nearly a hundred years, Panama can be credited with inventing the concept of tax-free companies for use in international trade. When the OECD came knocking, Panamanian president Mireya Moscoso was not about to kill the goose that laid the golden egg.
So, even today, Panama offers totally anonymous companies. I sell several a month to my private consulting clients who are very happy with them. You can buy a company off the shelf without even having to provide a name. I buy all mine through a law firm in the Dominican Republic which adds yet another layer of privacy, as the company information is then protected by Dominican attorney-client privilege as well as Panamanian privacy laws.
You then operate the company through a power of attorney, which comes to you blank for you to fill in yourself. The secret of who controls the company therefore stays between you and whomever you choose to show the Power of Attorney (generally your bank). If anybody would like to acquire one of these anonymous bearer share companies, the cost is under $2000 and the Q Wealth Report office should be your first point of call. Just ask for a referral to Peter Macfarlane.
Another jurisdiction that has been through more than its fair share of difficult times, but has not swayed over the years, is Liberia. Liberia, in an interesting and very libertarian system, privatized its international companies registry. So when I want to form a Liberian IBC, I just call the office of the companies registry in Zurich, Switzerland.
As you would expect of a private company, they are friendly and super efficient. The business is run by Americans with a libertarian bent (their main business is actually ship registrations, with IBCs being something of a profitable sideline). They are fully authorized by the Liberian government to register the IBC there and then in Switzerland or at their other offices in Greece and Virginia. They can email the valid certificate of incorporation and other corporate documents with apostille within the hour. The office manager in Zurich has official diplomatic capacity as a “Special Agent” (don’t you just love the term) of the Liberian foreign ministry.
What does Liberia offer which Panama doesn’t? Well, apart from being faster, I believe Liberia offers the most flexible corporate form in the world. There are very few restrictions, unlike Panama which tends to be slower and slightly bogged down by Latin American bureaucracy. Panama has recently introduced a lot of restrictions on business names related to financial services, for example. Words like credit, finance, trust and suchlike are now banned in Panama company names. Liberia still allows you to call your company anything you like.
Both jurisdictions have their uses. A lot depends on what kind of business you are planning to run, and also in what part of the world you want to do your business and banking.

THE NEW ZEALAND TRUST
However, considering options for international tax planning purposes, the traditional IBC jurisdictions are no longer the only places to look.
Savvy international investors these days are quietly moving their offshore business to countries traditionally regarded as onshore. (Remember, ‘offshore’ really just means anywhere outside your home country).
One of my clients, Mr P.T., recently took my advice and decided to do exactly that. This American citizen had been running a telecommunications business for some years from the offshore island of Niue. He had experienced, first hand, the problems of the offshore financial system there. So I sent him in a totally new and different direction - 2,400 km southwest to the land of the kiwis and the All-Blacks: New Zealand.
As you have doubtless read, the forces of Big Brother have cracked down hard on jurisdictions that participate in what has become known as ‘harmful tax competition’. This campaign has achieved varying results - but it has quite noticeably brought many so-called tax havens unwelcome scrutiny. Transactions to or from jurisdictions with low or zero tax will often raise red flags to various authorities and may be earmarked for further investigation. Even though your transactions are totally legal, official scrutiny is certainly something to be avoided where possible.
New Zealand is a politically-stable, economically-advanced country and boasts membership of various international bodies including the British Commonwealth, the OECD and FATF. So, not only is it not ‘blacklisted’ by any country, but it’s actually a member of the organizations that do the blacklisting - so it can practically be considered immune from such problems! New Zealand is normally considered a high tax country taxing both profits as well as world wide income.
The New Zealand legal system is very advanced, as is the banking and accounting infrastructure.
Together these make New Zealand a very attractive base for international business.
All in all, it is probably one of the least conspicuous jurisdictions for effective international tax planning today.
What not many people know, though, is that formation of trusts in New Zealand is extremely interesting for the following reasons:
Offers an effective tax elimination structure on world wide income (the foreign trust)
No capital gains taxes
No stamp duties
No tax reporting required in New Zealand
No disclosure is made of the existence of a trust
No disclosure of your involvement
No registration or filing of the trust is required in New Zealand
Contemporary company and trust law designed to accommodate international commerce

Combine these features with the use of an extensive network of double taxation treaties and you have a very interesting tax elimination opportunity!
What is a New Zealand Foreign Trust? Simply, it is a trust where, from the latter of 17 December 1987, or the date upon which the first settlement was made to the trust, no settlor of that trust was a tax resident of New Zealand. (The ‘settlor’ is the person who originally gifts the assets to the trust - usually the client seeking offshore protection is the settlor)
A Foreign Trust is exempt from taxation of income and capital gains in New Zealand, always provided the settlor remains a non-resident, no income is earned in New Zealand, and no beneficiary of the trust is a New Zealand resident.
To qualify as a tax elimination structure in New Zealand, certain criteria must be met, which differentiate it from a regular IBC. The typical structure consists of two separate entities that essentially work together:
1) A so-called ‘foreign trust’, also known as an ‘offshore trust’, where the trustees have discretion over the assets held in trust.
2) A regular New Zealand onshore company. This company is formed for the sole purpose of being the resident trustee for the foreign trust.
Companies can be readily and cheaply incorporate in New Zealand, at short notice, with very little formality. It’s much like incorporating in the USA or the UK. Directors and shareholders are not required to reside in New Zealand, and everything can be done over the internet.
Assuming the company does no business of its own, meaning it only ever acts in its capacity as trustee, then that company will be exempt from the requirement to register and file returns with New Zealand’s Inland Revenue.
Providing that all income earned by the trust is sourced from outside New Zealand, then the Trust is not required to register with the New Zealand’s Inland Revenue or file annual tax returns either.
Another good thing is that the structure can open a bank account at a New Zealand bank, completely tax free, and still without reporting requirements, of course. Generally, the bank account will be given either the name of the trust e.g. “XYZ Trust” or include both the name of trustee as well as the trust’s name e.g. “ABC Limited as trustee for XYZ Trust”. The second option provides greater flexibility allowing deposits to be received in either the name of the trust or the trustee. It is also possible to open an account for the trust in the sole name of the trustee providing this is properly documented in the trust minutes. This latter option works at banks in countries where trusts are not recognised (for example Latvia and Lithuania).
This New Zealand Foreign Trust structure is therefore an excellent (if rather more expensive) alternative to a regular IBC. If you’d like more information, you can get in contact me through the Q Wealth Report office. Because every situation is unique and everyone has his or her own particular goals and objectives, I don’t send out any general information. Instead, I like to look at each client’s case individually. You tell me your circumstances and I will tailor design a structure to suit your personal needs. The fee for this initial consultation by email is nominal, and is fully refundable provided you decide to proceed with the recommended solution.