Offshore Companies

An offshore company may own property anywhere in the world. Such ownership may avoid income tax, capital gains tax and inheritance tax. Selling the property is achieved simply by the transfer of shares in the company rather than transferring the property itself, thereby reducing the usual property purchase costs for the buyer and seller.

What is an offshore company?

Generally speaking an offshore company is one that is subject to a low (or even zero) rate of tax on its income and gains. The company is usually incorporated in a jurisdiction where the tax regime is very favourable towards non-residents.

How can a property be owned through a company?

The basic principle is fairly straightforward. The property is owned by the offshore company. The person(s) owning the shares of the company therefore indirectly owns the property. They can easily transfer the ownership of the property by transferring the shares.

What are the most popular offshore jurisdictions?

The most popular offshore jurisdictions for ownership of property in our area are Gibraltar, Channel Islands, Isle of Man, British Virgin Isles, and Panama. There are many other offshore centres from which to choose.

What are the main advantages of owning property offshore?

• The beneficial owner of the company may be able to avoid (or at least defer) taxes on income and capital gains and ultimately avoid inheritance taxes that would otherwise be payable if the asset was owned directly. However, this advantage has been undermined somewhat by the new 2002 rules (see below ).
• Anonymity of ownership
• To legally protect or "ring-fence" assets from possible claims by others.
• To simplify the transfer of ownership and save stamp duty which otherwise becomes payable when the property is sold.

Who is responsible for the Company?

The exact rules for offshore companies can differ depending on the jurisdiction where the company is incorporated. However, companies in general are owned by their shareholders and controlled by their directors. You can of course fulfill these positions yourself and become a director/shareholder but this is not recommended. The best way is to ask a professional company manager to act on your behalf in the role of "nominee" directors and shareholders. You then do not have an official involvement in the offshore company. You remain however the true "beneficial" owner. The company managers look after the company for you and where necessary, pay any taxes, prepare account and annual returns etc on your behalf. When the time comes to sell, you simply advise them of the new owner and they will arrange to transfer your beneficial ownership accordingly.

How much does it cost?

Offshore company fees vary between jurisdictions. The set up costs can be approximately £500 and thereafter you will have ongoing fees payable on an annual basis usually in the range of £400 p.a. to £1,000 p.a. Disbursements for submission of the annual return, tax exemption fees, powers of attorney fees, and any other expenses can increase this. Recently, some offshore jurisdictions have now imposed compulsory accounting for offshore companies. For example, in Gibraltar at least a simple balance sheet must be submitted and the associated costs of providing this service are approximately £150 p.a.

To give a basic idea of the total costs of operating a Gibraltar company owning a property without any complications, the ongoing fees should be around £600 p.a.

Will I save any money with an offshore company?

A major benefit for most property owners is when they come to sell their property. By selling the offshore company shares instead of the property itself gives the purchaser a major saving in stamp duty, SISA tax. This tax can be up to 10% in Portugal . The stamp duty payable therefore when purchasing a property valued at around £500,000 can be as much as £50,000. By transferring the offshore company this huge bill can be legally avoided.

In addition, as already mentioned, there can be substantial benefits from the use of offshore companies in avoiding capital gains and inheritance taxes. These of course are more difficult to quantify and advisors must take into account such things as the age and health of the beneficial owner and the intended time of ownership of the asset.

However, as well as the above benefits, there are also additional annual running costs which must be taken into account.

In conclusion, it is difficult to generalise whether offshore ownership will save money over the entire period of ownership as each case is different. However, there is little doubt that it is the higher valued properties (say over £250,000), which have the greatest potential for savings - especially if they are resold within around 5 years.

Who should I contact for further information?

There is currently no inexpensive and easy way to form and offshore company in Dubai although the rules are about to change so we hope to be able to give a news update soon to everyone on our mailing list. We suggest to clients that The best option right now is to form a company based in The British Virgin Islands. Gibraltar and the Isle of Man are also convenient and inexpensive offshore jurisdictions. Also, any of the Channel Isles would be a safe choice although we often find these to be rather more expensive. There is a strong regulatory framework in all these jurisdictions and all have a long history of reliable Offshore Company Management Services.