How to: Structure Your International Financial Interests
Clients normally have clear ideas about where they wish to invest their money, be it in stocks, shares, or other financial assets. What is less clear to them is how those assets should be held.
Direct ownership is simple but affords little or no privacy and can expose the owner to various risks — from claims by creditors through to bureaucratic interference and local taxation. Instead, their financial assets are invariably owned by a company specifically formed for that purpose, often called a special purpose vehicle (or SPV).
An SPV gives owners much more privacy, as popular jurisdictions do not yet maintain public registers of ultimate beneficial ownership. It is therefore easier for the investor to keep his or her name out of the public eye, reducing the chance of opportunistic legal claims or more sinister threats such as identity theft or kidnapping.
The next question is: Where should the SPV be situated? You could choose from one of the zero-tax jurisdictions, such as the British Virgin Islands, Cayman Islands, or Jersey, but these countries rarely have double tax treaties with other countries, which sometimes means a higher burden of tax at the source of the investment. The investor may also be penalized in his or her home jurisdiction for owning such a company.
This is why we have seen a growth in ‘low-tax not no- tax’ jurisdictions such as Malta, Cyprus, and the Netherlands, which give preferential rates of tax and/or generous exemptions together with access to an extensive double tax treaty network.
Once you have chosen the best jurisdiction, you need to decide how to hold the shares in your SPV. These could be held directly or be transferred into a trust. The main benefit of a trust is that it offers a far greater degree of privacy and asset protection because the investment is no longer owned by the investor but instead by trustees for the investor and his or her family.
Structuring ownership for international investors is not easy, but where the underlying investments are valuable it can be a very worthwhile exercise.