Why go offshore?
Trusts can be set up in any ‘common law’ country (for example, the UK, United States, Australia, New Zealand, Canada) and increasingly are recognised in some ‘civil law’ jurisdictions such as Switzerland. While, many of the legitimate taxation benefits of using offshore trusts have been removed by national tax authorities (especially in the USA and European Union) in recent years, there remain many compelling reasons to set up trusts offshore:
Flexibility. The rules on what trusts can be used for and what role the settlor can play in the ongoing management of the assets in a trust are often less strict in offshore centres. For residents of countries, such as many in the Middle East, which have strict rules about whom estates should be inherited by (often the eldest son), offshore trusts can be used to provide a more equitable distribution of an estate.
Expertise. The tax benefits of offshore trusts over the years have meant that experienced professional trustees are more likely to be found in offshore jurisdictions than onshore while the best legal advice is often only available at offshore law firms.
Security. For residents of less stable parts of the world, where state expropriation is a real risk for high net worth families, placing assets in a politically stable offshore jurisdiction, can provide valuable security for their assets.
Tax neutrality. In most offshore jurisdictions, trusts are usually effectively free of income, withholding or capital gains taxes, negating the risk of double-taxation on offshore holdings. The tax-free status of offshore trusts is particularly beneficial to those classified as ‘non-domiciled’ by the UK tax authorities. Residents who are citizens or other countries can apply for ‘non-domicilliary’ status which, if granted, means that they are only liable for tax on income that is earned in the UK, leaving any assets held offshore free of UK tax.