Offshore Companies have a multiple of uses but for this article we are going to discuss their relevance when buying property. Historically, people's perception of offshore companies has been for the exclusivity of wealthy individuals or indeed those who business practices were considered somewhat shady. This is clearly not the case and with the advent of so much anti-money laundering and counter terrorism measures in the world, offshore companies provide an invaluable business service. Offshore companies can feature in most financial planning scenarios when trying to mitigate tax exposure and/or with regards to passing assets on to beneficiaries freely in the event of death. Sometimes referred as Special Purpose Vehicles (SPV), there is an array of scenarios where an offshore company becomes invaluable and this article relates to their uses when buying property.

There are many jurisdictions where offshore companies are offered. Some of the more mainstream locations are the Isle of Man, Bermuda and the British Virgin Islands (BVI). The aforementioned are more established and tend to offer better services, good communication and client confidentiality. When establishing such an entity, you need to determine which jurisdiction is going to be most suitable for your circumstances, which a good agent can guide accordingly. Moreover, is the company providing the service suitably positioned to handle your enquiries, ongoing services, audit requirements maybe and indeed having the capacity to make you feel comfortable.

Here are a few questions that we regularly field for those buying property utilizing an offshore company:-

Why should I use an offshore company?

There are numerous reasons but with regards to property it achieves 3 main objectives if established correctly.

1. You may wish to buy in the name of the offshore company in order to conceal the name of the beneficial owners. This is particularly useful when estate planning for investors who have death tax issues to mitigate. Of those Governments that impose death taxes, (e.g. Inheritance Tax in the UK) you will be taxed on your worldwide estate in the event of death. "Worldwide estate" is the key word since it is not just the assets you have at home. So for example, if you are a British domiciled person with houses in the UK, Dubai and Monte Carlo, on death you will be taxed at 40% on all assets including property after an allowance of £263,000. Since the average cost of a house in the UK now is about £250,000 then there is a fairly big tax bill coming for your beneficiaries. The other key word is "domicile" - it does not matter how long you have lived overseas, if you were born or have spent a substantial period in the UK you are deemed domicile. Trying to lose your domicile status is very difficult indeed. So, if an offshore company was established perhaps with nominee Directors and written in to Trust, this potentially huge tax bill can be mitigated somewhat.



2. When buying in Dubai for example, very few investors appreciate that the legal system here is different to that they may have at home. In the event of death, the property does not necessarily pass to the wife since Sharia Law (the governing law of the UAE) determines otherwise as laid down in the Koran (An-Nisa Chapter 4 para 7 onwards). In order to ensure the property is passed on to those you wish, an offshore company could be established with the spouses as Directors. In the event of their demise the shares of company are passed on to the surviving spouse and beneficiaries. Although the spouse has died, the offshore company has not thereby an internal transfer of shares circumvents this potential Sharia issue.



3. Many speculative investors who purchase property with a view to re-selling after a profit is secured have to overcome the issues of transfer costs. Sometimes referred to as stamp duty, associated transfer costs with regard to creating the new ownership of property can be quite high and thereby eat into your re-sell profits. Dubai will shortly introduce its own form of stamp duty and at present fees can range from 2-8% depending on which project you are selling. If the property was bought in the name of the offshore company then the transaction of ownership can be achieved by selling the company. In essence, you sell your offshore company that owns a property(s) and not the property itself. Furthermore, you may want to reinvest your gains in your home country but want to avoid the potential taxes associated. In the UK for example, as a tax resident you would pay 40% CGT (Capital Gain Tax) on any gain (after allowances) on property disposal outside your prime residence. An offshore company would not be liable since it is non-resident for tax purposes.

How much does it cost?

Predictable question I know but the answer is not clear-cut. Fees for this kind of service can vary dramatically depending on jurisdiction, amount of services required and the agent you use. Globaleye will keep fees to a minimum since we find it far simpler to arrange your international property finance, loan protection and offshore company formation under one roof. If we have an understanding of your overall financial affairs then it is easier to select the right solution for our clients. Most offshore solutions start at around $2500 and can go upwards from there dramatically, particularly if you instruct your lawyer to arrange it since they could also charge for their time too.

Whatever options you choose, the fees become negligible when compared the potential bill from death tax, capital gains tax and transfer fees (stamp duty).

Does Dubai provide Offshore Companies?

In addition to the jurisdictions around the world, Dubai too provides this service. Regulated from the Jebel Ali Free Zone, the Offshore Company can have a number of useful applications to resident and foreign investors. It can be used as a special purpose vehicle for property purchase in the United Arab Emirates with a view to mitigating foreign taxes and/or ensuring the asset is passed on as per your wishes in the event of your demise. Very few foreign investors consider the implications of Sharia Law in the event of their demise on their assets in the UAE. The company can be used to purchase assets elsewhere in the world too and can facilitate an application as a Branch in the JAFZ (Jebel Ali Free Zone) for a full trading license. Salient features are as follows:-

• 100% foreign ownership is allowed.



• Company can own real estate properties on Palm Islands, or any properties owned by Nakheel Company LLC or any other real estate properties approved by the JAFZ Authority.



• Company can hold an account in a bank in the United Arab Emirates for the purpose of conducting routine operational transactions. The account can have a Gold Card ATM facility if required.



• One residence visa will be issued for one Director if the Offshore Company maintains an office in the JAFZ.



• The Company will not be allowed to carry on business with businesses that are resident in the UAE or carry out any trade in the JAFZ or in the UAE, unless they have first obtained an appropriate license from the relevant competent authority.

How do I send money to my offshore company to purchase property?

Most will establish their offshore company with a bank account too. Obviously it makes sense to obtain an offshore account and bank accounts in Dubai can be provided as well. Thereafter you can wire (TT) the monies to your account to be allocated as required.

It is worth noting that the new EU transparency laws dictate that if you are an EU resident with monies offshore in the EU (namely Isle of Man, Channel Islands and the like) you are either liable to an account surcharge (15% tax) or alternatively the account details will be forwarded to your Tax Authority. This is a move by the EU to polarize tax treaties between jurisdictions and to flush out offshore money held by EU residents. If you have established an offshore company to retain your offshore banking facilities then you can circumvent this issue.

Similarly, when sending monies overseas as an EU resident, your bank manager is duty bound to report such transactions to your relevant Tax Authority. For example, if you are resident in the UK and sending money to Dubai to buy a place on the Palm - the Inland Revenue know! I have found many investors from the UK are sending money here thinking they are escaping the grasp of the Revenue for either capital gains or inheritance tax purposes. They are likely to get a nasty shock sooner or later. Perhaps if they had obtained professional advice this situation could be avoided. By using a loan arrangement with your offshore company, it can be positioned with the Revenue that the monies you send overseas are for a loan and therefore will be repatriated in accordance with the loan agreement. Structured correctly, you can avoid a run in with the Revenue.

What shall I call the offshore company?

Call it what you like within reason but remember if you are looking to avoid attention of your Tax Authority then it is not a good idea to include your name in the offshore company title - gives the game away a bit! You cannot make Banking or Investment references either since this will require specialist licensing in the jurisdiction in which you are looking to establish.

If I die, who takes over my offshore company?

Generally husband and wife can be appointed Directors of the entity and in the event of death the surviving spouse will absorb the offshore company equity. This can be affected either by using specialist Trustees or indeed an undated share transfer letter. Additional Directors can be appointed at anytime so children could be included in due course as a means of passing on the assets in your offshore company.

If you have established your offshore company to team up with other investors so you can collectively increase your position in the property market, then there are a number of measures to ensure the interests of all Directors are met. This can be done through a double-option agreement whereby in the event of death an insurance policy pays out the value of the deceased shares. Conversely, if each property is bought under a separate entity then the proceeds from the sale would be passed to the deceased's estate or the surviving Directors can offer to purchase the value of the remaining shares.

In summary, offshore companies are flexible, tax efficient and essential vehicles to ensure your property portfolio grows without undue hindrance. Get independent advice that can cater for your overall financial requirements to ensure the best solution is tailored to you. Whether you are buying Shanghai, Mumbai or Dubai - consider the offshore company solution carefully.

For more information on Offshore Companies, the fee structure and other uses for these types of vehicles, please contact Globaleye for a full appraisal.

Globaleye, has been in Dubai for 10 years providing financial services to investors in the Middle East. Globaleye boast over 3500 clients and is also part of Inter-Alliance WorldNet, a joint venture between OFS WorldNet and Inter-Alliance International part of Inter-Alliance PLC. As the largest IFA in the UK, with over 1000 practitioners and some 35 offices, Inter-Alliance PLC has won numerous awards and is approved by the Law Society and ACCA. For more information please phone 8004558 (+9714 3979550) or admin@globaleyegroup.com or visit www.globaleyegroup.com or www.inter-alliance-int.com and www.iaworldnet.com

For more information, contact: Tim Searle, CEO, Globaleye

The author, Tim Searle, CEO of Globaleye, has been in Dubai for 10 years. Dubai-based Globaleye are an independent firm of advisors who provide unbiased business solutions to both Corporate and Private Clients. Globaleye's expertise in international financial planning has made them the first choice for over 3000 clients worldwide. Furthermore, they are a UK licensed credit broker and part of MERES - Middle East Real Estate Society. For more information please phone 8004558 (+9714 3979550) or timsearle@globaleyegroup.com or visit www.globaleyegroup.com

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