Case Study: Offshore Company Formation

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Introduction:

The following study is about a young woman who is interested in restructuring her international real estate investments. She is a young professional in a competitive career. Her family is familiar with real estate investment, and she knows that going offshore can enhance her portfolio. What are the best options for her when it comes to international real estate holding?

About the client:

Life Stage: Early 30’s Professional Employment Status: Employed in Biotechnology Field Household Income Range: $300K‐ $500K Asset Summary: 10 properties approx $10m

Lives in Lisbon, Portugal
Single
No Children

Eleanor Hanson, a high-net-worth individual in her early 30s living in Lisbon, has decided to invest a significant amount of her wealth in real estate. Ms. Hanson comes from a wealthy family in Sweden. Her mother is a medical doctor, a surgeon, and her father worked his way up in a manufacturing plant and was able to become a production manager and make a healthy income. The family made smart investing choices, purchasing many local properties that produced enough income to put Eleanor and her younger sister through college. At an early age, Ms. Hanson grew fond of helping others. When entering college, she believed she was going to move into med school to become a surgeon, like her mother, but soon realized that she wanted to help others on a larger scale. She realized that if she goes into the biotechnology field, she could help others through medical technology research. She was near the top of her class and landed a great job right out of college. The job she landed was in Portugal, a place that she always dreamed about living in because of the weather and the friendly people. Medical technology is a competitive field, so when she landed a high paying job right out of college, she wanted to ensure that she used her income in a way that would protect her for the future. She knew she would do exactly what her family did. As a reward for Eleanor landing her dream career, her parents lent her the money to purchase her first property, a small home she rented to a local family in Portugal. Since then, she has invested in many more properties, creating a healthy portfolio. Now, Eleanor is beginning to think about her future. She has always wanted to have children, and she wants to be able to put them through college the same way her parents did for her and her sister. She understands that these investments will play an essential role in achieving that goal and will even play a massive part in a retirement plan. She has not thought about what she wants to do precisely but has considered moving back home to Sweden to be close to family. Her family achieved local success and only invested in domestic properties, but Eleanor wanted to branch out and invest internationally. She has invested in Portugal as well as surrounding European countries. Ms. Hanson wants to arrange her return on investment in a tax-efficient manner. She is also considering tax efficiency when it comes to selling the properties. While her family has been a great help in the investment process, they are not familiar with the best ways to stay tax efficient while investing offshore. Eleanor is not engaged in developing real estate, the nature of her income is rental income or, in the case of a sale, a capital gain. In many countries, this is considered “passive income” for tax purposes. She is interested in forming an offshore company but does not know in which country to create the entity or what the preferred structure. Needs Given Eleanor’s current situation, there are many services of which she can take advantage to alleviate some of her pressures. With the proper guidance, she can grow her range in which she purchases real estate, benefit from holding her investments in a real estate holding company, and remain compliant. Eleanor has created an excellent base for her success, but with skilled advisors, she can create a one-of-a-kind plan to take her wealth to the next level.

Offshore Real Estate Investment

With her investments if offshore real estate, Eleanor is taking advantage of thriving markets from all around the world. The biggest draw to international real estate is probably the diversification that comes with investing in foreign markets. Diversification is a pillar to any healthy portfolio. Modern Portfolio Theory, an investment technique used by individuals around the world, emphasizes that investing in more than one class of investments will ensure that your portfolio is not too concentrated, protecting you from market failure. When Eleanor decided to not just invest in Portuguese properties and find offshore locations, she is protecting herself from the possibility that the real estate market in a single country may begin to perform poorly. This would mean her hard work could be for nothing. Further, many individuals that choose to invest in international real estate often move onto other international opportunities. Foreign real estate is a “gateway investment” of sorts. Some investments in real estate can lead to residency in a new country which is advantageous for reasons ranging from a new retirement location to tax optimization. This is attractive for those looking to expatriate or those who want to earn a second passport in order to extend the amount of visa-free travel that is possible. If retiring abroad is on your retirement plan, this can play a significant role in meeting this goal. It is interesting to note that Eleanor’s first property investment, her home in Portugal, qualified her for the Golden Visa program in Portugal, a program so successful that many other countries, like Spain, have started similar programs after seeing how much investors are participating. The Golden Visa program in Portugal is the most popular route to citizenship in Europe, offering investors flexibility and the benefits of residency. Launched in 2012, the program grants residency to those who invest €500,000 in Portuguese real estate. Residency is extended to family members, including spouse and dependent children. The visa is renewed every two years and only requires holders to stay in the country for two weeks every two years. This requirement works for those looking for the travel perks of having European residency but does not plan in settling into the country. After five years, Golden Visa holders can apply for permanent residency and citizenship after six years. One of the biggest appeals to the visa is that the applicant never has to live in the country to gain citizenship. There are many tax benefits that Eleanor can take advantage of, as well, especially when she finds the right structure in which to hold her investments. Further, for those worried about holding the entirety of their wealth in a single place, offshore real estate allows them to place fractions of their assets in a new country, which can protect them in some circumstances, such as a lawsuit. Again, all of this is enhanced when an individual chooses to form an offshore company.

Offshore Company Formation

There are countless benefits to keeping investments in offshore accounts or holding company. Let us take a look at what Eleanor can be taken advantage of when holding her assets in an offshore company. Tax Benefits There are a plethora of tax benefits for going offshore, whether it’s expatriating and living entirely in a new country, working, investing, or banking. In many cases, you can lower your tax responsibilities while staying legally compliant. I must emphasize here that an individual still must file earnings with the U.S. or the country that they are a resident of. An offshore company does not allow you to hide income. Asset Protection Although you can’t completely dodge the tax burdens of your home country with an offshore entity, you can enjoy an amount of asset protection. Because the funds are held offshore in a bank, they are not as easily accessible during a frivolous lawsuit. An offshore company can protect you from creditors with certainty. Also, to sue an offshore business, many courts require a separate lawsuit in the foreign jurisdiction. This means that if someone is trying to get your money, they must also sue your offshore company. The new suit will not consider the original lawsuit. With this, many avoid the suit entirely. Minimize Probate When an individual passes away, their living heirs can be taken care of with your offshore investment, but they will have to deal with probate, a tax that occurs when an investment is passed on after a person dies. The probate can be eliminated when the offshore company is used to make the investment.

Tax Compliance

Many are feeling confined because of local tax structures. Others have wealth but no form of asset protection. By creating an offshore company, an individual can do both and more. Companies allow you to hold funds, make investments, and so much more. The best part is that it is entirely legal. Many tax questions arise when creating an offshore company. The average investor, even the most financially savvy, is not entirely knowledgeable of tax laws in every single country. Eleanor is one of these individuals. She is a smart individual but needs additional assistance to not only ensure she is saving the most she can on taxes through smart investing but also that her tax efficiency is legal. If any of these apply to you, consider taking part in a tax compliance check-up. It would never hurt to make sure you are in the clear when it comes to your taxes. If you live in the US, you have to consider government hurdles like the Foreign Account Tax Compliance Act. Other countries have their policies concerning foreign earned or held income. It’s a lot to remember. Alpen Partners offers the opportunity for individuals to review, together with a tax attorney, the compliance of their past year’s tax returns. The review is conducted on a no-name basis and in complete confidentiality. Should there be a need to amend any previously filed tax returns, we will guide you through the various voluntary disclosure programs that are available to Western investors.

Seeking the Guidance of Alpen Partners International

Alpen Partners International, the sister company of Alpen Partners, is now a registered investment advisor with the U.S. Securities and Exchange Commission (SEC). Together with our partner Swiss private banks, our company can now offer the full Swiss private banking experience to American clients, both residents, and non-residents. Building on many years of experience in private banking in Switzerland, Alpen Partners International provides investment advisory services to U.S. clients. Swiss banking is highly regarded around the world, well known for being sophisticated and discreet. Choosing Switzerland as a banking destination is selecting years and years of financial stability and growth. The advantages of having an account in Switzerland include currency and investment diversification, asset protection, and the possibility to deposit assets in some of the oldest and best-capitalized banks in the world. All investments involve certain risks. All investments carry the potential for financial loss, including the loss of the principal amount invested. Past performance should not be viewed as an indicator of future results. Market conditions and broader economic factors can significantly impact the value of investments. Investments in international markets are subject to additional risks, such as currency exchange fluctuations, political or economic instability, and variations in accounting practices. Alternative investments, including but not limited to hedge funds, private equity, and real estate, may be illiquid, speculative, and are not suitable for all investors. The above information should be considered before making any investment decisions. All posts and publications are for your information only and are not intended as an offer, promotion, or solicitation to buy or sell any financial instrument or perform any other financial transactions. All information and opinions expressed in posts and publications reflect our current views as of the date of the publication and may be liable to change without notice.

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