Tax and financial planning solutions for offshore corporate
Life insurance can offer an attractive solution to the problem
of residency determination when using offshore corporate
structures in tax planning. These structures are typically
arranged so that profits are realized by the offshore company
and not subject to domestic tax.
In many countries, however, attribution and anti-avoidance rules
exist to make such arrangements transparent for tax purposes.
The key issue for residency determination is the location of the
central management and control of the offshore company.
Life insurance contracts can allow the taxpayer to effectively
address the residency problem. If the shares of an offshore
company are owned by an insurance company and form part of the
assets of an insurance contract, then the taxpayer can
effectively defer taxes indefinitely.
Case 1: International Trade
Scenario.: An international businessman, Exporter, wishes to set
up an offshore company to trade goods between China and the US.
This is a start up operation. Exporter will only acquire the
goods when he has sold and worked through letters of credit.
There is no start-up investment.
Exporter expects to make an annual profit of $1 million after
the first year of operation.
Typically, such businessmen would set up an offshore company and
arrange for the affairs of that company to be managed by
offshore directors so that the company could operate completely
exempt from tax. However, anti-avoidance rules would attribute
the profits directly to the taxpayer thereby removing the
benefit of any tax exemption.
As no start-up capital is required, Exporter could use the share
capital amount of the offshore company, for example $5,000, and
instead invest this amount in a life insurance contract by which
the insurance firm would become the owner of the shares in the
In doing so, the annual profits of $1 million can be shielded
from tax until such time as they are withdrawn from the offshore
company and paid to Exporter. A legal, effective and indefinite
tax deferral is thereby achieved.
Furthermore, the undistributed profits of the offshore company
can be reinvested, tax-free, into hard assets such as stocks,
shares, real estate or any other assets deemed appropriate.
Case 2: Investment Portfolio
Scenario.: An international investor has his investment
portfolio managed by a Swiss bank in Geneva. The portfolio
achieves an annual return of 10%, producing income of $100,000
per year. The Investor pays tax at a rate of 40%, thereby
incurring an annual tax bill of $40,000.
Investor arranges for an offshore company to be set up. The
offshore company opens an account with a Swiss bank. The
Investor's $1 million portfolio is then transferred into the
Swiss account owned by the offshore company.
The shares of the offshore company are issued to an insurance
company and held within a life insurance contract. With the
shares of the offshore company now owned and controlled by the
insurance firm, the $100,000 in profits can accrue to the
offshore company without incurring an immediate tax. payable by
The investment portfolio is owned by an offshore company, which
is in turn owned by an insurance com pany. Consequently, a
legal, effective and indefinite tax deferral is achieved for the
As the policy is owned by an offshore company and the Insurance
Company is the owner of the Offshore Company, no tax charge is
suffered and indefinite tax deferral is achieved.
Sadekya Fiduciary Partners.
Rudsel. J. Lucas TEP, Managing Director
The Triangle Office Building, Hoogstraat 20-22
P.O. Box 4750
Curacao, Netherlands Antilles
Telephone: 599 9 4652698