Buying International Real Estate Using an Offshore Company as a Financial Vessel

27 August 2017

There are major benefits to buying international real estate using an offshore company as a way to create worthwhile investment holdings, providing asset protection, privacy and importantly mitigating tax.

So what is an offshore Company and why is it beneficial to buy holding using this method?
In laymen’s terms, it’s a company that has been incorporated in a country that isn’t your place of residency or where you hold citizenship and can be utilised in several ways as explained below.
Countries looking to attract global businesses, will often implement competitive tax regimes which also guarantee privacy levels and offshore companies inevitably play a major part in providing a means of investing internationally whilst conducting international business.
Offshore companies are frequently used to hold shares in other companies, equities, bonds, commodities, trading options and other types of investments including international real estate.

High net-worth individuals utilise offshore corporations as a way of protecting their identity by controlling their assets whilst technically not owning them on paper as many jurisdictions don’t require the Directors, shareholders or beneficiaries to be filed.

Benefit of specifically purchasing property through an offshore company is the easing in matters of probate for their beneficiaries. When the international property is owned by an offshore company, the assets can be shielded from Inheritance Tax (IHT) in home countries by providing a simple transfer of all international assets (shares) upon the death of the current shareholder.

This works in the same way when selling international property through an offshore corporation whereby upon sale, the shares are simply sold to the new owner thus avoiding many of the taxes (such as capital gains and stamp duty) that come with the sale of the property.

Having said that, CGT (within the UK, and subject to certain exemptions) where the sale is more than £500,000 (from 1st April 2016) is payable, regardless of the country of incorporation of the company or the tax status of the shareholders, which is why is it essential to engage in a great accountant as well as seek the best advice when embarking on this type of investment.

It is key to note that investments may be taxed in the jurisdictions where they are located, if the country doesn’t offer tax free bonds which allow interest, for example rental payments to be accumulated over several years. A major benefit comes from certain countries not charging CGT on investments, so it’s key to seek advice before making you choice to avoid this type of tax.
Potential disadvantages?
Whilst there are many advantages to buying property through an offshore company, there are some disadvantages including varied annual and transactional fees; of course this depends on the jurisdiction of the Company, level of service required and if (as with the more sophisticated structures) there is an offshore trust behind the company, there is an additional layer of cost. Having said that even with the costs/fees attached these are often outweighed by the value of the property and the level of tax to be paid if an offshore company wasn’t used as the vessel of purchase or sale.
Another potential pitfall is the loss of control. As mentioned above that whilst this has the protection of adding privacy where desired, there is a requirement to trust administrators of the company to be honest in their dealings as they are not directly under your control. Whilst this is a concern, most corporate services companies offer these professional services so you should have peace of mind provided that you have conducted your due diligence prior to engagement.
In conclusion, even though purchasing property through an offshore company has many benefits, it is best to seek advice as it will all depend on the country’s tax laws where both the offshore corporation and property are located.
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