Section 10

Offshore Opportunities

The Bahamas is a tax-free venue offering significant benefits worth a closer review here.

Incorporating an International Business Company (IBC) in the Bahamas

The IBC legislation was the first of several initiatives taken by the Government of the Bahamas to meet modern demands for flexibility in structuring and taking advantage of modern communications for company meetings.

The major advantages of an IBC may be summarized as follows:

· A minimum of two shareholders and one director is required.

· Meetings of directors and shareholders may be by phone or fax or other electronic means; corporations may act as directors.

· Shares may be registered, bearer, with or without par value, unnumbered and may be issued in any currency.

· It can trade in its own shares, and hold treasury shares.

· Names of shareholders/directors are not recorded in the public registry.

· No filing of financial statements or annual returns.

· Guaranteed tax exemption for a minimum of 20 years.

· No ultra vires rule - may be established for any purpose not prohibited by Bahamian law.

· May transfer its domicile - or an existing foreign corporation may transfer in as an IBC.

· May transfer its assets to a trust.

· Government registration and annual fees are low.

· Third party obligations may be guaranteed.

· Shares not subject to seizure by a foreign government under nationalization schemes or to satisfy claims based on tax legislation.

· It is not subject to Bahamian Exchange Control Legislation.

Bahamian corporations may be formed for those who wish to transact business within the Bahamas (including the purchase and/or development of real estate) or who for other reasons wish their corporation to be fully domiciled in and operate within and from the Bahamas. Banks, Trust and Insurance Companies incorporated in the Bahamas must have a registered place of business within the country and are subject to surveillance by the appropriate regulatory bodies.

For banking transactions, statute law provides for absolute secrecy (except for narcotics transactions) and this is supported by common law. The rules covering confidentiality and secrecy extends to all institutions dealing with banking, their officials and employees, all professionals coming into possession of such information and all government officers.

The Association of International Banks and Trust Companies has established a Code of Ethics for all members which further strengthens the privacy and confidentiality of client transactions.

Extending from 50 miles east of Miami some 750 miles to within 50 miles of Haiti and Cuba, the Bahamas is a chain of 700 islands and 3000 cays and reefs, mostly set in beautiful turquoise waters. It is blessed with a sub-tropical climate.

The Bahamas became an independent nation within the British Commonwealth of Nations in 1973 and has its own seat at the United Nations and many international organizations. Although the Head of State is still Her Majesty Queen Elizabeth II, she is represented by the Governor General. The Bahamas is a Parliamentary democracy with an independent legal system and judiciary.

It is politically stable and has been for more than 250 years. The present government is formed by the Free National Movement (FNM), who came into power in August 1992 by defeating their predecessors, the Progressive Liberal Party (PLP), in a general election. The latter had formed the government from 1967 until their defeat.

The basic legal system is deeply rooted in the English Common Law tradition, with local statutes providing the legislative backing and override when necessary. The institutions created will be totally conceptually familiar to anyone whose own home jurisdiction owes its origins to the English Legal System.

The major industry in the Bahamas is tourism, with banking and finance running a strong second. There is some manufacturing, light industry and agriculture.

The Bahamas is a tax haven in the true sense of the expression with complete freedom from income, dividend, corporate, profit, withholding, capital gains, inheritance or gift taxes. The PLP was committed to this policy, and the FNM fully maintains that commitment. Government revenues are raised from Customs and Excise Duties, Hotel Occupancy, Real Estate, Gaming and Departure Taxes and License and Registration Fees.

The Bahamas has no taxation information exchange or double taxation treaties with any country.

Although there is Exchange Control for residents (which is liberally applied), there is total freedom from Exchange Control for non-residents carrying on overseas business from a base within the Bahamas. International Business Companies and Bahamian Corporations owned by foreigners carrying on business from within the Bahamas are also treated as non-residents for this purpose.

The Bahamas is served by all of the world's major accounting firms and is the home to more than 350 banks and trust companies.

It is one of the largest ship registration jurisdictions in the world and subscribes to the American Bureau of Shipping and Lloyds standards for ships flying its flag.

Highly competent legal and corporate management practitioners offer their services. Many of the lawyers have received training in England, USA or Canada.

Telecommunications are of international standards with satellite connections into the world's networks, including full data exchange capacity.

Income Savings Through Invoicing or Re-invoicing

Substantial income savings are available to international trade businesses utilizing the tax-free Bahamas. International traders, agents, brokers, exporters, importers, manufacturers and producers can reduce their taxes on income earned through trading activities with the use of an International Business Company (IBC).

The IBC will have bearer shares and nominee officers and directors can be provided. Its profits are free of all taxes. Instructions will be taken by the nominee officers to purchase or sell merchandise, deposit the monies in a bank account with an international bank, and pay monies out in strict accordance with the wishes of the beneficial owners. These persons would normally be the principals in the existing corporation but their identities and ownership would be protected by secrecy laws and the bearer shares and remain undisclosed. There are five common opportunities:

Substitute Purchasing Corporation

If you are an importer presently, and are buying from abroad at say $50 per unit, the IBC can be substituted and itself will purchase at the present price of $50 per unit. The IBC will then resell to you at an invoice price of say $60 per unit, thus leaving $10 per unit tax-free in the IBC.

Establishing in a Tax Haven

The present trade is being carried on by a corporation located in country A, but the merchandise is being sent from country B to country C. By establishing an IBC to handle all the trade between country B and country C, all the profits would be tax-free in the IBC. As no business is carried on anymore in country A, no taxes are payable in that country.

Offshore Sales Distributor

If you are an exporter, you assign distribution rights to the IBC. It receives a discount of up to 30% on all sales it handles involving foreign purchasers. The discount remains in the IBC free from income taxes.

Offshore Purchasing Agent

If you are an importer, the IBC will be appointed your purchasing agent for merchandise from abroad. You will pay the IBC a fee of say 20% of the value of the goods for their services. This fee remains in the IBC tax-free.

Overseas Licensing

You may expand your sales overseas by granting exclusive licensing rights for your manufacturing or production process, skill, patent, trademark, copyright, know-how or technology to an IBC. The IBC in turn licenses overseas end-users who pay royalties and license fees to the IBC. The profits retained in the IBC are tax-free.

Formation and Charges

The IBC costs U.S. $1,495.00 to establish and operate in the first year and $500.00 to remain actively in business after the first year. Services also include the management of the IBC using nominee directors. The management fees are U.S. $500.00 per year. Out-of-pocket expenses are billed separately. The nominee directors will afford the principals another layer of privacy, expertise and versatility.

If preferred, the principals may become signatories on the bank accounts, and the bank will not provide this information to anyone unless there is a court order or the customer instructs the bank to do so. The IBC or a shareholder thereof is exempt for twenty years from income, corporation, capital gains, sales or profits taxes. There is also no requirement for filing accounts if you wish, accounting records can be kept for internal purposes.

Aside from investing in listed securities worldwide, the IBC is the ideal entity for owning the stock of private corporations in the U.S. and elsewhere. You may have an operating business in the states. The stock can be placed in the IBC and taken offshore with no change in its operations. If it is an unincorporated company, you may wish to talk with your accountant or attorney and seriously consider incorporating. As it will be owned by another corporation, it will not be possible for it to be an S corporation, but the many other benefits are likely to outweigh this, and that is only if an S would have been possible or advantageous at all.

Carson Registered Agents, Inc. are nationwide incorporators in the United States specializing in Nevada and Wyoming incorporations. These are two favorable states for incorporating as neither have state corporate income tax and both have liberal corporation laws. For a further review of their advantages and the many other services of Carson Registered Agents, Inc., visit CRA's website at www.cra-international.com where you can download two other reports titled The Business Guide to Incorporating in Tax-Free Nevada and Wyoming and Nationwide Incorporation and Resident Agent Services.

The next step in the offshore chain, some time after setting up the IBC for the various purposes discussed here, is to establish an Asset Protection Trust (APT). The many benefits of this are discussed next. Every purchaser of an IBC will have the option to consult with our APT specialist.

This combination is powerful and accomplishes all the benefits covered by this report. Tax reduction, asset protection, estate planning, control without actual ownership. Privacy, protection and greater profits will be yours!

Establishing an Asset Protection Trust (APT)

Trusts are being used more and more today to protect the assets of professionals and others against potential malpractice suits and creditor actions.

The trust concept was originated by the Courts of Equity in the United Kingdom some 400 years ago and was subsequently recognized by Common Law Courts. The laws governing trusts in the Bahamas are generally similar to those in the United Kingdom and other English speaking countries.

A Bahamian trust may be established by residents of any country in the world. The person setting up the trust is generally called the Settlor and when established by living persons the trust is called an inter vivos trust. The document establishing the trust is known as a Settlement Deed or Deed of Trust in the case of an inter vivos trust and Declaration of Trust when the Settlor himself acts as Trustee. The document specifies the property which is to be placed in trust, the way in which the trust funds are to be invested and administered, whether the income is to be accumulated, to whom the income is to be paid, how long the trust is to continue and to whom the trust property will ultimately be distributed.

Deeds of Trust can be extremely flexible and an inter vivos trust can be either revocable or irrevocable. In other words, the Settlor can decide whether to retain or to surrender the power to amend or revoke the trust. The trust deed may provide wide discretionary investment powers and the trust property is not subject to restrictions on the accumulation of income. Trust property held by the Trustee may be lodged in the Bahamas or in most parts of the world. No application to any court is required to pay Beneficiaries, and generally the law of the individual country of residence is not applicable to payments to them.

Although a trust cannot be established in perpetuity, the laws of the Bahamas governing the duration of trusts are such that they enable them to last for several generations. The administration of trusts in the Bahamas is completely confidential.

Continuity

The Settlor can be confident that his assets will be protected and be administered in accordance with his wishes, not only during his life, but thereafter. A trust can often take the place of a will.

Anonymity

Once the assets are transferred to the Trustee, they become registered in the Trustee's name, and no reference is made to the Settlor or the Beneficiaries.

Taxation

If the trust is discretionary and is in one of the recognized tax havens, as the Beneficiaries do not have specified interests in the trust assets on which they can be taxed, there will often be freedom from income or capital taxes.

Exchange Control

If based in a suitable tax haven, the trust will not be subject to any exchange control restrictions.

Family Companies

Trusts can be used to cover the situation where several members of a family have shareholdings in the same company or group of companies. If all the shareholdings are placed into one trust, with appropriate provisions, this can ensure that the ownership of these shares does not pass out of the family on the death of one of the participants.

The usual offshore trust is a wonderful tool for reducing U.S. gift or estate taxes. Furthermore, the asset protection trust (APT) incorporates those tax benefits while at the same time preserving a client's assets against unknown future creditor problems. However, if the client has a creditor problem or is in a lawsuit when he seeks to establish the APT, then the APT may not be legitimate.

The APT is most important to professionals today. Doctors, nurses, lawyers, accountants, engineers, architects, contractors and others have witnessed the awarding of high amounts in malpractice lawsuits by the courts. Many practitioners have been virtually reduced to financial ruin. At the same time, they have witnessed a staggering increase in professional, indemnity insurance premiums, while insurers have taken steps to qualify and limit as much as possible the professional indemnity risks which they are prepared to cover. In the aftermath of these events, the APT is designed to prevent those assets which are placed in trust from being attacked in the event a malpractice suit is successful against the professional. It ensures that the family is protected against such unforeseen circumstances.

The essence of asset protection is that the APT is domiciled in a jurisdiction whose laws will benefit the offshore trust. This will help to ensure that the assets settled upon the trust will be governed by a more benign law than that pertaining in the original jurisdiction. The laws of the Bahamas facilitate such a trust.

Trust instruments commonly refer to three distinct persons or groups of persons, those being the Settlor (Grantor), the Trustee and the Beneficiaries (Grantees). Thus the classic trust arrangement is one whereby the Settlor transfers legal title to property to one or more Trustees, who then hold the property for the benefit of one or more Beneficiaries. It is now the practice for offshore trust instruments to refer to a fourth person commonly known as the Protector. This is a person who, subject to the provision of the trust instrument, performs advisory or consulting services ranging from acting as an intermediary between the Settlor or the Beneficiaries on the one hand, and the Trustees on the other hand.

The APT will have a Settlor, a Trustee, Beneficiaries and a Protector if necessary. Usually, it is quite common for the APT to be established on a tax-neutral basis. That is to say, tax-paid assets are transferred to an entity to establish the APT which will be located in a low or no-tax jurisdiction. There are no estate, gift or income taxes in the Bahamas.

A standard Deed of Trust to establish an Asset Protection Trust recites the names of the Trustee and the Settlor, the name of the Trust, the assets being placed in trust initially, the Trusts upon which the assets will be held, the powers and duties of the Trustee, provisions for a Successor Trustee, a change of the forum for administration of the Trust Assets, the remuneration of the Trustee, the interest and names of the Beneficiaries, and the governing law.

The Deed can be modified to accommodate a Protector when deemed necessary.

The Deed also provides for the Trustee to have regard toward the wishes and suggestions of the Settlor. Since the Trustee is to act solely at its discretion, any letter setting forth the wishes of the Settlor is of no legal effect as far as the Trustee is concerned. However, in practice the letter provides guidelines for the Trustee, and the Trustee usually adopts those guidelines. In some instances, the Trustee gives an undertaking to the Settlor outside of the Trust Deed that in the exercise of its discretion in dealing with the Trust Assets, it will implement the Settlor's wishes.

The Deed may be drafted, if the Settlor wishes, to ensure that the Trustee acts solely upon the directions of the Settlor during his lifetime.

Although, for taxation reasons, it is normally preferable to use an Irrevocable Trust, nonetheless, the Trustee usually has power at its discretion to advance capital of the trust and, if it is decided for any reasons to bring the trust to an end, the Settlor could ask the Trustee to exercise its discretion to pay out all the capital of the trust.

The trust is the perfect vehicle for owning all the shares of the Bahamian IBC for estate planning and asset protection. By doing so, assets may be placed in and removed from the IBC during the course of your lifetime and at your direction. Tax reduction strategies can also be engaged using your IBC. The trust may be established any time after the incorporation of the IBC.

The Bahamas is one of the best tax havens in the world. Other tax havens have many similar benefits and purposes depending on the application. Contact CRA for further information.