Government acts and regulations in each jurisdiction guarantee the inviolability of privacy of any property to which the assets of a business belong. The owner can restore the right of ownership in court, but preventive measures to protect assets from claims of government authorities and illegal actions of third parties will be much more effective. The protection scheme is individual in nature and depends on the nature of the organization’s activities. Thanks to many years of experience, we perfectly understand the specifics of jurisdictions and the nuances of drawing up international agreements, which allows us to create effective mechanisms for protecting businesses from illegal actions of third parties. Below we will look at the main aspects relating to asset protection at the international level.
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Understanding the Basics of International Asset Protection
Assets that are legally located in the territory of a particular jurisdiction and are traded at the national level are often protected rather than mediocrely due to the threat of local raider takeovers and political risks. At any time, the company may be subject to inspection by the tax authorities, who often block the current account and seize property. If assets are stored abroad in more stable and secure jurisdictions (including the possibility of transferring assets to an international trust), their safety increases, which means that the risks of losing assets as a result of actions of government agencies and illegal actions of competitors, raiders and other persons who may set the goal of taking over the company.
Thanks to the competent use of foreign instruments for protecting assets, their owner has the opportunity to flexibly solve problems related to inheriting a business, managing the common property of spouses and resolving conflicts with partners.
There is no single and universal asset protection solution for everyone, since the effective procedure for building an asset protection strategy is purely individual and depends on many factors.
- Establishment of trusts.
An international trust offers the highest level of asset protection and confidentiality to founders and beneficiaries. The distribution of income and assets of the trust is carried out exclusively in accordance with the will of the founder. In addition, such a structure resolves issues of succession and inheritance planning, taxation and other issues regarding the distribution of assets and income of the trust founder.
However, the creation of a trust alone, even in conjunction with a holding and operating company structure that will presumably hold your assets abroad, will not resolve all issues related to capital protection, personal and corporate taxes. The maximum benefits and protection will be provided to you by: organizing a corporate structure together with immigration legal status and obtaining tax residency.
- Registration of funds.
When a fund is created, the founder transfers assets, the board manages the fund, and the beneficiaries benefit from it. In order to ensure the interests of the beneficiaries and control the board of managers, a trustee can be appointed to the fund. When implementing a fund structure, it is important to calculate the associated tax consequences in advance.
- Creation of an effective corporate structure.
With the right selection of jurisdictions, you can create an effective corporate structure to generate operating income.
- Become a tax resident of a country that provides full or partial tax exemption
This is a common practice in international tax planning to protect the assets of the organization and the beneficiary. First of all, it is important for businessmen to build the structure of their business and optimize (reduce) the tax burden, and not evade paying taxes.
One of the most popular working methods is to build a personal holding structure. The holding, without disclosing the ultimate owner (beneficiary), provides him/her with control over its property. Also, this structure, when properly constructed, protects property from unlawful taking. Entering foreign exchanges, attracting partners, and issuing various financial instruments also becomes easier in cases where a business is owned by a foreign holding. This structure also helps you reinvest your earnings without bringing them to the personal tax level.
The investor-state arbitration system provides protection and remedies under public international law for investors (individuals or legal entities) of one state investing in another state. The structure of the system consists of treaties between states that provide foreign investors with a range of legal protections (independent of any treaty protections) and access to arbitration to resolve disputes related to the violation of these protections by the state in which the foreign investor made its investment. The resulting arbitral award is binding and enforceable in many countries in accordance with various other treaties adopted by jurisdictions internationally.
The greatest emphasis is placed on the clause that protects foreign investors from losses incurred during times of war, civil unrest, a state of emergency or other exceptional circumstances. Sometimes these provisions do not provide for a positive right to compensation. Instead, they simply require that a jurisdiction compensate the foreign investor for the relevant losses no less than it compensates domestic or foreign investors. However, some countries may provide for a positive right to compensation.
Offshore Instruments for Wealth Protection
Asset protection is a multifaceted process that uses a variety of tools. There is someone to protect assets from: from fraudsters, from unscrupulous competitors, former spouses, from excessive government pressure. The higher the income and the larger the size of assets, the more seriously you need to think. However, you can start small: anonymous payment cards, an offshore company and a foreign bank account. Afterwards, interest appears in offshore trusts, funds, the use of alternative investments, for example, cryptocurrencies, private banking and individual solutions.
Offshore structures are ideal for global asset ownership and protection, but are not designed for frequent commercial transactions. An offshore trust or fund mainly has passive income, such as rental income, capital gains, dividends or new contributions.
If you need an offshore trust or fund for asset protection, but at the same time want to engage in commercial activities, the ideal solution is to register an offshore company and transfer its shares to a private fund or offshore trust. Thus, the offshore company will be engaged in active activities for the purpose of making a profit, and the offshore trust or fund will provide protection for the assets of this company. The income or profit of an offshore company is not subject to taxes, and income that accumulates in a trust or foundation account is not subject to confiscation.
The issue of asset protection has always been very relevant, especially in the modern realities of deoffshorization of the economy and the implementation of an international plan, which involves state control over capital and tax reporting being tightened around the world. Financial monitoring, automatic exchange of tax information, compliance and substance rules have become commonplace for the international business community. This requires a more thorough and meticulous approach to the development and implementation of asset protection mechanisms.
Our specialists will become your reliable allies on the path of licensing and commercial development. We will offer and help you develop and apply effective methods to protect your assets abroad, choosing the most optimal option for their storage and circulation. Contact us in any way convenient for you.
Article’s author is Denys Chernyshov – founder and CEO of the leading international law firm Eternity Law International.