TAX HAVENS: How to Migrate Your Trust out of the Heat

Indonesia, India and China Target Traditional Trust Jurisdictions

One goal of information exchange is to identify those citizens or residents who are hiding undisclosed income and assets in offshore jurisdictions. A chart of the current status of information exchange agreements in China, India and Indonesia reveals interesting results.

Stage China

Cayman Islands
British Virgin Islands
Jersey, Guernsey,
Isle of Man

British Virgin Islands
Cayman Islands
Jersey, Guernsey,
Isle of Man


Jersey, Guernsey,
Isle of Man


Cook Islands

British Virgin Islands

Cayman Islands
Proposed Liechtenstein    

Most of the jurisdictions above have been traditionally popular locations for establishing and administering trusts with private banks and independent providers.

For some time, SME businesses have been reluctant to establish in these jurisdictions due to negative perceptions and reputational risk.  It is interesting that now private family investors are also trending in the same direction. 

Fiduciary trusts in onshore jurisdictions such as New Zealand, Singapore, Delaware, Barbados and Mauritius are becoming locations of choice to avoid the stigma attached to tax havens and potential scrutiny arising from information requests.

Given these developments, clients with existing trusts in these offshore jurisdictions have been asking what to do about moving their trusts to a more reputable jurisdiction.  Possibilities include:

1. Termination of the Trust and Establishment of another Trust in an Onshore Jurisdiction

A trust may be terminated by unanimous agreement of all sui juris beneficiaries, the distribution of all trust assets (which causes the trust to fail), or bringing forward the trust period as defined in the deed.  Certain trusts are also revocable in nature which means the settlor can elect to terminate the trust.

The termination of the trust necessarily means that the assets can be legally transferred into the beneficiaries’ names.  This can have serious tax consequences depending upon the tax residence or domiciliation of the individuals.  Further, the subsequent trust may be tainted for tax and may not enjoy any ongoing exemptions for tax or reporting.

2. Retirement of Trustees and Appointment of a New Trustee in an Onshore Jurisdiction.

A trustee may retire if permitted to do so by the trust deed or by unanimous agreement of the beneficiaries.

A change of trustee in this manner can have the effect of migrating the tax residence of the trust into another jurisdiction.  Generally, tax rules domicile a trust based on the place of management and administration of the trust.  In this scenario, the trust will be subjected to the information exchange procedures or DTA benefits (if any) of its adopted jurisdiction.

An appointment of a new trustee does not change the governing law of the trust, which may cause confusion as to where the trust is domiciled.  We recommend that if the trustee is changed to a trustee in another jurisdiction, that the governing law of the trust also be amended to that new jurisdiction.  It is likely the deed will need to be reviewed to ensure it complies with the legal requirements of the new jurisdiction. 

In these circumstances the new trustee is likely to require a release and indemnity from the beneficiaries for past liability.

It is important to note that BVI VISTA and Cayman STAR trusts are established under specific legislation in the British Virgin Islands and the Cayman Islands not applicable in other trust jurisdictions.  Migration will result in loss of the additional control permitted to the settlors. 

3. Resettlement of Trust into a New Trust in an Onshore Jurisdiction

Resettlement of a trust requires that a new trust be established in the onshore jurisdiction and the assets of the existing trust be resettled into the new onshore trust, if this is permitted under the deed.  If there is no resettlement provision in the existing trust’s deed, then the new onshore trust can be added as a beneficiary to the existing trust as assets distributed to it.

The assets do not move into the legal name or constructive control of the beneficiaries.  Depending upon the deed, trust assets can be resettled or a new beneficiary can be added by the trustee without the settlor exercising control. A resettlement in this manner generally avoids taxation arising upon a settlor exercising control or any receipts by the beneficiaries.

Treatment of historical records prior to the migration of the trust is another issue to be dealt with given that record retention is required for 5-7 years.

For more information, please contact Marcus Diprose or David Stone at Amicorp Singapore.

Marcus Diprose - Amicorp New Zealand Ltd.

David Stone - Amicorp Singapore Pte. Ltd. (Singapore)
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LISTING: More Reasons to IPO a Company
Listing a family business traditionally focuses upon unlocking value from the company in order to diversify wealth and raise capital for expansion.

However, there are a variety of other benefits that can be derived from listing. These benefits arise from using lesser known stock exchanges in order to manage costs and taxes, and maintain confidentiality.

Benefit China
(i) Business Succession & Sustainability

The succession of business between family members or in the absence of interested family members can be smoothed by listing.  Listing will introduce professional directors and a managerial class that can sustain the business and its value as family holdings are diversified.

(ii) Direct Tax Benefits

Gains realized from the sale of listed shares may be taxed at lower rates.  This occurs in Indonesia, the Philippines, India and China. Alternatively, listing establishes a market value for the business that can be used later as an arm’s length valuation.

(iii) International Tax Planning

Using a listed vehicle as a holding company for international investments will block the application of tax rules that subject the receipt of offshore profits to local taxation. 

Listed vehicles are generally treated as eligible for tax treaty benefits irrespective of the degree of control vested in a single investor.  This arises from the commercial connection established with the jurisdiction through its stock exchange.

(iv) Confidentiality

Finally, a listed vehicle permits investment in a confidential manner in several respects.  Generally, the shareholder register is not public information.  Regulatory bodies, financial institutions and parties treat the listed vehicle as the ultimate beneficial owner.

Depending upon your objective, jurisdictions such as Curaçao could be a viable option for IPO. Curaçao permits newly incorporated local and foreign companies to be listed on the DCSX within a month at reasonable prices. 

For more information, please contact Cora Cheung or Derk Scheltema.

Cora Cheung - Amicorp Singapore Pte. Ltd. (Singapore)

Derk Scheltema - Amicorp Curacao B.V. (Willemstad)
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MYANMAR: Structuring for a New Investment Frontier

Myanmar’s political and economic reforms have led to a recent wave of investor interest.  Myanmar is rich in natural resources especially minerals, forests, oil and gas. Investment activities in most of these resource related industries can be undertaken, with approval by the Myanmar Investment Commission (MIC).

There are certain parameters and incentives for investing:

  1. 100% foreign ownership and joint ventures permitted
  2. Business license dictates nature of activity, level of share capital and tax treatment
  3. Minimum share capital of US$50,000 and no debt permitted
  4. Tax relief for the first five years of production from infrastructure project, manufacturing, industrial, service activities, approved under Foreign Investment Law and Special Economic Zone Law.
  5. No restriction for repatriation of capital in the same foreign currency and profits after tax.  Certain contracts guaranteed no nationalization during their term or extended terms.

Given that investment is at a preliminary stage, corporations are being used as investment vehicles in the following manner:

Provision of Services or Trading

Depending on commercial requirements, Singapore, Hong Kong and BVI companies can be set up to provide support services, trading in capital equipment, raw materials and procurement with Myanmar companies. Myanmar withholding tax is applicable on payments to non-residents.

ASEAN Preference

Foreign investors are allowed to join ventures with Myanmar nationals, private companies or state-owned enterprises by setting up a partnership or company in Myanmar.

Myanmar has signed economic agreements with Singapore, Malaysia and China. As a member of ASEAN, Myanmar is progressively strengthening its free trade relations with ASEAN members.

Before entry, it is crucial for startup ventures to exercise caution given the uncertainties in Myanmar’s implementation of their Foreign Investment Law (FIL)(FIL has not been issued at the time of our publication). Unravel opportunities in Myanmar with comprehensive strategic planning!

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News Buffet

BVI — Changes in Record-Keeping Legislation

As of 2012, public funds are required to file annual returns and audited financial statements to authorities. Under growing pressure from international organizations, the BVI is moving into the era of reporting obligations and is expected to mandate the annual filing of financial statements for all corporate entities.

Requests for Exchange of Information

Requests for information from tax havens are increasing and are a real concern. Most of these jurisdictions do not have banking secrecy protection and the authorities do not require court orders before requesting information from their residents (companies and individuals). What will your nominee directors do?

First Anti-avoidance court decision in Singapore AQQ v. CIT

The case concerned a dividend credit arrangement promoted by a 3rd party to the taxpayer.  Although the appellant won the appeal in high court on a technicality, the case demonstrated the application of the broad anti-avoidance rules where the commerciality of financing could not be justified.

Indonesia-HK treaty

As of January 1, 2013, the treaty is in effect in Indonesia and will be in effect in Hong Kong by April.  Clarification from Indonesia on the specific application to dividends and capital gains is understood to be in the works.  Meanwhile, Hong Kong has issued tax resident certificates for Hong Kong companies transacting with Indonesia.  The DGT1 Form is still under consideration.

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