FEARFUL of ever higher tax in Scotland and seduced by the clandestine, secretive world of tax haven investing?
If the furore over Prime Minister David Cameron’s tax affairs and his father’s offshore funds (pictured) has not turned you off but only whetted your appetite to join this discreet, impenetrable world, prepare for surprises.
In the UK, up to £60,000 of annual savings can be put into tax-sheltered vehicles
The first is that there is now little that is “secret” about tax havens at all. Google “tax havens” and a dauntingly long list of offshore tax advisers and company formation advice comes on offer. Coupled with this is intensifying legislation on information swaps between tax authorities.
A popular “first stop shop” for the casual enquirer may be How to Set up an Offshore Company in 10 Minutes by Transparency International writer Max Heywood. He says that “with an internet connection, a credit card, and as little as 690 euros (£556) it can take under ten minutes to set up a shell company”.
His first stop was the website www.offshorecompanyexperts.com, with a home page showing how visitors can “benefit from going offshore”. Other attractions: “Privacy, limited liability, asset protection, tax exemption.”
This is followed by a series of simple steps – similar, says Heywood, “to buying a plane ticket online”. Initial costs are low: €690 for basic services to incorporate a company in the Seychelles, including a certificate of incorporation, minutes of board meetings, renting an office, and a register of directors; €390 for a “Privacy Protection Shield” (a nominee service through a law firm); €390 for opening a bank account, and €49 for logo, rubber stamp, seal and name plate. All you have to do to complete the process is to provide personal and credit card details.
In the weekend’s Financial Times, Michael Stothard embarked on a similar mission. He made a call to UK-based CFS International Formations to set up two companies: Stuffed Parrot and Pirate’s Chest (Scottish equivalents could be Stuffed Stag and Tartan Trillions).
Daunting? Intimidating? Expensive? None of these. The sales assistant did not need to know details of who he was, stressing instead how easy the process would be. “There is not much paperwork or anything. The company gets incorporated and we send the documents out to you.”
So, far from being difficult or obstacle-strewn, setting up a company in an offshore tax haven is not difficult. Most advisory firms will help find a registered agent to work on your behalf. Basic information required includes the company name, its purpose, name and address of registered agent and share capital. In jurisdictions such as Dominica, Belize, Anguilla, Panama and Nevis, this can take a matter of hours, though it may take longer in others.
As for costs, these can be as low as £335 in the Seychelles, with no residency requirement, or requirement to file annual accounts – and no tax.
However, maintaining an offshore company will involve annual fees. One other onerous condition: you may need to attend the annual meeting in the tax haven where your company is registered, an awful burden.
As for secrecy, this can be secured by having ownership hidden behind nominee directors. Some companies take the “doll’s house” approach – having ownership hidden in multiple shell companies, often in different jurisdictions, to make the job of tracking the beneficial owner all the more difficult.
Too good to be true? For the vast majority of UK private investors, almost certainly. Beneficial ownership arrangements are constantly being tightened so that details of your offshore funds and trusts are ever more accessible to the tax authorities. Under pending legislation, around 100 jurisdictions are due to sign up to automatic exchange of financial account information.
And why bother, when there are low tax arrangements here at home? Here in the UK, investors can now save up to £15,240 in an Investment ISA in the 2016-17 tax year, rising to £20,000 in 2017-18. And for pension saving, you can usually pay up to £40,000 every year in to your pension. You will receive tax relief on the full amount, provided this is not greater than your annual earnings or the annual allowance, currently capped at £40,000.
So why would the vast majority of investors need to look offshore when up to £60,000 of annual savings can be put into tax-sheltered vehicles such as these? Larger lump sums can be protected from the full blast of inheritance tax via family trusts – again without the requirement of going offshore, or the hassle of that annual meeting in Grand Cayman.