| Do I Need an Offshore Company to Own Property Abroad and how can I Finance it? |
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By Craig Taunton If you're thinking of buying a home abroad or you already own foreign real estate assets you need to look at all the options available to you. The first thing you need to be aware of is that buying a home overseas is a taxable action, it can draw an increased liability for taxes such as inheritance, income and capital gains tax not to mention that such a purchase often incurs stamp duty, transfer taxes and of course legal fees. This all means that it is sensible to research your purchase options and obligations carefully from a financial as well as legal perspective before making a commitment to buy. Sometimes the establishment of an offshore company through which the property to be purchased will be bought is a more sensible approach from a fiscal perspective as it can mitigate or even negate financial losses. ...however, some countries disallow foreign ownership of real estate through an offshore structure. The definition of an offshore company is - a company which rarely conducts business in its country of incorporation and one which is incorporated in a country where taxation is lower and reporting restrictions are more flexible than the country in which you reside. Other common names for this type of company are non-resident company or IBC which stands for International Business Company or Corporation.One of the first things you need to do is determine which jurisdiction is best suited for your company to be incorporated in. All tax havens in the world have very different rules relating to everything from reporting and taxation to the use of nominee directors and also the cost associated with setting a company up there. Some of the most popular locations with those seeking to incorporate an offshore company or IBC are Belize, the British Virgin Islands, Gibraltar, Panama and the Seychelles which are the most flexible. They are tax free locations when the company type in question is established correctly, they have reduced reporting requirements, you can have an extensive choice of company names and engage in a broad range of legal activities without restriction and what's more, the jurisdictions are often deemed highly appropriate for those seeking maximum confidentiality as they allow for nominee services. So, with the company in place the purchase or transfer contract is drawn up in the name of the company, the real estate assets are then registered as being owned by the company. For high net worth or high profile individuals there is an added bonus of taking this approach - their name can be kept a step back from public record as to who owns a given home. For the rest of us mere mortals the establishment and ongoing maintenance fees for an offshore structure can sometimes offset any potential taxation savings and in the case of anyone wanting to buy a property in Portugal for example, using an offshore company structure to do so can actually be punishable by increased taxes depending on the jurisdiction you favour. There can be advantages for some overseas citizens and entities using an offshore company for the purchase of investment property in the UK. For example, using such an arrangement can sometimes result in the mitigation of capital gains tax as well as inheritance tax. This is not to say that purchasing property in international locations has not been without its challenges as anyone that owns property abroad will tell you. In the past any offshore limited company wishing to purchase property in the United Kingdom with the option of using it as an investment asset and letting it out for an income had a difficult job securing finance to do so. Options were strictly limited locally in the UK to commercial finance vehicles and the only other alternative when it came to offshore companies and UK buy to let property was using lump sum capital outlay to cover the whole cost of the property purchase. But now all that is about to change... I recently wrote about the introduction of the Managed International Currency Mortgages now available to the international property investor. They not only provide the facility for you to buy in a number of select jurisdictions (I am happy to supply the list to any enquiries) without requiring an existing property portfolio as collateral (subject to your credit worthiness etc) but for those with existing property portfolios in the for mentioned jurisdictions they can be used to significantly reduce monthly outgoings and increase rental yields using lower interest rates from different jurisdictions. By far one of the most attractive advantages is the potential over the medium to long term to reduce your capital borrowings by taking advantage of currency movements (this is the managed part of the product) and therefore providing you with the opportunity to pay off the capital owed on the property earlier resulting in significant interest payment savings. These existing properties in conjunction with this product can also be used to release equity and allow you to purchase property in any location as well as increase your property portfolio or even start building one. So - in conclusion it's true that using an offshore company can be a great way to own a home overseas, it can offset financial losses from taxation and fees, it can secure the asset away from litigation, it can make the entire ownership process far simpler - but it is most certainly not the best method of approach for everyone so you need to take personal advice about whether the use of a corporate structure can benefit you and your plans. Questions to the author can be directed to Craig Taunton of Barclay Spencer International on 02 653 1971 or email This e-mail address is being protected from spam bots, you need JavaScript enabled to view it |
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