The Belize Limited Liability Company – the ultimate asset protection tool

PUBLICATIONS / Newsletters / 2013 / Newsletter January

The Belize Limited Liability Company – the ultimate asset protection tool

 
A Limited Liability Partnership, or LLP, is a hybrid between two familiar business structures, namely, a company limited by shares and a partnership.
A LLP and a company have in common that they both have rights and liabilities that are distinct from its partners, respectively, shareholders.
In some countries though an LLP must also have at least one “general partner” with unlimited liability. A LLP is not always considered a corporate body, that is to say, that it has a continuing legal existence independent of its members.
A UK LLP however is considered a corporate body. A LLP is managed by its partners as is the case in a regular partnership, not by a board of directors. It operates under a partnership agreement, which usually doesn’t even need to be written down.
The partnership agreement is normally a private document, ie not on public record, and completely flexible in governing the rights of the partners. This is in contrast to the limited flexibility available in the wording of the memorandum and articles of association of a company limited by shares; a document which is usually on public record.
A company limited by shares on the other hand is normally subject to multilevel taxation: i.e. the company is taxed on its profits and the shareholders are taxed on dividends and capital gains derived from the company. LLP’s on the other hand, like partnerships, are in most jurisdictions treated as transparent for tax purposes.
This means that the income of the partnership will be treated as if it arose directly to the partners. The partners will be taxed in their country of residence. Whether the partnership is taxed in its country of incorporation because it was incorporated there, depends on the country in question.
There are several countries that do not tax partnerships on this basis, for instance the UK doesn’t. The partners might still be taxed because the LLP has a permanent establishment or even a source of income in the country.
A limited liability Company (LLC) is another corporate entity that some jurisdictions offer. LLC’s are almost the same as LLP’s, with two main differences: that they can also have one member only, and that non-member managers can be appointed. LLC’s are offered by the USA and are tax transparent in the USA; although the option is available to have them taxed in their own right.
The use of LLC’s by non- US persons has become less popular in recent years due to the US Foreign Bank Account Reporting (FBAR) rules, which require US persons, including US LLC’s, whether they have non-resident members or not, to annually report any non US bank accounts to the IRS.
Other differences between the LLP and the LLC concern terminology, for instance the partnership agreement is called an operating agreement when a LLC is concerned. Various offshore jurisdictions have benefited from this.
One of them is Belize, which made LLC’s available last year.
What sets Belize LLC’s apart from those offered by other jurisdictions is the very strong asset protection features.
In order to file a claim, a creditor first has to deposit an amount equal to half the amount claimed or US$25000, whichever is greater, with the Supreme Court Registry.
This is of course an excellent deterrent for frivolous lawsuits. If a creditor wins his case then a charging order is applied against a member’s interest. But the judgment creditor shall only have the rights of an assignee of the member’s interest and shall have no right to partake in the management of the company. So he can receive profit distributions but can never force the management to make them.
In fact the member cannot have any say at all as to how the manager runs the company.
Of course asset protection is only as good as the weakest link. If the assets are located in another jurisdiction then they will be subject to the laws there as well as in Belize.
Belize has strong confidentiality under local law, in fact one of the strongest in the world according to the Financial Secrecy Index, however this confidentiality is not applicable if there is a valid request of a foreign tax authority from one of the countries with which Belize has signed a tax information exchange agreement (TIEA).
The signed TIEA’s however do not have any impact on the asset protection benefits of Belize, because these treaties do not have assistance with collection of taxes clauses, a usual feature of tax treaties.
The LLC only has to keep minimal information on public record, namely the Articles of Organisation. The articles of organisation should state (a) the name of the limited liability company; (b) the name, address and signature of the registered agent; (c) the name and address of the person who signed the articles of organisation.
The Operating Agreement may optionally be registered, there is no requirement to file annual accounts. In EU countries, bank accounts can be frozen easily without having to present any upfront evidence. When the proposed European Account Preservation Order is adopted it will allow a creditor to freeze funds held in any EU bank account held by a debtor.
At present, creditors are reliant on taking steps in the jurisdiction where the accounts are domiciled such as obtaining domestic freezing orders. Belizean LLC’s are an ideal vehicle for those resident in more litigious societies to protect their assets at a very reasonable expense. Furthermore, since LLC’s are normally tax transparent no tax issues arise; the funds and income of the LLC will remain reportable in the country of residence of the member.
Anyone interested in forming a LLC in Belize or redomiciling a LLC from the US can contact us for a free consultation.


How corporate tax rates change in 2013

 
Ever since Adam Smith published his study “An Inquiry into the Nature and Causes of the Wealth of Nations” in 1776, economic growth has been brought in direct connection with economic freedom.
Economic freedom is mostly defined as the absence of government controls, such as regulations, taxes, tariffs, quotas, etc. More than two hundred years after Smith’s book, since 1996, this has been measured globally by the Canadian Frasier Institute that publishes its “Index of Economic Freedom” survey annually.
The report compares 42 variables, taxes belonging among the top 5. In this year’s index, Hong Kong retains the highest rating for economic freedom, other top scores belong to Singapore, New Zealand, Switzerland, Australia, Canada, Bahrain and Mauritius. This year, Bahrain and Finland are new to the top 10 — replacing, the United Kingdom that dropped to nr 12 and the United States that fell to nr 18.
It seems like in theory, the majority of governments understand exactly what needs to happen to guide their economies out of deep crises, however, they do not always act upon it. A couple of examples include some East European countries: As of January 2013, Serbia has increased the corporate tax rate from 10% to 15%. Slovakia has acted in a similar way increasing its corporate tax rate from 19% to 23%.
Luckily, many others seem to understand the concept and their corporate tax rates fell in 2013. To name a few, Slovenia reduced its rate from 18% to 17%, Sweden from 26.3% to 22%, Thailand from 23% to 20%, Ukraine from 21% to 19%, Brunei from 22% to 20% and Ecuador from 23% to 22%.
The future looks rather bright as the global average corporate tax rate has dropped from 27.5% in 2006 to 24.4 in 2013. Unfortunately, for those who consider these figures promising, here is the hidden reality: Corporate income tax represents only a part of the total tax burden each corporation has to face. It actually accounts only for 12% of payments, 26% of time and 36% of the total tax rate. While corporate tax rate might be dropping gradually, the indirect tax rate rises. The VAT in EU increased from 19.4% in 2006 to 21.3% in 2013.
Each year, an average company needs 267 hours to arrange its tax matters, it has to make 27 payments and its average tax burden is almost 45%.
For more information on various tax rates and how to reduce them please contact us at info@freemontgroup.com.

Ras al Khaimah: The Affordable Luxury

 
At the end of 2011, the Ras Al Khaimah Tourism Development Authority (RAK TDA) faced a tremendous dilemma: how to get one million people into a desert within just one year? With the total of 1,001,495 visitors coming to RAK between January and November 2012, they somehow did it. The generated hotel revenue quantified as almost US $150 million, 45% more than in 2011.
So how did they do it? First of all, Ras Al Khaimah is more than just a desert. As one of the seven emirates of the United Arab Emirates, its territory is nestled between the Hajjar Mountains on the east and the Arabian Gulf on the west and shares mountainous borders with the Sultanate of Oman. It only takes 45 minutes to drive to RAK from Dubai.
Actually, rather than being a dead spot in the desert, Ras Al Khaimah is the most fertile of the emirates. It has over 40 km of coastline and although the temperatures in summer are high and the climate humid, the winter weather is moderate. The views of the mountains are spectacular and the beaches are pristine and with the exception of luxurious beach resorts they are development free.
With over 260,000 visitors, the majority of tourists come from Germany followed by UAE tourists (260,000) and Russians (140,000). The United Kingdom, Italy, Ukraine and Czech Republic follow. The luxury of the accommodation facilities is obvious: out of 22 hotels in RAK that are listed at Booking.com, 21 carry four or five stars.
The RAK TDA does not rest on their laurel’s, they are planning to increase the room inventory to 10,000 rooms by 2016. New attractions, hotels and resorts are scheduled to open including the 349-room Waldorf Astoria Ras Al Khaimah luxury brand property (2013), the 632-room resort Bab Al Bahr (2013); the 340-key DoubleTree by Hilton Resort (2014) and the 442-rooms Crowne Plaza Ras Al Khaimah on the man-made Al Marjan Islands (2015).
The number of charter flights mostly from European destinations is increasing steadily.
As the target for 2013 counts 1,200,000 visitors, you might be one of them. Should you plan a trip to Ras Al Khaimah, please schedule a day in Dubai so that you can meet us as well!

 
 
 


Eleven countries to introduce Robin Hood tax

Based on the recent decision of the EU Finance Ministers, part of the European Union will introduce a new tax on financial transactions. Eleven EU members, including major economies such as Germany, France and Italy, have voted to improve their budget in such a way.
In the material originally intended for the EU as a whole, the European Commission proposed that the implementation of the Financial Transaction Tax (FTT) of between 0.1-0.01 per cent on stocks, bonds and derivatives could bring tens of billions of euros.
Due to the resistance of Great Britain, the Czech Republic and other countries, which feared a possible outflow of financial transactions from the EU or the cost to the tax on to consumers, the plans to introduce an EU-wide tax failed.
The pro-tax part of the EU states then decided to take the path of so-called enhanced cooperation. This is a tool that allows a group of at least nine EU countries to act together in areas where it is not possible to achieve a consensus of all 27 members. This tool was earlier used e.g. in the discussions about European patent law. The possibility to start work on the principle of enhanced cooperation must be approved by a qualified majority of EU, which is what just happened.
The group of eleven includes Germany, France, Estonia, Belgium, Greece, Portugal, Slovakia, Spain, Slovenia, Austria and Italy. And although the door is open to all other EU members, so far they say ‘no thank you’.
Supporting the opinion of Sweden, Great Britain (David Cameron called FTT ‘madness’) and others who abstained, the Czech Finance Minister voiced his attitude as follows: “There are countries that will not introduce [FTT] ever. Czech Republic clearly said that it views the FTT sees as downside momentum, as a tool that is holding back the economy, a tool that would transfer the tax to the price of the products, to the final consumers, those who want to invest. ”
It is now up to the European Commission to develop a proposal for countries participating in the enhanced cooperating on how the tax could look like. At this moment it is not even clear how where the collected money should go.

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