Category: Private Client

Background

Switzerland has a long established reputation for professional expertise when managing the affairs of wealthy private individuals. For many years Swiss Trustees have provided efficient tailored services for trusts, which are a flexible instrument, particularly useful for estate planning and asset protection.

The supervisory and legal landscape for trusts is changing in Switzerland, as reflected in the fact that the Federal Council implemented new Trustee regulations in 2020, and proposed the introduction of a Trust law into the Swiss Code of Obligations.

These two new regimes will reinforce the competitiveness of Switzerland as a financial centre, and boost the Swiss Trust industry’s quality, integrity and accountability, while creating a uniform competitive landscape for Trustees.

What are the Regulations About?

Up to now, Trustees were only supervised in relation to compliance with Anti-Money Laundering obligations. Swiss professional Trustees will now have to comply with; structural, organisational, business-conduct and audit requirements.

Trustees operating in Switzerland must now; register with a Supervisory Organisation, comply with statutory requirements and apply for a licence from the Swiss Financial Market Supervisory Authority (FINMA), before December 31^st 2022.

Licensing Exemptions

Private trust companies (PTCs) are exempt, as well as single family office structures (“family-ties exemption”). This exemption also applies if the beneficiary is a charity.

Regulatory Obligations

• Trustees must have a minimum paid up capital of CHF 100,000 with the added obligations to maintain adequate financial security and/or professional liability insurance. 

• Management by the Trustees must be carried out by a minimum of two ‘qualified directors’ of good reputation.

• Trustees must have appropriate risk management and adequate internal control systems.

Where Are We Today?

As of December 2022, the majority of Swiss Professional Trustees still need to obtain a licence from FINMA. 22 professional trustee authorisations have to date, been granted. To put this in context currently 330 Trustees have submitted applications.

A New Swiss Law on Trusts

Currently, there is no Swiss law relating to trusts.

However, foreign trusts have been legally recognised since July 2007, with the implementation of “the Hague Trust Convention of 1 July 1985 on the Law Applicable to Trusts and their Recognition”.

Since then, Swiss Trustees have administered trusts governed according to foreign laws. This implies that the Trustee needs to have good knowledge of the foreign law in order to comply with its fiduciary duties. It also means that Swiss administration and the Courts have to apply a foreign law, within the internal Swiss system.

Swiss trust law would:

• Offer new applications and business opportunities in wealth structuring and, close the current gap in the legal system, with the use of a Swiss, rather than a foreign instrument.

• It would also provide greater certainty to Swiss based Trustees, who currently may well need to have knowledge of a number of different foreign trust laws.

A preliminary draft bill and an explanatory report on the introduction of a Swiss Trust Law, were published in January 2022 and sent out for consultation. The preliminary draft bill introduces explicit provisions on the taxation of trusts.

The debate in the Chambers of Parliament will commence in the spring session of 2023 at the earliest. Therefore, the bill is not expected to come into force before 2024.

The Dixcart office in Switzerland will keep you fully updated regarding the progress and status of Swiss trust law, during 2023.

Dixcart Trustees (Switzerland) SA

Dixcart Trustees (Switzerland) SA has been providing trustee services for over fifteen years. We are a member of the Swiss Association of Trust Companies (SATC), and are registered with the ”Organisme de Surveillance des Instituts Financiers” (OSIF).

We are fully confident that Dixcart Trustees (Switzerland) SA meets the regulatory obligations required by the Swiss Federal Act on Financial Institutions, that came into effect at the start of 2020.  Our application has been submitted to FINMA and is within the licence process.

Additional Information

If you would like additional information regarding trusts and Switzerland, please contact Christine Breitler at the Dixcart office in Switzerland:   advice.switzerland@dixcart.com.

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What is a Guernsey Property Unit Trust (“GPUT”)?

A Guernsey Property Unit Trust (“GPUT”) is a form of Guernsey trust commonly used when structuring UK real estate acquisitions.

The assets of a GPUT are held in the name of the trustee on behalf of the unitholders (beneficiaries) who will hold units in the GPUT corresponding to their interest in the underlying asset. The legal ownership of the asset therefore rests with the trustee whilst the unitholders have the beneficial interest in the trusts’ assets.

The trustee will typically appoint a Property Manager to manage the real estate held.

Uses and Benefits of a GPUT

A GPUT can be used as a joint venture vehicle and / or as a regulated fund depending on the client’s requirements and offers a number of advantages. Up until 2006 a GPUT could benefit from an exemption to UK Stamp Duty Tax (“SDLT”). Whilst that exemption no longer exists, a GPUT is still an attractive investment vehicle with the following benefits:

• No Stamp Duty payable on transfer of units in a GPUT (where the GPUT qualifies as a ‘collective investment scheme’)
• No liability to income tax or capital gains tax for the Trustee in Guernsey
• The GPUT may be transparent for UK income tax when correctly structured as a “Baker” trust
• The GPUT is widely recognised by banks and financial institutions in the UK and elsewhere facilitating access to funding
• Where the GPUT is structured as a collective investment scheme it can be used as a vehicle for the pooling of investor’s funds
• No requirement to be audited (where not regulated or listed)
• Flexibility in relation to unitholder’s rights, such as different classes of units to allow certain unitholders to receive varying returns on their units
• A GPUT may (subject to tax advice) offer unitholders a greater degree of influence over the trustee, by allowing them to appoint directors to the board and/or include limitations to trustee powers under the terms of the trust instrument.

Rights of Unitholders

The rights of the unitholders will be largely governed by the terms of the trust instrument which will contain commercial terms that govern the GPUT, such as voting thresholds, rights on such matters as redemption, transfers and removal of a trustee. 

The trustee is independent of the unitholders, however, unitholders are able to maintain a degree of control over the trustee by including limitations on the powers of the trustee under the terms of the trust instrument.

GPUT Trustee

It is typically recommended that a special purpose vehicle (SPV) is established to act as the trustee to a new GPUT which then allows for limited liability status for the trustee.  Although the provision of trustee services is a regulated activity in Guernsey, an exemption from this requirement is available where the following criteria are met:

• The SPV trustee is administered by a Guernsey regulated fiduciary service provider, and
• The SPV trustee’s sole purpose and only activity is to act as the trustee to the NEW GPUT

A GPUT must have at least one trustee, however in practice a GPUT will often have two SPV trustees if the GPUT structure is to hold UK real estate in order to address overriding interests in English law.

A SPV trustee can be owned by a foundation or a charitable or non-charitable purpose trust.

Regulation of a GPUT in Guernsey

The requirement of a GPUT to be regulated will be dependent on the number of proposed unitholders and the sophistication of those individuals.

Where a GPUT is regulated under the Protection of Investors (Bailiwick of Guernsey) Law, 2020 (the “POI Law”), it will qualify as a “collective investment scheme”, being any arrangement relating to property (of any description):

• where the purpose is for investors to participate in, or receive profits or income arising from, the acquisition and disposal of the property, and
• in which investors do not exert management or control over the property to which the arrangement refers, and
• under which:
  • The contributions of the investors and the profits and/or income out of which payments are to be made are pooled, or
  • The property is managed as a whole, by or on behalf of, the person responsible for its management

Where a GPUT is regulated under the POI Law it can also be established under the registered or authorised fund regime and as a Private Investment Fund (“PIF”).

Dixcart Team

Any persons wishing to establish a Guernsey Property Unit Trust (GPUT) will require both legal and tax advice to ensure that the GPUT is structured to meet their needs as well as a licensed Guernsey administrator to provide trustee services.

Dixcart in Guernsey hold both a full Fiduciary Licence and a Protection of Investors Licence issued by the Guernsey Financial Services Commission

Dixcart Trust Corporation Limited, Guernsey: Full Fiduciary Licence granted by the Guernsey Financial Services Commission. Guernsey registered company number: 6512.

Dixcart is licensed under the Protection of Investors (Bailiwick of Guernsey) Law 1987 to offer PIF administration services, and holds a full fiduciary license granted by the Guernsey Financial Services Commission.

There are many factors to take into consideration when reviewing the best location for a Family Office. These factors naturally differ depending on the particular situation. Dixcart are well-positioned to offer advice and insight into determining which jurisdiction is best suited to meet specific family needs. 

Portugal Family Office

Portugal is particularly well suited, being an EU member country, offering a beneficial mix of corporate and personal income tax advantages, which are touched on briefly below.  

General Reasons 

• Portugal is a very safe country that is well established within the EU and under relevant EU Laws.
• Portugal has a well-qualified and skilled labour force, with relatively low labour costs, within the EU. 

Tax Reasons 

• Zero tax is payable on inherited wealth and on gifts and donations, in Portugal.
• Portugal does not levy wealth tax, only income is taxed. This therefore reduces the potential tax burden on accumulated wealth, namely on assets with capitalised capital gains.
• Gratuitous transfers of property, in life or upon death, between spouses, descendants and ascendants is covered by an exemption from Stamp Tax (10% tax rate), regardless of the amount and/or the type of taxpayer. This exemption applies to; shares, bonds, cash and immovable property (although the latter is subject to a 0.8% tax rate when transfers are made ‘in life’).
• Portuguese companies, incorporated within the EU approved Madeira International Business Centre (IBC), benefit from a 5% corporate tax rate on international income. 

A Good Double Tax Treaty Network 

• The extensive Portuguese Double Tax Treaty network allows for withholding tax reductions from foreign-sourced dividends, interest and royalties, as well as enabling the NHR exemptions to operate more efficiently. 

Read here for information on our Practical Tax Guide to Inheritance and Gifts Received in Portugal

An Attractive Participation Exemption Tax Regime 

• A general participation exemption regime allows for withholding tax exemptions on dividends between related companies, with low thresholds facilitating ‘free’ equity flow between family-owned multinational structures. 

Trust Structures and the Portuguese Tax System 

Portugal, being a civil law jurisdiction, does not have a domestic legal trust regime. Trust structures held within a Family Office, subsequently established in Portugal, may require careful review and/or restructuring. 

Matters such as the location and nature of the trust, position of the settlor, trustee and beneficiary, revocability of the trust, and powers of the settlor regarding the nomination of trustees and the liquidation of the trust, must all be thoroughly analysed. 

Dixcart Portugal, being part of a group with a strong presence in a number of jurisdictions, can offer extensive experience and knowledge regarding ‘trust’ jurisdictions, having offices in a number of them. We are therefore uniquely positioned to advise foreigners moving to Portugal regarding the implementation of trust structures. 

Summary and Additional Information

Portugal offers a number of potential advantages for the location of a Family Office, in particular if the owners of the wealth take advantage of the Portuguese Golden Visa, move to Portugal, and benefit from the NHR regime. 

We strongly recommend that professional advice should be taken. 

Dixcart are well placed to offer such professional advice, with experienced accountants and lawyers based at the Dixcart office in Portugal and other professionals, across the Group, with extensive expertise in the area of Trusts.

Please speak to your usual contact in Portugal: advice.portugal@dixcart.com.

Background: Isle of Man Trusts and Foundations

The Isle of Man is a jurisdiction well known for the establishment and management of both Isle of Man Trusts and Foundations. We have recently drafted a series of three comprehensive Articles in relation to Offshore Trusts, as well as a video. Similarly you can find three Articles, featured on our website, on the topic of Isle of Man Foundations.  

This Article is more of a discussion piece, with the case study demonstrating how Trusts and Foundations can be used in combination, to achieve specific objectives. It also explores forthcoming changes to Isle of Man Trust Law.

Are Trusts and Foundations the Best Structures for Asset Preservation and Succession Planning?  

Recent changes in the global landscape, both in terms of taxation, but also public opinion, mean that HNW families need to look at a range of solutions to achieve their aims.

Where individual circumstances allow, Trusts and Foundations, however, continue to play an important role in HNW family estate planning. The public generally still have the perception that tax mitigation is the sole purpose of establishing a Trust or Foundation structure, when in fact they have a much wider purpose, especially in relation to succession planning.    

The characteristics offered by Trusts and Foundations include:

• The ability for families to set out how they would like assets to be held and distributed in the long-term.
• Oversight in relation to family assets, with appropriate ‘checks and balances’ regarding trustees or foundation board members, who take on the responsibility to look after things in a way that meets the needs of the specific family.
• A structure that ensures that the intentions of a deceased or disabled wealth owner regarding how assets should be administered and distributed, are fully taken into account.

What Should Multi-jurisdictional Families Consider When Setting up a Trust or Foundation?

Each client must consider their individual circumstances, followed closely by what they are looking to achieve.

Once these two points have been identified, the next step should always be to seek tax advice specific to the circumstances.

Case Study

The Dixcart office in the Isle of Man, recently assisted a client who was looking to put in place asset protection and succession planning for their family business. 

The principal was a UK resident non-dom, whilst the wider family were based in various Civil Law jurisdictions.

On first examination, given the connection to Civil Law jurisdictions, a Foundation seemed likely to be the best fit, however, given the UK’s treatment of Foundations as a corporate vehicle, at least at the time, this could have been disadvantageous to the principal, who would have received greater certainty via a Trust structure. 

Conversely there was a concern that as the majority of the family were located in Civil Law jurisdictions, their local tax authorities may not recognise a Trust structure. 

• Ultimately, and of course subject to specialist advice at the time, we put in place a Trust/Foundation Hybrid structure which provided protection to the family as a whole. An Isle of Man foundation was created, with the sole purpose of acting as Trustee of an Isle of Man trust.

As such, from a Common Law perspective, the structure was recognised as a trust structure, however should the structure be challenged within a Civil Law jurisdiction, the courts would recognise the legal status of the Foundation, thus preserving its asset protection characteristics.

Is Anything About to Change in the Isle of Man Relating to Trusts?

The last major review of Trust Legislation in the Isle of Man was the Trustee Act 2001, so a revisit was definitely overdue.

The Trusts and Trustees Bill 2022 received its first reading in Tynwald, the Isle of Man Parliament, in June 2022.  The draft bill aims to further modernize the Islands Trust Legislation and proposes several amendments to the current legislation.   

Two of the amendments which are of particular interest are:

1. Duty to Disclose Trust Information

Trust ‘information’ is defined as information or documentation relating to a Trust, including the Trust accounts.  The Bill sets out provisions that the Trust Instrument may confer and/or indeed restrict who has the right to receive Trust Information.

It also proposes to confer the right to certain parties, specifically the beneficiaries and Protector(s) of a non-charitable Trust and Protectors, to request information. 

2. Power to Declare Exercise of a Power Voidable

This provision allows the court to set aside the exercise of a power by a trustee(s), where the Trustees exercised their powers validly, but failed to take into account relevant considerations, and if they had done so, would not have carried out the action that had been taken.

Additional Information

If you require further information regarding trusts and foundations and how we can assist, please feel free to get in touch with Paul Harvey at the Dixcart office in the Isle of Man.

Dixcart Management (IOM) Limited is licensed by the Isle of Man Financial Services Authority.

Trust structures are generally associated with estate and succession planning for private client engagements, because of the advantages and safeguards that a well-structured trust can provide. Trusts, however, can also play an important role within corporate transactions. Consider initial public offering (IPO) planning and Trusts, for the major shareholders (founders) of a company, that are looking to take their company public.

Use of a Trust as Part of Corporate Processes

Careful pre-IPO Trust planning can provide the founders with a number of benefits in respect of their shareholding in the company to be listed (‘List Co’), and may also be used to create employee incentive schemes to reward, motivate and retain employees during and after the IPO process.

Chart of Parties Involved in an IPO Trust Structure:

Founders, the Family and an IPO Trust

Whether the founders are considering a company listing to generate capital or alternatively as an exit strategy, family circumstances are often overlooked, and these can play a pivotal role in the success of a listing.

Before the List Co is listed, it is often the case that the company founder owns a substantial holding of the shares in the List Co through a holding company (Hold Co). By creating a pre-IPO Trust, the founder can transfer all of his/her shares in the Hold Co to the Trustee, and the Trustee then indirectly holds shares in the List Co though the Hold Co, for the benefit of the beneficiaries of the Trust.

Purpose and Benefits

A pre-IPO Trust provides a wide range of benefits, including:

– continuing security without the distraction of hostile bidders, activist shareholders or adverse media;

– risk impact protection (potential mitigation from adverse events such as divorce, incapacity or death);

– concentrated shareholding remains under the control of the Trustee, in the event of the death of the founder. This is compared to the potential dilution of holdings to several family members though the administration of the estate after death;

– family wealth and succession planning;

– potential mitigation of probate costs and issues;

– privacy, irrespective of the number of family members or changes from one generation of beneficiaries to the next;

– potential tax mitigation depending on the jurisdiction of the Trust, the situs of the assets held and the residence and domicile of the beneficiaries.

Employee Benefit IPO Trusts (EBT)

Another important aspect of trust arrangements in IPO planning is the establishment of a trust for the benefit of employees. Although employee benefit or incentive structures can be designed in a variety of ways, many of them are provided through discretionary trusts.

Where the company establishing the structure and settling the assets into the Trust is the settlor, the beneficiaries of the trust may comprise current and future employees of the settlor company.

The rationale for establishing an EBT as part of the IPO process is to hold shares in the newly listed entity and for those shares to subsequently be used to provide efficient incentives for staff.

Purpose and Benefits in relation to Staff

The benefits of establishing an EBT include:

– hold founding IPO stake for the benefit of the management;

– short, medium and long term buy-in and incentivisation of key staff;

– opportunity to offer stakeholder incentivisation to a wide staff base;

– potential protection from the demands of creditors, in the event of a liquidation.

Governing Law of the IPO Trust

When choosing the governing law for the trust, consideration should be given to a jurisdiction which is politically stable and has a well-established legal system, sophisticated and modern trust legislation and offers a low tax regime.

The jurisdiction of Guernsey fulfils these criteria and would be a sound choice for the establishment of pre-IPO Trusts. 

Choice of Trustee

The trustee has responsibility for administering the Trust and determining the amount and timing of distributions, in accordance with the terms of the Trust Deed. Selecting a capable and experienced Trustee is therefore critical.

Why Choose Dixcart in Guernsey as Trustee?

Dixcart Trust Corporation Limited (“Dixcart”), has over 45 years of expertise and experience in the provision of professional trustee and corporate management services.

Dixcart can provide both listing support services and outsourced professional company secretarial services for listed companies and are in a position to assist with supporting both the wider pre and post-IPO processes.

The Dixcart Group remains privately owned and fully independent. Clients benefit from long-term continuity and stability of relationships, and high standards of professional care.

Further Information

For further information on this subject please contact the Dixcart office in Guernsey: advice.guernsey@dixcart.com, or your usual Dixcart contact.

Dixcart Trust Corporation Limited, Guernsey: Full Fiduciary Licence granted by the Guernsey Financial Services Commission. Guernsey registered company number: 6512.

Background

Switzerland is a very attractive jurisdiction for the establishment and management of Family Offices, from virtually all continents and countries across the world. South America, in particular is a part of the world that particularly appreciates the gravitas of Switzerland as a location for a Family Office, the stability of this international centre and the highest level of confidentiality that is guaranteed. 

Reasons Why Switzerland is a Favoured Location

1. Political, Financial, Social and Economic Stability

The economy of Switzerland is one of the world’s most advanced economies. The service sector plays a significant economic role, particularly the financial services sector. The Swiss economy ranks first in the world in the 2019 Global Innovation Index, and fifth in the 2019 Global Competitiveness Report.

The stable political and economic environment of Switzerland makes it an appealing jurisdiction from an asset protection perspective, with the added benefit of attractive tax regimes for both companies and individuals. These factors, combined with the country’s high regard for personal privacy and confidentiality, are of appeal to Family Offices from all over the world.

2. Banking Advantages

Switzerland is the premier financial destination for international investment and private asset protection. It also offers one of the strongest and most commercial banking centres in the world.

It has a long history of expertise in dealing with international currencies and open capital markets. Many banks have dedicated desks for particular jurisdictions, providing specific services to clients.

The main benefits of having a Swiss bank account are the low level of financial risk and high level of privacy

There are a wide variety of large domestic and overseas banks, experienced in operating accounts for different industries; trading, commodities, and commercial, as well as for private individuals.

Switzerland is well-known for its private banks, an exclusive niche for high net worth individuals, which provide sophisticated personal financial services and products to an exclusive clientele.

3. Trusts and Private Trust Companies as Asset Protection Vehicles 

Widely used in Anglo-Saxon countries, a trust is flexible and, in the right circumstances, can be an effective asset protection vehicle. It provides anonymity for families, and confidentiality regarding the assets and/or companies held within it. Trusts can be a useful aid in terms of succession planning and can assist with long term inheritance matters.  

A Private Trust Company (PTC) is a corporate entity authorised to act as trustee. The client and their family can actively participate in the management of the assets and decision-making processes, as well as sitting on the board of the PTC. 

Switzerland recognised trusts with the ratification of The Hague Convention on the Law Applicable to Trusts (1985), on 1 July 2007. Whilst there is no domestic law governing trusts in Switzerland, trusts from other jurisdictions, and their specific rules, are recognised and can be administered in Switzerland.

In Switzerland the Settlor (the individual who settles assets into the Trust for the benefit of the Beneficiaries) can choose the law of any specified trust jurisdiction to govern the trust. For example, a Guernsey trust can be established with a Swiss Trustee.

The tax advantages available in using a trust with a Swiss Trustee essentially depend on the tax residence of the Settlor and the Beneficiaries. Professional advice should be taken.

Use of a Swiss Company as Trustee

• A Swiss company can act as Trustee of a Trust, formed under the law of another jurisdiction
• Trusts are not subject to taxation in Switzerland
• The Settlor and Beneficiaries are not subject to taxation in Switzerland, as long as they are not resident in Switzerland

Dixcart and Swiss Trustee Services

The Dixcart office in Switzerland has been providing Swiss Trustee services for over twenty two years and is a member of the Swiss Association of Trust Companies (SATC) and registered with the Association Romande des Intermediaires Financiers (ARIF).

In terms of compliance obligations, currently, Swiss Trustees are supervised to ensure that thy meet Swiss Anti-Money Laundering obligations.

However, as from January 2023, the Financial Institutions Act of January 2020, requires that Swiss professional Trustees must be licensed by FINMA (Swiss Financial Market Supervisory Authority) to conduct their business. Swiss Professional Trustees must now comply with; structural, organizational, business conduct and audit requirements. Dixcart meet the necessary obligations and our application has been put in place. 

Private Trust Companies and single family offices are exempt. The exemption also applies if the Beneficiary is a charity.

The Dixcart Swiss office, and the other offices that are part of the Dixcart Fiduciary Group, recognise that the application of compliance procedures, to meet the highest standards, provides our Family Office clients with the most effective and sustainable service.

Additional Information 

If you would like additional information regarding the use of Switzerland for asset protection, please contact Christine Breitler at the Dixcart office in Switzerland: advice.switzerland@dixcart.com. Alternatively, please speak to your usual Dixcart contact.

In 2007, Malta enacted specific legislation regarding foundations. Subsequent legislation was introduced, regulating the taxation of foundations, and this further enhanced Malta as a jurisdiction for foundations designed for charitable and private purposes.

The Objects of a foundation may be charitable (non-profit), or non-charitable (purpose) and may benefit one or more persons or a class of persons (private foundation). The Objects must be; reasonable, specific, possible, and must not be unlawful, against public policy or immoral. A foundation is prohibited from trading or carrying on commercial activities, but it may own commercial property or a shareholding in a profit-making company.

Foundations and the Law

Despite the relatively recent implementation of the law on foundations, Malta enjoys an established jurisprudence relating to foundations, where the Courts have dealt with foundations set up for public purposes.

Under Maltese law, a foundation may be set up by natural or legal persons, whether Maltese resident or not, irrespective of their domicile.

Two main types of foundation are recognised by the law:

• The Public Foundation

A public foundation may be set up for a purpose, as long as it is a lawful purpose.

• The Private Foundation

A private foundation is a fund endowed to benefit one or more persons or a class of persons (the Beneficiaries). It becomes autonomous and acquires the status of a legal person when it is formed in the manner prescribed by law.

Foundations may be set up either during a person’s lifetime or as specified in a will, on that person’s death.

Registration

The law provides that the foundation must be constituted in writing, via public deed ‘inter vivos’, or by a public or secret will. The written act must include detailed provisions containing the powers and signing rights.

The setting up of a foundation involves the registration of the foundation Deed, with the Office for the Registrar of Legal Persons, through which it gains a separate legal personality. The foundation itself is, therefore, the owner of the foundation property, which is transferred to the foundation through an endowment.

Registration and Voluntary Organisations

For voluntary organisations in Malta, there is a further registration procedure which must be fulfilled.

A voluntary organisation must fulfil the following conditions to be eligible for registration:

• Established by a written instrument;
• Established for a lawful purpose: a social purpose or any other lawful purpose;
• Non-profit making;
• Voluntary; 
• Independent of the State.

The law also establishes a procedure for enrolling Voluntary Organisations in a Register of Voluntary Organisations. Enrolment requires the fulfilment of several requirements, including the submission of annual accounts and identification of the organisation’s administrators.

The Benefits of Enrolling a Voluntary Organisation

Any organisation that fulfils the above criteria is designated as a Voluntary Organisation. Enrolment, however, confers essential advantages to the organisation, including:

• Can be created by foreigners, hold foreign assets and distribute dividends to foreign Beneficiaries;
• Can receive or be the beneficiary of grants, sponsorships, or other financial aid from the Maltese Government or any entity controlled by the Maltese Government or the Voluntary Organisations Fund;
• Founders do not need to be featured in any public records;
• Ability to benefit from policies supporting voluntary action, as may be developed by the Government;
• Details relating to the Beneficiaries, are protected by law;
• Receiving or benefitting from exemptions, privileges, or other entitlements in terms of any law;
• Being party to contracts and other engagements, whether remunerated or not, for carrying out services to achieve its social purpose, at the Government’s request or the request of an entity controlled by the Government.

The formation and enrolment of a Voluntary Organisation does not automatically give rise to a legal person. Voluntary Organisations have the option to register as legal persons but do not have the obligation to have to do so. Similarly, the registration of a Voluntary Organisation as a legal person, does not imply the enrolment of the organisation.

Setting up a Foundation

A public deed or a will can only constitute a foundation, if a ‘general act’ takes place to establish a foundation, it must be published by a public notary and subsequently registered in the Public Registry.

The minimum endowment of money or property to set up a foundation is €1,165 for a private foundation, or €233 for a public foundation established exclusively for a social purpose or as non-profit making, and must contain the following information:

• The name of the foundation, which name must include in it the word ‘foundation’;
• The registered address in Malta;
• The purposes or Objects of the foundation;
• The constitutive assets with which the foundation is formed;
• The composition of the board of administrators, and if not yet appointed, the method of their appointment;
• A local representative of the foundation is necessary, if the foundation administrators are non-Maltese residents;
• Designated legal representation;
• The term (length of time), for which the foundation is established.

A foundation is valid for a maximum term of one hundred (100) years from its establishment. Except when foundations are used as collective investment vehicles or in securitisation transactions.

Setting up a Non-Profit Organisation

Purpose foundations, also referred to as non-profit organisations, are regulated under Article 32, where one of the essential requirements  is an indication of the purpose of such a foundation.

This can subsequently be amended through an additional public deed. This may include supporting a class of persons within the community due to a social, physical, or other type of disability. Such an indication of support, will not render the foundation a private foundation, it will remain a purpose foundation.

The deed of foundation, for such an organisation, may indicate how its money or property will be used. It is at the administrators’ discretion whether or not to make such a specification.

As the foundation is explicitly being established for a particular purpose, if the purpose is; achieved, exhausted or becomes impossible to accomplish, the administrators must refer to the Foundation Deed, to determine how the remaining assets, left in the foundation should be treated.

Taxation of Malta Foundations and Non-Profit Organisations

In the case of foundations enrolled under the Voluntary Organisation Act as long as they are purpose foundations and are non-profit organisations, there are several options available:

1. To be taxed as a company, such a decision is irrevocable; or
2. To be taxed as purpose foundation and pay a capped rate of 30%, rather than 35% tax; or
3. If the foundation has not opted to be taxed as a company or as a trust and does not qualify for the capped rate above, the foundation will be taxed as follows:
   • For every euro within the first €2,400: 15c
   • For every euro within the next €2,400: 20c
   • For every euro within the next €3,500: 30c
   • For every euro of the remainder: 35c

The relevant provisions will be applied to the Founder of the foundation and to the Beneficiaries.

How Can Dixcart Assist?

The Dixcart office in Malta can assist with the efficient establishment and management of a foundation to meet the agreed Objects.

Additional Information

For further information about Maltese foundations and the benefits that they offer, please speak to Jonathan Vassallo: advice.malta@dixcart.com at the Dixcart office in Malta. Alternatively, please speak to your usual Dixcart contact.

Establishing an effective Offshore Trust that is both operationally sound and achieves the Settlor’s objectives is of paramount importance, but can be fraught with pitfalls. As a Trust service provider we often find that Settlors and individual Trustees can have misconceptions about their roles, responsibilities and the Trust itself. These misunderstandings can culminate in issues and create unintended liabilities. This series has considered the key elements of Offshore Trusts; If you would like to read the other articles in the series you can find them here:

• Offshore Trusts: An Introduction (1 of 3)
• Offshore Trusts: Types and Uses (2 of 3)

In the final article in this series, we will examine the most common misunderstandings and pitfalls for Settlors and Trustees to be aware of. Where appropriate, we suggest some best practices for avoiding future problems and how a Trust service provider can help. We will be discussing:

• Common misunderstandings of Offshore Trusts?
• Common pitfalls when establishing Offshore Trusts
• Working with a Trust Service Provider

The Nature of the Legal Arrangement

On the subject of Trusts generally, it is important to note that Trusts do not have separate legal personality and therefore do not benefit from limited liability. It is the Trustees who are liable for any actions taken, or not taken, in respect of the Trust.

Often Settlors will either not be aware or overlook the basis of the legal arrangement – the transfer of beneficial ownership – this confers legal title onto the Trustees; the Settlor will no longer have any legal title to the settled assets. To continue to exercise control, as previously, will most likely result in the Trust being deemed a sham and therefore voidable.

Following this, there is also a common misunderstanding that the role of Trustee is simply ceremonial, purely an administrative requirement. Of course, this is not correct. The Trustees have a fiduciary duty to any named or class of Beneficiaries, to manage the Trust Fund in good faith, in line with the Trust Deed. As noted above, they hold legal title over the assets of the Trust. As legal owners, the Trustees are liable for tax due on the Trust assets, which may arise in jurisdictions other than their local jurisdiction of residence.

Subject to Tax Advice

Often, and understandably, clients that come to us directly are not aware of the significant changes in reporting, compliance requirements and the general approach to tax planning and anti-avoidance measures. These changes have made tax advice a necessity from outset. Such advice ensures that, where best practices are followed, business is conducted bona fide and is globally compliant.

The Perception of ‘Offshore’

This neatly leads us to our next common misunderstanding. The level of negative media coverage that Offshore structures have received over the last decade is unfortunate and often disproportionate or even misleading. For example, some of the most recent and prolific stories, the Panama Papers, Paradise Papers and Pandora Papers, all present the use of Offshore planning as immoral or even criminal – whilst the reports do highlight a minority of offenders, 95% of the leaked documents will have related to wholly legal and compliant planning, that is commonplace.

In fact, to use the UK as an example, it is mandatory for UK employers to provide a minimum 3% private pension contribution to employees. Those pensions will more than likely be linked to non-UK domiciled funds. 75% of UK households are directly or indirectly engaged in such asset management services and therefore many UK residents will already have some form of offshore involvement.

Hopefully the above example briefly illustrates the point I am driving towards; to many people, the word Offshore, especially in the context of wealth management, is synonymous with scandal. When, in reality, Offshore is omnipresent – it is the norm, wholly legal and it is almost always advised by highly qualified and regulated intermediaries. In summary, going Offshore should now be a transparent and compliant tool for sophisticated planning, which can lead to legal, tax and various other benefits. Offshore should not be seen as a shortcut to tax evasion or hiding wealth.

One Size Does Not Fit All

Finally, many UK resident and domiciled individuals are unaware of the various rule changes and subsequent erosion of various tax benefits, which previously flowed from the use of Offshore Trusts. Therefore, for many in the UK who are resident and domiciled, there are little to no benefits associated with using an Offshore Trust. The limited benefits can include the regulated nature of Isle of Man Trustees and the ability to benefit from gross roll-up, in certain circumstances.

Unlike Trustees in many other jurisdictions, providing Professional Trustee services is a licensed activity on the Isle of Man. Isle of Man Trustees require a Class 5 License from the Isle of Man Financial Services Authority, and are therefore properly regulated – ensuring that good levels of governance and compliance are followed and informed trustee actions. In addition, due to its illustrious heritage in Trust planning, both the Island and Dixcart have extensive expertise in this area.

Gross roll-up describes an offshore structure’s ability to benefit from untaxed compounded growth for the duration of its lifetime. Offshore Trusts may benefit from gross roll-up in certain circumstances – this has to be caveated as there may be tax to pay on establishing the Trust, periodically (e.g. on 10 year anniversaries), in respect of any distributions, on settlement etc. The taxation of Trusts is complex and will require specialist advice to consider your circumstances.

However, there can still be many benefits to using Offshore Trusts for UK Resident Non-Domiciliary individuals. This, among other topics, is considered in our summative video, available on our website and YouTube here. 

Offshore Trusts – Common Pitfalls

There are many issues that can be avoided by proper planning and expert guidance from outset. Some of the most common considerations include:

Allowing for Flexibility

The Trustees are mandated to follow the provisions of the Trust Deed; contravention of this can lead to legal action being taken against them for breach of fiduciary duty. Therefore, the Settlor needs to foresee the Trusts requirement for flexibility, ensuring that it is not blinkered in the approach to achieving its objectives, or ties the Trustees’ hands regarding effective management of the Trust.

There are several scenarios where an overly prescriptive Trust Deed can cause unintended issues. We will examine some brief examples below.

Distributions: Where, for example, the Trust Deed stipulates that a distribution or distributions are to be made to a Beneficiary on or following a certain milestone (e.g. upon a birthday, marriage, purchasing a first home, graduation etc.), the timing may not always be ideal as circumstances change. For instance, vulnerable or young Beneficiaries receiving a sudden windfall could lead to negative impacts/outcomes.

Further to this, where the distribution schedule is fixed, this can cause unintended tax consequences. Beneficiaries are taxed on distributions received, taxable at their personal rate in their jurisdiction of residence. If the Beneficiary’s income falls into a higher or additional rate of tax at the time of transfer, this can lead to the payment of unnecessarily high tax. Rather, given the flexibility, the Trustees could defer the payment until they either take tax advice or fall into a lower bracket e.g. on retirement, etc.

Asset Selection: It is not unusual for the Trust Deed to name or preclude certain types of activity regarding the management of the Trust fund. For example, it would be perfectly logical to limit the level of risk exposure to certain assets/activities owing to volatility – e.g. Bitcoin investment. On the flipside, where certain investments are specified, this can be far too restrictive and cause various longer-term issues – e.g. what happens if the fund or company specified ceases to trade?

Solution: Discretionary Trusts offer the Trustees complete control over how the Trust achieves its aims. The Settlor can still provide some guidance via a Letter of Wishes, which is persuasive but not binding. As long as the Letter of Wishes is reviewed regularly, the Trustees will be aware of the Settlor’s changing intentions and take this into account when taking any actions. In addition, Isle of Man Trusts can now continue in perpetuity, which provides additional flexibility when estate planning. Dixcart have significant experience in establishing and administering Offshore Discretionary Trusts.

Choice of Trustees

As I am sure you can appreciate by now, the choice of Trustee is extremely important. Several factors need to be considered when choosing who performs this vital role:

Longevity: A key consideration when appointing Trustees is their longevity – will the selected Trustee be able to fulfil their duty for the lifetime of the Trust? If not, you will have to consider succession planning to replace those Trustees as and when they pass away or lose capacity. Longevity also applies to the Trustees’ tax residency i.e. If the Trustee is living in an Offshore jurisdiction, but then moves to the UK, the Trust will also move with the Trustee and could be liable to UK taxation. The Settlor needs to ensure that the Trustee will provide continuity and stability.

Expertise: Depending on the assets held in Trust, or the activity undertaken, there may be certain expertise required to meet the Trust’s objectives. For example, when managing assets such as investments, the Trustees will have to be comfortable dealing with the assets, their administration and any third party professionals involved. This also extends to knowledge of the Trust, as well as the legal and regulatory requirements.

Liability: As noted previously, the Trust does not benefit from limited liability, and therefore the Settlor will need to take the potential risks e.g. litigation etc. into consideration when selecting who to appoint as Trustee. The tax aspects are also worth considering here, as mentioned above, the Trustees will be liable for any due tax on the assets. Therefore, the Trustees will need to be willing and able to perform the role and understand the implicit risks of the undertaking.

Protectors: In many respects Protectors police the Trust, in theory providing a stopgap to wayward Trustees. In practice, giving a third party too much say in how the Trust is run, can make administration of the assets onerous and potentially negatively impact its objectives. Further to this, where a Protector is given too much scope, they can be deemed a de facto co-Trustee, and therefore beholden to the same fiduciary duties and liability as a Trustee. Where a Protector is desirable, ensuring that their powers are narrowly defined is vital to ensuring they add to rather than detract from the objectives of the Settlor.

Alternates: Where the Settlor has appointed an individual to act as Trustee, this can cause issues further down the line. Where the individual is the sole Trustee, if they pass away without making proper provision, there can be unintended burden and unwarranted cost involved in remedying the situation. Where individual Trustees are desirable, you must ensure that a minimum of two are appointed at all times, and ideally provision made for replacement within the Trust Deed to protect against unforeseen events.

Neutrality: Where family members are appointed as Trustees, it is not uncommon for relationships to faulter and communication to breakdown. Such issues can present significant administrative barriers, potentially affecting the Settlor’s intended outcome.

Solution: All of these issues can be abated via the appointment of a professional Trustee rather than individual Trustees. Professional Trustees, such as Dixcart, can provide an unbiased and expert service for the lifetime of the Trust. Using their technical knowledge and adhering to best practices, they can administer the Trust effectively and efficiently, reducing the burden placed on both the Settlor and their loved ones. And as previously noted, unlike in some other jurisdictions, professional Trustees located in the Isle of Man are licensed and regulated – so you can rest assured that the Trust is in capable hands.

Settlor’s Involvement

It is understandable that Settlors may wish to retain control over the Trust assets for as long as possible; after all, they have more often than not spent a lifetime accumulating the wealth they want to pass on. Some may even seek to appoint themselves as Trustee, however, too much involvement from the Settlor can lead to the Trust being deemed a sham, and therefore the Trust assets could form part of their estate for tax purposes. It is worth underlining the fact that there needs to be clear separation between the Settlor and the assets, ensuring that the Settlor cannot be deemed to have retained any unintended beneficial interest. 

A Settlor may also wish to name themselves or their spouse as beneficiary, however, this requires very careful consideration. If the Settlor or his or her spouse can benefit in anyway, the Trust is deemed to be a Settlor Interested Trust, giving rise to adverse tax consequences.

Solution: The Settlor needs to be clear about what they want to achieve from outset. This way, the correct form of Trust and appropriate provisions can be included at planning stage. The client will need to work with the adviser to come to a decision. Referring to my note above, regarding professional Trustees, this can also provide comfort. The Settlor should be able to have confidence that their chosen service provider will always act in the interests of the Trust, taking into consideration the Settlor’s Letter of Wishes where appropriate.

Beneficiaries

The selection of Beneficiaries needs to be carefully thought out – sometimes it is immediately clear who should benefit, and other times it can be a ‘Sophie’s choice’ dilemma. Of course, the choice will be directly influenced by the type of Trust being setup i.e. in the case of a Discretionary Trust, specific Beneficiaries or classes of Beneficiaries are selected for the Trustees to determine who should benefit. In addition, the Settlor must choose whether or not to make Beneficiaries aware of their interest in the Trust. Depending on the type of Trust, a Beneficiary can have a legal right to the assets held in Trust or information about them. Additionally, the Beneficiary can have a tax liability in certain circumstances.  

Solution: This needs to be considered on a case-by-case basis and will very much depend on the Settlor’s personal circumstances. It can be very useful to either make the Beneficiaries aware, so that open discourse can be had between Trustee and Beneficiary, or alternatively in some cases retaining privacy in this matter until time of distribution may be preferrable – note that depending on the constitution of the Trust, the Beneficiary may have an immediate tax liability, and therefore would need to be immediately notified. Either way, the level of communication desired can be facilitated by professional Trustees, such as Dixcart.

Costs

Before establishing the Trust, the Settlor needs to take the costs of administering the assets into account – whether this is for trading investments, the procurement or sale of property, potential tax consequences, professional services, etc. An additional consideration will be the impact of increased regulatory and compliance reporting required in today’s world – this means that administering an Offshore Trust is no longer an exercise that incurs nominal fees.  

Solution: Whilst fees can be paid from an alternative source i.e. outside of the Trust fund, this can provide operational issues. For example, where the Settlor was paying the operational costs of the Trust and the Trust continues after death, alternative provision must then be made for the fees to be met. It is often far simpler to apportion a percentage of the Trust fund to cover the administration in achieving the objective of the Trust. In prosperous times the growth of the Trust Fund often more than covers these costs – however, in times of low interest, depressed markets or even depending on the assets held, such fees must be seriously considered in light of the Trust Fund’s sustainability. Such costs should be illustrated by service providers on receipt of the full details.

Working with a Trust Service Provider – Dixcart

Dixcart have been providing Trustee Services and guidance for over 50 years; assisting clients with the effective structuring and efficient administration of Offshore Trusts.

Our in-house experts and senior employees are professionally qualified, with a wealth of experience; this means we are well placed to support and take responsibility for the Offshore Trust, acting as Trustee and providing specialist consultancy services where appropriate. If required, the Dixcart Group can also assist with individuals seeking to immigrate to the UK and the required tax and wealth planning. 

We have developed an extensive range of offerings, which includes an array of Isle of Man structures. From pre-establishment planning and advice to the day-to-day management of the vehicle and troubleshooting issues, we can support your goals at every stage.

You can read more about our Trust services here in this helpful guide.

Get in touch

If you require further information regarding the use of Offshore Trusts, or Isle of Man structures, please feel free to get in touch with Paul Harvey at Dixcart:

advice.iom@dixcart.com

Dixcart Management (IOM) Limited is licensed by the Isle of Man Financial Services Authority.

This series considers the key elements of Offshore Trusts, particularly Isle of Man Trusts. This is the second of three articles, which examines some of the most common types of Offshore Trusts and their uses. If you would like to read the other articles in the series you can find them here:

• Offshore Trusts: An Introduction (1 of 3)
• Offshore Trusts: Misunderstandings, Pitfalls and Solutions (3 of 3)

From protecting family legacies, to ensuring proper succession planning, providing for dependents or even employees, the Offshore Trust is still an extremely flexible tool at the advisers’ disposal – hopefully the following article will help illustrate this point.

Article 2 of 3, Offshore Trusts: Types and Uses will explore the following:

• Discretionary Trusts
• Interest in Possession Trusts
• Accumulation & Maintenance Trusts
• Other Forms of Offshore Trust
• Working with Dixcart

Offshore Discretionary Trusts

The Discretionary Trust is one of the most commonly used types of Trust and can provide maximum flexibility for the Settlor and Trustees in terms of how the Trust achieves the desired objectives.

For instance, a Discretionary Trust can provide the Trustees with the ability to make distributions in a way that avoids wasting or depleting the Trust Fund unnecessarily and in line with changing circumstances – this can be for many reasons, including the protection of vulnerable Beneficiaries, tax planning or even asset protection with regards to Beneficiaries personal liabilities, and more.

Additionally, whilst a class of Beneficiaries may be apparent, the Settlor may not know what the best way of dividing the fund will be and may wish to allow for future changes in circumstances and even additional beneficiaries to be considered – for example, unborn grandchildren.

Discretionary Trusts can be formed during the Settlor’s lifetime, either as a living settlement or written into their Will, coming into existence upon death. If created as a living Trust, the Settlor may be liable to taxation on the chargeable transfer value. Furthermore, the Trustees may also be liable to a periodic liability on 10 year anniversaries, and on any distributions to Beneficiaries. For this reason, tax advice should be sought at the outset in respect of the circumstances of the Settlor and Trustees.

The Settlor must not retain any beneficial interest in possession or control over the assets settled into the Discretionary Trust, otherwise the Trust may be considered a sham or voidable, and the assets may still form part of the Settlor’s estate.

Instead, the Trustees are empowered to administer the Trust Fund in the interests of the Beneficiaries and the Trust itself. The Trustees are also able to make distributions at their discretion, to any beneficiary at a time they deem appropriate. Whilst the Discretionary Trust provides Trustees with complete control over the arrangement, their actions must still be compliant with the Trust Deed.

The provisions of the Trust Deed can provide for restrictions that the Settlor wishes to put in place. In addition, the Settlor may elect to appoint a Protector, who is usually a trusted professional adviser, to oversee the Trustees and ensure compliance with the Trust provisions. The Protector retains certain powers as desirable, to make sure that the Trustees achieve the objectives of the Trust in congruence with the Trust Deed. Whilst the inclusion of the Protector can provide controls, it is important to not restrict the Trustees so as to erode the effectiveness of the Discretionary Trust.

Finally, the Settlor can guide the Trustees by providing a Letter of Wishes. The Letter of Wishes provides a statement of the Settlor’s intentions at that point in time, allowing the Trustees to take this into consideration when making decisions and distributions. So long as the Letter of Wishes is regularly reviewed, it can provide fantastic insight into the Settlor’s mind as circumstances change – albeit, this document is persuasive and not binding; it creates no legal obligation on the part of the Trustees.

The Discretionary Trust is a very attractive solution that delivers maximum flexibility and gives the potential to remove tax liability from the Settlor’s estate – although this flexibility comes at a price. Discretionary Trusts can be complex, requiring specialist knowledge to avoid pitfalls – the Settlor needs to understand that they are placing their assets under the control of their chosen Trustees, who must act bona fide in line with the Trust Deed, but not necessarily in line with their wishes – so long as they consider it is in the best interests of the Trust and Beneficiaries.  

Offshore Interest in Possession Trusts

Less common, but still widely used, is the Interest in Possession Trust. This type of Trust can have a myriad of uses, all of which hinge on this instrument’s ability to provide the Settlor with access to the Trust Fund during their lifetime – in fact, sometimes this type of Trust is called a Lifetime Possession Trust.

The interest in possession can either be for a fixed period of time or indefinite. It is very common for provision to be made for the remainder of the Settlor’s lifetime.

In an interest in possession arrangement, the Settlor places the assets into Trust, thus transferring legal title to the Trustees (as per every Trust arrangement) – but here the settlor carves out an interest in possession, giving themselves an immediate and automatic right to the income flowing from the Trust assets.

Sometimes the Settlor of an Interest in Possession Trust is referred to as an Income Beneficiary or a Life Tenant, because of this legal right. The carveout can provide the Settlor with rights to enjoy the assets and/or all income generated from the assets during their lifetime. For example, to live in a property, pay living expenses or pay for long term care etc. from the gains of investments or other assets such as dividends from shares in a family business.

There can be more than one Income Beneficiary or Life Tenant, who will not typically have any beneficial right to the settled assets themselves, such as a spouse. In the case of income payments, this is paid to them periodically as set out in the Trust Deed.

The income received will be less the expenses of the Trust – it is important to remember that this will include any costs of administering the assets (custodian fees, investment adviser fees, property management etc.) along with potential remuneration of Trustees, which so long as fair is allowable under Trust Law.

When making investments decisions, Trustees will have a duty to both the Income Beneficiary / Life Tenant and the Beneficiaries who are entitled to the assets, making such decisions by considering the competing needs of income and longevity, unless otherwise stated in the Trust Deed.

As per the Discretionary Trust, the Trust assets will be held by the Trustees for the benefit of the named classes of beneficiaries or named individual Beneficiaries contained within the Trust Deed. These Beneficiaries can benefit after the set period that the Income Beneficiary or Life Tenant can enjoy the interest in possession – this is normally after death.

There are tax implications for the implementation of this type of Trust, and as ever, it can be quite complex. Therefore, tax advice should be sought in all cases.

Offshore Accumulation and Maintenance Trusts

Accumulation and Maintenance Trusts are somewhat of a hybrid approach between a Discretionary Trust and a Bare Trust. At its core, this type of trust places the Trust Fund under the care of the Trustees until a child or young Beneficiary reaches a specified age, up to 25 years.

For the intervening period, the Trustees will have discretion over the administration of the settled assets and how best to use them for the benefit of the Beneficiary – of course in compliance with the provisions of the Trust Deed. Broadly the Trustees may accumulate the income and gains to build the Beneficiaries capital entitlement or can apportion elements for the ongoing maintenance of the Beneficiary.

Prior to the Finance Act 2006 changes to the treatment of Accumulation and Maintenance Trusts, these Trust arrangements were set up to achieve certain IHT planning benefits – however, in the modern day, and due to the changes in the Relevant Property Regime (RPR), this benefit has now been removed. Accumulation and Maintenance Trusts will need to consider the RPR, which can result in periodic 10 year anniversary charges, as per Discretionary Trusts discussed above.

For those Accumulation and Maintenance Trusts settled pre-2006, there was a window until the 5^th of April 2008, whereby the age of majority could be increased from 18 to the maximum of 25 years. These Trusts will continue to receive the same pre-2006 IHT treatment for the lifetime of the Trust i.e. before the Beneficiary reaches the age of majority. However, it is important to note that any additional settlements post-2006 will render the trust subject to the RPR changes. Furthermore, if there is no absolute interest in the trust i.e. it is a Discretionary Accumulation and Maintenance Trust, and the age of majority was not amended before 6^th April 2008, the RPR changes and periodic charges will be applicable.

Before maturity, whilst the Trustees can elect to roll up the income and growth of the Trust assets, they can also defer or even reallocate them depending on the Trust Instrument. This can only be actioned before the Beneficiary gains an interest in possession at age 18 or 25 as per the trust terms.

If done so bona fide and in line with the Trust Deed, the Trustees could invest the Trust Fund into certain specific fixed form assets before the Beneficiary’s 18^th birthday e.g. real estate, bonds, fixed term deposits etc. This means that the value could be released in tranches over time or produce ongoing income via maturing investments, rent etc. in turn avoiding wasteful behaviour and allowing the Beneficiary to mature beyond the age of Majority.

In summary, Settlors may feel more comfortable establishing an Accumulation and Maintenance Trust, rather than a full Discretionary Trust – this is because the Trustees will have the flexibility of administration during the Trusts lifetime, whilst the Beneficiaries’ position can be fixed. However, the drawback is that the child Beneficiary will have an automatic right to the Trust Fund at the age of majority, which might be considered detrimental depending on their character and level of maturity.

Other Forms of Offshore Trust

In addition to the above, it is worth noting some other commonly used types of Trust. For brevity these have been listed below with a short description:

• Purpose Trust – Rather than being set up for the benefit of an individual Beneficiary, the Object of a Purpose Trust is to achieve a specified commercial or charitable objective e.g. financing transactions, acquisition or disposal of property etc. On the Isle of Man, there is a dedicated piece of legislation that caters for this Trust – Purpose Trusts Act 1996.

• Employee Benefit Trust (EBT) – Employee Benefit Trusts are created by employers for the benefit of past, present or future employees, dependants and relations. They can be a vehicle for conveying any number of benefits, and useful for companies of any size – especially those that have a global footprint. Common uses include operating share purchase schemes, discretionary bonuses, pensions etc.

There are of course many more Trusts available, and we would recommend speaking with your professional adviser to assist with choosing the right type of Trust for meeting your objectives.

Working with Dixcart

Dixcart has been providing Trustee Services and guidance on Offshore Trusts for over 50 years; assisting clients and their advisers conduct their offshore planning.

We have in-house experts with a wealth of experience in all matters relating to Trusts; this means we are well placed to support and take responsibility for any Offshore Trust, acting as Trustee and providing specialist consultancy services where appropriate. You can read more about our Trust services here in this helpful guide.

Due to our diverse offering, which includes an array of Isle of Man structures, we can assist From pre-establishment planning and advice to the day-to-day management of the vehicle and troubleshooting issues. We can support your goals at every stage.

Get in touch

If you require further information regarding the use of Offshore Trusts, or Isle of Man structures, please feel free to get in touch with Paul Harvey at Dixcart:

advice.iom@dixcart.com

Dixcart Management (IOM) Limited is licensed by the Isle of Man Financial Services Authority.

Introduction

The fiduciary world expends much effort and resources in establishing suitable structures for the migration of wealth out of Africa, particularly South Africa.  However, little thought is given to the vast opportunities for inward investment into the African continent itself, investment that will also require structures.

Over the past few years Dixcart has seen a steady stream of enquiries for structuring investments into the African Continent for family offices, Private Equity (PE) Houses and groups of mutual interest investors.  Structures are usually bespoke and often feature an ESG (environment, social and governance) investment strategy. Both corporate and fund vehicles are typically used with Private Investment Funds (PIFs) the favoured fund route.

What has been particularly interesting is the high number of acquisitions or investments targeted at the sub-Saharan region ranging from process and production facilities, mining and mineral exploration, through to infrastructure projects such as renewable energy and water.

Whilst these investment structures are applicable to investments around the world the question is what is it that attracts investors to the African Continent and why use Guernsey structures for inward investment?

The African Continent

The big opportunity is the fact that the African continent is one of the final frontiers as other emerging markets such as Asia Pacific are maturing.

A few key reminders about this amazing continent:

• The Continent of Africa
  • Second largest continent by area and population
  • 54 countries fully recognised by the United Nations
  • Significant natural resources
  • Africa’s complicated political situation, history of colonialism, and ongoing insurrections in many countries has largely kept multinational and institutional investors away from some countries
• South Africa – probably the most developed country, driven by raw materials & mining industries (largest producer of gold / platinum / chromium in world).  Also, strong banking and agricultural industries.
• Southern Africa – Generally the more developed market with strong mining industry
• North Africa – Similar to the Middle East with oil reserves attracting oil related activities and industries.
• Sub-Saharan – The lessor developed economies and often untouched by international investors where infrastructure type projects are key opportunities.

What are the patterns being seen in investing into Africa?

From working with our clients, Dixcart see the targeted countries are driven by the client’s specific sector of interest (see above) and have noted the following general trends:

• Often the targeting of successful investments / projects in the more developed Southern African countries first; then,
• Expanding into the lesser developed countries thereafter, once having gained an understanding and track record in order to provide confidence to investors (as more challenging to invest into the lesser developed countries but may ultimately produce greater returns).

What type of investments and investors are being attracted?

• Start-ups are the most high-risk but often need the least investment.  Dixcart see PE Houses / Family Offices / HNWI’s often involved at this stage taking up equity as the early money secures the projects and gets the higher return.  PIFs are particularly being used at this stage.  Later, these initial investors have the choice to exit when larger sums of investment are needed to progress projects.  This is now at a time when the project is proven and less risky meaning institutional investors are interested and will pay a premium due to the risky stage now having been cleared.
• ESG factorsare attracting the larger / institutional investors looking to increase their ESG activities and potentially offset an existing high carbon footprint.  Green programmes with a low return will often still be commercially acceptable to these types of investors.  The bespoke nature of PIF and corporate structures makes establishing a dedicated ESG strategy, unique to the investor pool, very straightforward.

Dixcart have also noted Investment Banks, particularly European Banks being used for leveraging of projects.

Why Structure through Guernsey?

Guernsey has a long standing and successful track record for servicing Private Equity and Family Office type structures either through the use of corporate vehicles (utilising the flexible Guernsey company law), Trust and Foundations or via the use of internationally recognised collective investment schemes such as the PIF which provides a lighter touch of regulation.

Guernsey provides security with experienced service providers in a mature, well-regulated, politically stable and recognised jurisdiction. 

Guernsey has a good track record for adherence to global tax harmonisation requirements and is a recognised jurisdiction with banks for setting up banking and lending facilities.

Conclusion

We are all aware of the huge amounts of capital available from international investors looking for investment opportunities and the African Continent, as one of the final frontiers left in the world provides attractive investment opportunities and returns.  These international investors need their capital invested through robust structures registered in an appropriate jurisdiction and Guernsey is one of the leading choices for such structuring.

Corporate structures are often favoured for single investors while the Guernsey PIF regime is attracting PE Houses and Fund Managers as an excellent vehicle for structuring through for their networks of professional and institutional investors.

Additional Information

For more information on Guernsey, and the investment structures for Africa (or indeed anywhere else in the World) and how Dixcart can help, please contact Steven de Jersey at the Dixcart Guernsey office at advice.guernsey@dixcart.com and visit our website www.dixcart.com

Dixcart Trust Corporation Limited, Guernsey: Full Fiduciary Licence granted by the Guernsey Financial Services Commission. Guernsey registered company number: 6512.

Dixcart Fund Administrators (Guernsey) Limited, Guernsey: Full Protector of Investor Licence granted by the Guernsey Financial Services Commission. Guernsey registered company number: 68952.