Real estate investors are always on the lookout for clever strategies to maximize their returns and minimize costs. One of the legal ways of avoiding stamp duty is to hold property ownership through an offshore company. But how dependable is this tactic? Can you rely on it to effectively avoid stamp duty?
The effectiveness of this approach relies on various factors. It is crucial to understand the specific laws and regulations regarding offshore company taxation and stamp duty in the jurisdiction where the property is located and the offshore company is registered. Many countries leave no chance for a stamp duty loophole and tax avoiders: all property buyers (or sellers), whether private persons or legal entities are subject to mandatory stamp duty and other taxes. However, in some jurisdictions, this strategy of stamp duty avoidance by acquiring property ownership through an offshore company is feasible and may offer meaningful advantages.
This article outlines the key implications of this strategy of stamp duty avoidance. For more information, you can book a session with our experts to discuss more specific aspects of property ownership through an offshore company and any questions you may have.
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How Can an Offshore Company Help You Avoid Stamp Duty?
How does property ownership through an offshore company help in avoiding stamp duty? Let’s consider real estate in the United Kingdom as an example.
Normally, when you buy property there, a 15% stamp duty is required, unless you qualify for government incentives and tax allowances for real estate investments. This rule applies to both individuals and foreign companies.
However, there’s a nuance: the 15% stamp duty is only applicable when you directly purchase the property. Savvy buyers have a different strategy: instead of buying the property itself, they acquire the offshore company or the shares of the company that owns the property. This way, the ownership remains with the offshore company in the UK registry, allowing buyers to avoid stamp duty liability.
Similar tactics of property ownership through an offshore company can be employed in some other countries. Even if there are no other tax benefits, this approach can provide relief from stamp duty or Stamp Duty Land Tax (SDLT). Moreover, certain jurisdictions offer exemptions from stamp duty for first-time buyers.
However, avoiding stamp duty may not always be possible when acquiring property ownership through an offshore company. Moreover, the SPV stamp duty may apply. An SPV, which stands for Special Purpose Vehicle, is a legal entity created for a specific purpose, commonly used in financial transactions or investments. The specific rate and exemptions for SPVs differ depending on the jurisdiction and applicable laws. While some jurisdictions may view SPVs as legitimate entities used for specific business purposes, others may scrutinize them more closely due to concerns about tax avoidance or evasion.
As you see, stamp duty avoidance on property acquisition does not have a one-size-fits-all solution. Here are examples of some questions that need customized recommendations tailored to your specific circumstances and stamp duty implications in a particular context: “Which jurisdictions would be more advantageous for my goals? What are the potential costs associated with setting up and maintaining an offshore company for stamp duty avoidance in those jurisdictions? Are there alternative stamp tax avoidance strategies alongside property ownership through an offshore company? How can I ensure compliance with relevant tax and legal regulations in both the selected offshore jurisdiction and my home country? How can I avoid stamp duty on shares? To learn more about the taxation of offshore companies across the world, please look up our relevant posts and book a private session with our expert.
Additional Advantages of Property Ownership through an Offshore Company
Here are some other key reasons to use an offshore company for real estate purchase and maintenance:
- Enhanced confidentiality: property ownership through an offshore company or its shares can deter the curious, although absolute secrecy is not guaranteed. In the UK, disclosure of ultimate owners of offshore companies owning real estate will be mandatory by the end of 2023.
- Lawsuit protection: Owning real estate in the UK through an offshore company provides security even in the face of claims against individual owners. Choosing the right offshore country for incorporation and proper structuring of the company, such as registering in Nevis, makes it difficult for foreign creditors to initiate lawsuits and seize the property.
- Favorable inheritance: Holding property ownership through an offshore company can simplify and reduce costs when transferring ownership to heirs. In the UK, an inheritance tax of 40% applies to assets exceeding £325,000, which applies to almost any real estate. Offshore companies or trusts enable you to pass on shares and make inheritance arrangements according to your preferences.
- Tax benefits: Leasing foreign real estate in the UK through your company and repatriating profits outside the country can minimize the tax rate. Foreign or offshore company owners of UK real estate are subject to a flat rental income tax rate of 20%, regardless of their income level, while local companies and individuals may face higher tax rates.
- Stamp duty avoidance when selling the offshore company: When selling an offshore company, transferring its property to the new owner does not incur stamp duty, as long as the beneficial owners are not UK tax residents or domiciles.
- New owners’ privacy when selling the offshore company: Information about the new owner is not immediately visible in the UK registry upon sale. Please note, that while complete confidentiality was previously possible, new rules require disclosure of the ultimate beneficial owners of offshore companies holding real estate in the UK.
Drawbacks of Property Ownership via an Offshore Company
This method of holding property through an offshore company has some drawbacks to consider:
- Extra costs associated with registration and maintenance of the offshore company or trust.
- The risk of partial loss of control when relying on hired professional officers, such as directors or managers. It is crucial to have complete confidence in their trustworthiness and competence. This risk applies to holding property through a trust as well, which is an alternative to owning property through an offshore company.
- The capital gains tax on corporate profits when the offshore company’s property is for sale. This tax depends on the tax laws in the country where your company is registered.
- Complex Legal and Compliance Requirements: Managing an offshore company and complying with the legal and reporting obligations in multiple jurisdictions can be sophisticated and time-consuming. Besides, regulations surrounding offshore companies and their ownership structures can change over time.
How to Register an Offshore Company for Real Estate Ownership
The general procedure for offshore company incorporation includes 4 steps that are quite easy if you rely on our guidance and help:
- Choose a jurisdiction for your offshore company incorporation that suits your goals and objectives.
- Collect the required documents for registration, like your passport and proof of address. If you need a bank account, it’s important to handle that before proceeding with company registration.
- Make the standard registration payment, along with the fee for a registered agent’s services and the rent for a legal address.
- Once you have all the necessary documents, you’re ready to start doing business and actively run your company.
For more information on offshore company registration, check out other topical articles on our portal.
If you’re curious about why you should consider bank account matters before and along with applying for offshore company registration, you are welcome to book a free private online meeting with our expert. The bank selection and pre-approval are available as optional services and package offers.
If you have any further questions, don’t hesitate to reach out to our experts. You can contact us at info@offshore-pro.info or in messengers given at the top of this page.
