We are proud to announce that our CEO, Daniel N. Erasmus has just been appointed an Adjunct Professor in International Tax Planning & Tax Risk Management at an American University. He has been invited to teach in his field of expertise this fall, in an American Bar Association approved LLM course, via the internet! His expertise and reputation has gained recognition in the US, as well as the fact that he has been on assignment for MNE's in Europe during the earlier part of this year.
Prof. Daniel Erasmus is available to consult to your business to show you how to minimize your tax risks both on a domestic and international tax level.
He has also recently become a proud father to his second son, Nicolas D. Erasmus.
We invite you to visit our revised website www.TaxRiskManagement.com.
Wednesday, September 9, 2009
Tuesday, September 8, 2009
Using family limited partnerships…in Guernsey
By Marcel Cariou, Senior Associate, Mourant de Feu & Jeune (04/09/2009)
Enter the Family Limited Partnership (FLP). FLPs are attracting interest from tax advisers in the UK because they offer similar levels of flexibility of management and asset protection over subsequent generations as trusts, but allow lifetime gifts without the charges to IHT. Limited partnerships – a partnership of usually one general partner and multiple limited partners – have been around for many years and have long been used as tax-transparent investment vehicles. The general partner manages the investments, holds the assets on behalf of the partnership, and has unlimited liability for the losses of the limited partnership (although usually a limited company is used as general partner to provide continuity and to restrict losses). The limited partners contribute capital to the limited partnership in return for partnership interests which give them rights (subject to the overall distribution policy and any discretion of the general partner) to distributions of profits or capital growth. Limited partners have liability only to the extent of their capital contributions but may not have any part in the management of the partnership if they are to retain such limited liability.
Inheritance tax (IHT) rules in the UK have put increasing pressure on the use of trusts as a tool for family tax planning. Since 2006, trusts designed to benefit the children of a settlor have been subject to an immediate 20% IHT charge on the initial capital above the threshold of £325,000 and an ongoing charge of 6% on the value of the trust assets every 10 years.
Enter the Family Limited Partnership (FLP). FLPs are attracting interest from tax advisers in the UK because they offer similar levels of flexibility of management and asset protection over subsequent generations as trusts, but allow lifetime gifts without the charges to IHT. Limited partnerships – a partnership of usually one general partner and multiple limited partners – have been around for many years and have long been used as tax-transparent investment vehicles. The general partner manages the investments, holds the assets on behalf of the partnership, and has unlimited liability for the losses of the limited partnership (although usually a limited company is used as general partner to provide continuity and to restrict losses). The limited partners contribute capital to the limited partnership in return for partnership interests which give them rights (subject to the overall distribution policy and any discretion of the general partner) to distributions of profits or capital growth. Limited partners have liability only to the extent of their capital contributions but may not have any part in the management of the partnership if they are to retain such limited liability.
In an FLP, the family elder or donor usually controls the general partner and thereby directs the investment strategy and distribution policy. The limited partnership agreement can allow for the limited partnership to be wound up after a certain period, on the occurrence of a trigger event (such as the death of the donor), or provide for continuity of the general partner and the structure. The limited partnership agreement and the articles of incorporation of a corporate general partner can set out a family investment strategy and a management mechanism that can be maintained over multiple generations. The board of directors of the general partner can be constituted by family elders or by independents.
The children, as limited partners (whether as individuals, or through limited companies or trusts) will receive distributions. As a partnership is a contractual relationship, it can be tailored to fit the requirements of a particular family group. The general partner may be given discretion to distribute profits to one limited partner without benefiting others or to defer rights to profits until a certain date or trigger event. Transfers of partnership interests will usually be restricted to existing partners or other family members.
FLPs do not attract the initial nor the ongoing IHT charges levied on trusts and will remain clear of IHT charges if the donor remains alive for seven years from the time of making his contribution to the FLP. FLPs are tax transparent – that is, each partner is taxed individually depending on their residence/domicile on receipts from the FLP. There will be no Guernsey taxes levied save for on certain types of income which are sourced in Guernsey.
Guernsey's regulatory environment is such that an FLP will usually be outside the scope of Guernsey's collective investment scheme regulation and a Guernsey general partner will only require licensing if it takes a fee for managing the FLP. Long-standing experience and professional expertise in administering limited partnerships means Guernsey is ideally placed to serve the UK's growing demand for wealth planning schemes which use FLPs.
This article can only provide a general review of this area and is not intended to constitute legal advice. Legal advice should be taken with regard to individual circumstances. References to UK taxation are based on our understanding; we are not qualified to advise on UK tax law.
Enter the Family Limited Partnership (FLP). FLPs are attracting interest from tax advisers in the UK because they offer similar levels of flexibility of management and asset protection over subsequent generations as trusts, but allow lifetime gifts without the charges to IHT. Limited partnerships – a partnership of usually one general partner and multiple limited partners – have been around for many years and have long been used as tax-transparent investment vehicles. The general partner manages the investments, holds the assets on behalf of the partnership, and has unlimited liability for the losses of the limited partnership (although usually a limited company is used as general partner to provide continuity and to restrict losses). The limited partners contribute capital to the limited partnership in return for partnership interests which give them rights (subject to the overall distribution policy and any discretion of the general partner) to distributions of profits or capital growth. Limited partners have liability only to the extent of their capital contributions but may not have any part in the management of the partnership if they are to retain such limited liability.
Inheritance tax (IHT) rules in the UK have put increasing pressure on the use of trusts as a tool for family tax planning. Since 2006, trusts designed to benefit the children of a settlor have been subject to an immediate 20% IHT charge on the initial capital above the threshold of £325,000 and an ongoing charge of 6% on the value of the trust assets every 10 years.
Enter the Family Limited Partnership (FLP). FLPs are attracting interest from tax advisers in the UK because they offer similar levels of flexibility of management and asset protection over subsequent generations as trusts, but allow lifetime gifts without the charges to IHT. Limited partnerships – a partnership of usually one general partner and multiple limited partners – have been around for many years and have long been used as tax-transparent investment vehicles. The general partner manages the investments, holds the assets on behalf of the partnership, and has unlimited liability for the losses of the limited partnership (although usually a limited company is used as general partner to provide continuity and to restrict losses). The limited partners contribute capital to the limited partnership in return for partnership interests which give them rights (subject to the overall distribution policy and any discretion of the general partner) to distributions of profits or capital growth. Limited partners have liability only to the extent of their capital contributions but may not have any part in the management of the partnership if they are to retain such limited liability.
In an FLP, the family elder or donor usually controls the general partner and thereby directs the investment strategy and distribution policy. The limited partnership agreement can allow for the limited partnership to be wound up after a certain period, on the occurrence of a trigger event (such as the death of the donor), or provide for continuity of the general partner and the structure. The limited partnership agreement and the articles of incorporation of a corporate general partner can set out a family investment strategy and a management mechanism that can be maintained over multiple generations. The board of directors of the general partner can be constituted by family elders or by independents.
The children, as limited partners (whether as individuals, or through limited companies or trusts) will receive distributions. As a partnership is a contractual relationship, it can be tailored to fit the requirements of a particular family group. The general partner may be given discretion to distribute profits to one limited partner without benefiting others or to defer rights to profits until a certain date or trigger event. Transfers of partnership interests will usually be restricted to existing partners or other family members.
FLPs do not attract the initial nor the ongoing IHT charges levied on trusts and will remain clear of IHT charges if the donor remains alive for seven years from the time of making his contribution to the FLP. FLPs are tax transparent – that is, each partner is taxed individually depending on their residence/domicile on receipts from the FLP. There will be no Guernsey taxes levied save for on certain types of income which are sourced in Guernsey.
Guernsey's regulatory environment is such that an FLP will usually be outside the scope of Guernsey's collective investment scheme regulation and a Guernsey general partner will only require licensing if it takes a fee for managing the FLP. Long-standing experience and professional expertise in administering limited partnerships means Guernsey is ideally placed to serve the UK's growing demand for wealth planning schemes which use FLPs.
This article can only provide a general review of this area and is not intended to constitute legal advice. Legal advice should be taken with regard to individual circumstances. References to UK taxation are based on our understanding; we are not qualified to advise on UK tax law.
Monday, September 7, 2009
EB-5 USA Visa Requirements
This relatively recent (1990) immigrant visa category seeks to favor entry of immigrants who are entering the United States for the purpose of engaging in a commercial enterprise that will involve creation of at least ten, full-time jobs.
The EB-5 investment visa may be distinguished from the other E investment visas, in that very strict conditions must be fullfilled in regard to employment and a minimal capital investment must be made under this category.
Although the minimum amount required to invest for the EB-5 is $1 million, this amount may be reduced to $500,000 in the event that the investment is made in a “targeted employment area”.
To qualify under the EB-5 category, the new commercial enterprise must:
(1) have been established by the investor;
(2) be one in which the person is in the process of investing at least $1 million, or $500,000 if in a “targeted employment area”;
(3) benefit the U.S. economy;
(4) create full-time employment for at least 10 U.S. workers;
(5) the immigrant investor must have a policy-making role in the business
Under EB-5, two or more individuals may join to make an EB-5 investment, provided that each investor has invested the required capital and each investment results in the creation of the requisite number of full-time positions.
1. Creation of a new commercial enterprise
There are basically three ways to demonstrate the creation of a new commercial enterprise. The business may be “new” (in whatever form, such as creation of a sole proprietorship, partnership, holding company, joint venture, corporation, business trust, etc.), or involve the purchase and restructuring of an existing business or expansion of an existing business. Investing in a troubled business may also qualify an investor for EB-5 classification.
Indeed, the primary criteria of the EB-5 immigrant visa is the creation of at least 10 new employment opportunities, and the means of such employment generation are important for the file, but secondary to job creation.
2. The capital investment
The investor must make an investment in capital. A contribution of capital in exchange for a note, bond, convertible debt, obligation, or any other debt arrangement between the entrepreneur and the new business does not constitute a contribution of capital.
The amount of the investment must be equal to at least $1 million, unless the investment is made in certain “targeted employment areas” (generally, areas specified by the individual states where the unemployment rate is equal to or more than 150 percent of the national average). In the event of an investment in a “targeted employment area”, the minimum investment is decreased to $500,000.
3. Benefiting the U.S. Economy
This additional requirement, while it seems that it is obviously met if the business creates U.S. jobs, nonetheless must be demonstrated to the satisfaction of the immigration and naturalization service. Generally, this requires a showing that the new business provides goods or services to U.S. markets.
4. Job creation
To qualify for EB-5 status, the investment must create full-time employment for at least 10 U.S. persons, meaning U.S. nationals, lawful permanent residents or other immigrants lawfully authorized to be employed in the U.S.. The investor himself/herself does not count, nor does the investor’s spouse and children. Non-immigrants are also excluded.
These full-time jobs need not exist upon making the EB-5 petition. The investor may, for example, support a peitition with a comprehensive business plan demonstrating a need for at least 10 employees within the next two years. This business plan, to be worked out with legal counsel, would provide the approximate dates during the next two years when the employees would be hired.
Furthermore, for investment in an existing, troubled business, the job creation criteria are met when the investor shows that the number of existing employees will be maintained.
5. Role of the immigrant investor in the business
It is not sufficient for the investor to establish a business plan and investment and then absolve himself of involvment in the business. The EB-5 investor must either be involved in the managerial control of the commercial enterprise or manage it through policy formulation. This requirement is generally satisfied if the EB-5 investor is a corporate officer or board member, for example.
* *
The EB-5 process requires a great deal of preparation and foresight, and a sophisticated knowledge of immigration law and jurisprudence. Indeed, your immigration attorney would have to carve out a personalized solution which is consistent with caselaw in this domain of immigration law. Therefore, consideration of EB-5 status should be done in close cooperation with legal counsel.
* *
The EB-5 investment visa may be distinguished from the other E investment visas, in that very strict conditions must be fullfilled in regard to employment and a minimal capital investment must be made under this category.
Although the minimum amount required to invest for the EB-5 is $1 million, this amount may be reduced to $500,000 in the event that the investment is made in a “targeted employment area”.
To qualify under the EB-5 category, the new commercial enterprise must:
(1) have been established by the investor;
(2) be one in which the person is in the process of investing at least $1 million, or $500,000 if in a “targeted employment area”;
(3) benefit the U.S. economy;
(4) create full-time employment for at least 10 U.S. workers;
(5) the immigrant investor must have a policy-making role in the business
Under EB-5, two or more individuals may join to make an EB-5 investment, provided that each investor has invested the required capital and each investment results in the creation of the requisite number of full-time positions.
1. Creation of a new commercial enterprise
There are basically three ways to demonstrate the creation of a new commercial enterprise. The business may be “new” (in whatever form, such as creation of a sole proprietorship, partnership, holding company, joint venture, corporation, business trust, etc.), or involve the purchase and restructuring of an existing business or expansion of an existing business. Investing in a troubled business may also qualify an investor for EB-5 classification.
Indeed, the primary criteria of the EB-5 immigrant visa is the creation of at least 10 new employment opportunities, and the means of such employment generation are important for the file, but secondary to job creation.
2. The capital investment
The investor must make an investment in capital. A contribution of capital in exchange for a note, bond, convertible debt, obligation, or any other debt arrangement between the entrepreneur and the new business does not constitute a contribution of capital.
The amount of the investment must be equal to at least $1 million, unless the investment is made in certain “targeted employment areas” (generally, areas specified by the individual states where the unemployment rate is equal to or more than 150 percent of the national average). In the event of an investment in a “targeted employment area”, the minimum investment is decreased to $500,000.
3. Benefiting the U.S. Economy
This additional requirement, while it seems that it is obviously met if the business creates U.S. jobs, nonetheless must be demonstrated to the satisfaction of the immigration and naturalization service. Generally, this requires a showing that the new business provides goods or services to U.S. markets.
4. Job creation
To qualify for EB-5 status, the investment must create full-time employment for at least 10 U.S. persons, meaning U.S. nationals, lawful permanent residents or other immigrants lawfully authorized to be employed in the U.S.. The investor himself/herself does not count, nor does the investor’s spouse and children. Non-immigrants are also excluded.
These full-time jobs need not exist upon making the EB-5 petition. The investor may, for example, support a peitition with a comprehensive business plan demonstrating a need for at least 10 employees within the next two years. This business plan, to be worked out with legal counsel, would provide the approximate dates during the next two years when the employees would be hired.
Furthermore, for investment in an existing, troubled business, the job creation criteria are met when the investor shows that the number of existing employees will be maintained.
5. Role of the immigrant investor in the business
It is not sufficient for the investor to establish a business plan and investment and then absolve himself of involvment in the business. The EB-5 investor must either be involved in the managerial control of the commercial enterprise or manage it through policy formulation. This requirement is generally satisfied if the EB-5 investor is a corporate officer or board member, for example.
* *
The EB-5 process requires a great deal of preparation and foresight, and a sophisticated knowledge of immigration law and jurisprudence. Indeed, your immigration attorney would have to carve out a personalized solution which is consistent with caselaw in this domain of immigration law. Therefore, consideration of EB-5 status should be done in close cooperation with legal counsel.
* *
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