International asset planning and protection tools

Fidinam Multi Family Office Publications

Planning succession is an intimate and necessary for every family: like a tailor-made suit, asset planning is more efficient if it is tailored on individual needs and realized in correct times. Plus, besides asset benefits, there are many advantages in terms of correct tax planning to pass wealth to future generations in a way that is fiscally efficient and free from risks.

There are plenty of legal and fiscal tools that can be implemented for effective asset protection: these means aims at containing asset liability and protect asset of individuals and families from third parties aggression.

It is a common opinion that asset planning to future generations and fiscal optimisation strategies are reserved to those with remarkable patrimony (so called High Net Worth Individuals) but this is deeply wrong: asset planning and protection tools are accessible to vast majority of individuals that require legal and tax tools to protect their wealth and transfer it to future generations in a fiscally effective way.

Tools of asset planning and protection are indeed extremely heterogeneous: from small initiatives (such as an insurance) to various legal instruments and commercial entities in local jurisdiction or abroad.

Besides domestic tools, that vary according to own Country of residency, there are several international tools.

The use of international planning and asset protection instruments could offer greater protection than domestic instruments as they allow, in certain cases, to adhere to civil and tax regimes different from domestic ones (e.g. governance rules, legitimate quotas, revocation action, etc.).

However, it is essential that the transaction complies with domestic civil and tax regulations, especially where the assets are located in Italy. Otherwise, there is a risk that the solutions adopted may be disregarded from a civil and fiscal point of view.

Specifically, three international planning tools will be analysed below.

1. Residence planning

By residence planning we mean that conscious decision taken by an individual, for himself and eventually his family, to move the center of his affections and economic interests from the country of origin to a country of destination.

From a fiscal point of view, it implies the subjection to the tax system of the country of destination and the abandonment of the tax system of the country of origin, limited to the income produced there.

The main taxation regimes of natural persons are as follows

  • On a worldwide basis (income produced anywhere in the world)
  • Territorial (income produced in the country of residence only and/or transferred from abroad to the country of residence)

The factors that influence the choice of residency are many, and different for each individual. For example, the goals of individual and family, the socio-political conditions of their country of residence or the particularly advantageous tax regimes of some countries, are among the main criteria for choosing a foreign residence.

At the same time, legislative obligations (e.g. minimum residence requirements for obtaining and maintaining resident status), the possibility of extending residence to dependent family members and the reputation of the chosen country in absolute terms and in relation to its economic and financial interests may limit the choice to specific countries.

There are many advantages in residency planning:

  • Abandonment of the current tax system, often vexatious
  • Introduction to a new tax system considered advantageous
  • Possibility of implementing a pre-immigration planning project, to ensure asset holding facilities appropriate to own goals when entering into the new tax system
  • Access to a broader portfolio of planning and asset protection tools than is available in the country of origin
  • Optimization of income, wealth, inheritance and gift taxes

Among the main jurisdictions that offer particularly attractive tax regimes, Fidinam & Partners, part of the Fidinam Group, has selected some of them within the Residency Program Overview document.

2. Foreign investment companies

These are investment companies set up in countries other than their own’s which mainly carry out financial activities. To qualify as an investment company under foreign law, there are several requirements to be met:

  • Hold part or all of the share capital of other companies in order to control their financial, industrial and commercial management.
  • Hold financial assets other than the share capital of other companies, such as bank deposits, portfolios, securities, etc..
  • Hold other investments such as real estate, artcrafts, luxury goods (yachts, executive jets, cars, etc.).

The advantages of these companies can be seen in terms of planning and protection of assets:

  • Exercise of Control: through the possession of the majority of shares or quotas of the subsidiaries, or through a special contract that establishes the subordination of one company to the other
  • Limit of Business Risk: each company is an independent legal entity and meets its corporate obligations with its own capital, not involving other group companies’ asset
  • Asset Protection: through the assignment or transfer of financial assets and investments to companies, these goods cease to belong to the assignor/transferor and become property of the third party assignee/transferee.
  • Fiscal Optimization: of the "passive income" deriving from the possession and administration of financial assets and investments such as dividends, interest, rents, capital gains, rents, etc.
  • Financial Optimization: of the flows between the different companies of the group using the resources in excess of some to finance others

There are many particularly efficient jurisdictions for the establishment and administration of investment companies

  • Switzerland: Located in the centre of Europe, Switzerland remains one of the most attractive centres for financial activity and for the tax advantages it offers. With more than 100 Double Taxation Agreements signed with as many countries, it has a particularly favourable tax regime, particularly for the purposes of taxing capital gains.
  • Dubai: city and emirate part of the 7 United Arab Emirates, is one of the main financial hubs among the countries of the Gulf Region. With 69 Double Taxation Conventions (CCDI) ratified with as many countries, it is particularly advantageous from the fiscal point of view, being characterized by the absence of taxes on income and assets and by the lack of withholding taxes.
  • Hong Kong: a former British colony, now an autonomous territory in Southeast China, Hong Kong has a different legislative, executive and judicial system than Mainland China. Reunification is expected in the year 2047. A global financial and economic centre, it has signed 40 double taxation agreements in the main countries
  • Singapore: State city in South Malaysia, Singapore is an extremely solid and dynamic Parliamentary Republic, with 86 double taxation conventions signed and ratified.

3. Foreign Law Trusts

The Trust is an institution through which the settlor transfers assets and rights to the trustee, who assumes the obligation to administer them in the interest of one or more beneficiaries and/or for a specific purpose. It is a compulsory legal relationship whereby the ownership of certain assets is transferred to the trustee. The trustee administers the assets in accordance with the powers set out in the Trust's instrument of incorporation and, where available, by calling upon the wishes expressed by the settlor in the Letter of Wishes.

It may be structured to look like this:

  • Foreign, established and administered in a foreign country and fiscally collaborative
  • Irrevocable, i.e. not dissolvable at the discretion of the settlor
  • Discretionary, for which the founding act leaves margin of discretion to the Trustee as to:
    • Beneficiaries
    • fair position to be attributed to each beneficiary
    • the manner and timing of distribution of the assets in trusts and any income produced to the beneficiaries
  • Opaque, if the beneficiaries, even if identified, do not have the right to claim distributions from the Trustee

The Fidinam Group has a long experience in setting up and administering trusts with its Trustee Companies in New Zealand (since 2007) and Hong Kong (since 2018).

At the heart of every planning and asset protection project for the purposes of succession and tax optimization is always an assessment of the initial financial and family situation and the objectives that you want to set: it is essential in these cases to seek professional and expert advice.

Our consultants in Switzerland, Italy, Monte Carlo, the Middle East and Asia are at your disposal for targeted advice and to provide you with the necessary support for the proper planning and protection of your assets.

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