With an Offshore Trust or Foundation, you can enter into all
kinds of business agreements that will give tax
advantages. Because the Trust/Foundation is a separate
legal entity, it can enter into business agreements, just like
a person, including agreements with you!
The trick is to provide a tax deductible obligation for
yourself in return for an advantage to your Trust/Foundation. Because your
Trust/Foundation is exempt from paying any income tax, even from
reporting its financial transactions to anybody but you,
then you can achieve significant tax savings from entering
into legally binding agreements with your Trust/Foundation.
The principle is the same as what you use for government
approved investment programs. Their basis is that you get a
tax deduction now in return for the invested funds
being taxed when you start to use them later
(supposedly when you retire and earn much less and
hence pay less tax on the same money).
There is some gambling in this, because you really cannot know
what the tax level will be at the time of your retirement,
but, in the meantime, you also had the advantage of being able
to work with a bigger investment, so you probably stand to win
However, if you could use the funds through your
Offshore Entity and thus never "have the money return
to yourself", then the money will never be taxed....
- You can establish an program that obliges you to
pay regular contributions to an investment fund owned by our
Trust/Foundation. (Please use your accountant to make sure you get it
set up right... There is no point in having your Trust sign
such documents if they don't give you the tax advantages you
- You can make a loan agreement with your Trust/Foundation, accepting
to pay a high interest on a loan you accept to pay in return
for anything you can have your Trust/Foundation provide to you. The
classical example is using your Offshore Entity to mortgage your house
right to the limit of what you legally are allowed to (in the
USA, it is 125% of the assessed value of the home...).
- You can make rental agreements and lease agreements
with your Trust/Foundation, giving you the right to use certain assets
that are vested in the Entity. You can have it
buy a car for you - and you can then lease it back!
- If you are creative and have produced intellectual
property of any kind, you can transfer the rights to that
property to the Trust/Foundation - and then accept to pay royalties to
the Entity for using it.
- You can sell securities and other assets to the Trust/Foundation
- at a personal loss you can deduct from your taxable
income. (Please consult with your accountant for this, so
you don't invite a tax audit by exaggerating the prices!)
In order to take full advantage of these possibilities, you
need to keep in mind that everything you pay to your Trust/Foundation
in reality is to be considered paid to yourself, provided you
exercise all diligent care in the way you make the Entity pay
for what you want. Remember, you cannot have the Trust/Foundation simply
pay an amount to your bank account without such money being
considered "taxable income". In order to avoid the tax liability,
you have to make the Trust/Foundation pay for what you want; it can
pay anybody else - just not you!