Tax Deductions possible with
an Offshore Trust or Foundation

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 regardless.

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....


Examples:

  • 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 want!)


  • 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!