What matters when choosing an offshore jurisdiction
A private client lawyer asks the questions he has about what he is looking for in an offshore jurisdiction; the emerging trends and the centers that are making the most progress.
What sort of considerations apply when choosing an offshore location? Some might respond that taxation, regulation and ease of doing business are likely to be most important in mind, but it can be more complex than that. How politically stable are these places? Is the government honest? And – in light of the COVID crisis – how streamlined and effective is the system for managing viruses and associated restrictions? Are the travel connections fast and pleasant? Are there good schools and health facilities and is the location a fun and interesting place to live?
There’s a lot to take on. To explore how to frame these questions, George Merrylees, partner at Wedlake Bell, the London-based law firm. The considerations are, by definition, global and we hope that the article will stimulate debate in our various editions.
The usual editorial disclaimers apply and we invite people to join in the debate. Email [email protected]
Many international private wealth practitioners have tried, and often successfully, to undertake a comparison of offshore jurisdictions. I will leave such a task to those who have global offices with boots in the field.
As my firm is a single office based in central London with international affiliations, I will be looking at the world of offshore jurisdictions through the lens of a London private client solicitor, which is, after all, all I can really do. The questions I will address in this article are threefold:
(1) What factors motivate me to choose an offshore jurisdiction;
(2) what trends do I see;
(3) which offshore jurisdictions charge further; and what factors motivate me to choose an offshore jurisdiction?
Like many of my London colleagues, I am guilty of having a short list of favorite offshore jurisdictions. This is compounded by the fact that I know what I know and don’t know what I don’t know. But beyond that I am surely influenced by the experience, personal connections and possibly unconscious bias of a London practitioner. There is of course no logical reason for this if my clients are from outside the UK and in some cases have no connection to the UK.
In my experience, the perfect solution is often not possible, but I have encountered too many clients who end up putting their family heritage out of reach due to the structures they have used. This may be due to tax, regulation, overhead, or lack of foresight about jurisdictional requirements that have been ignored.
So how about my approach when it comes to choosing offshore jurisdictions? I can honestly say that through trial and error I have learned to recommend offshore jurisdictions that offer culturally intelligent solutions.
In my opinion, and to avoid the problems I have mentioned, a culturally intelligent approach requires that structures:
• should be as easy to understand and use as possible by both family members and any interested tax inspector;
• must be portable in the sense that they can follow the family through changes in their tax status. If such changes compromise the structures, these must be easy to dismantle/restructure;
• should work effectively and efficiently across borders from a tax and compliance perspective;
• should be profitable; and
• should be tax efficient, but not at any price.
An equally important consideration is the team of counselors the family must work with in relation to its structure. In my opinion, this is absolutely linked to the choice of jurisdiction.
I consider the fiduciary provider to be an integral part of the professional team serving the client. After all, the fiduciary could very well prove to have the longest relationship with the client as the client moves from one jurisdiction to another. It is therefore essential for me that I present a high-calibre fiduciary team to the client and his family and that this team has the expertise required to support them over the long term. I take the same approach when involving foreign lawyers in a matter with a client. It is for this reason that I will gladly go to a less established jurisdiction if I know that I am not compromising the professionalism and technical ability of the trust service provider.
The types of questions I will ask myself when choosing an offshore jurisdiction can be summarized as follows:
1. Which jurisdictions offer the appropriate structures to hold the assets held by the client?
2. How do the jurisdictions relevant to the client and their family interact or simply react to the offshore jurisdictions and entities we will consider creating to hold the assets?
3. What relevant expertise am I looking for in the fiduciary? This will generally relate to the tax situation, complexity of the client’s business, international compliance as well as assets;
4. Is there a language requirement? and
5. Will the client agree with the fiduciary provider?