A foreign trust is a trust created by an individual in a country other than his country of residence, normally in a common-law jurisdiction. Common-law jurisdictions are usually chose because the law governing trusts developed in England over the centuries.

A foreign trust is a pact that binds the trustee to deal with the trust property for the benefit of designated persons (the beneficiaries). Five necessary conditions are: (1) trust must be administered outside the United States; (2) trustee must be foreign, preferably a corporation with no U.S. branches; (3) trust assets should be kept outside the United States; (4) trust must be formed and governed by laws of foreign country; and (5) trust should not have a discretionary United States advisor.

3. Holding Company: A holding company generally has a substantial
participation in the companies whose shares it holds including
a voice in their management.

4. Finance Company: This is a form of holding company established
within a multi-national company group to hold debt instruments
and occasionally stocks of other companies.

5.

6.

Investment Companies: An investment company generally is a mere portfolio investor with no real participation in the management of the companies whose securities it holds.

Captive Insurance Companies: These are large corporate
self-insurance programs which insure certain risks of a
corporation's subsidiaries and affiliates (foreign, generally
speaking).

7. Shipping Companies: Shipping companies have long been given
substantial tax and non-tax advantages through registry in
shipping havens.

The United States taxes domestic companies on their worldwide income, but not on their foreign-source income, except certain cases.

When patents, copyrights, trademarks and royalties are involved, such
as in films, video programs, records, and the like, establishment of
companies to receive the funds generally make sense in havens where
tax treaties exist. The patent, copyright, trademark, royalty areas
permit revenue earned in the U.S. to be transmitted with U.S. with-
holding tax to the haven.

Establishing a tax-haven company which buys its product from an un-
related company, perhaps in the U.S., and sells to an unrelated
company outside the U.S. is a viable method.

Bahamas

Investments in unimproved land, even in the U.S., are relatively clear of U.S. tax complications when accomplished through an offshore holding company.

With any these "legitimate", tax exempt, foreign businesses it is
important to note that their U.S. tax liability is only deferred
indefinitely, not obliterated or forgiven!

No income, capital gains, gift, inheritance or estate taxes

The Bahamas is considered a viable tax-haven country. The Bahamas is not a party to any tax treaties and does not impose income taxes, capital gains tax, gift, inheritance or estate taxes. Bahamas is also a bank secrecy country.

There are two types of Bahamas companies. There are resident or non-resident companies.

Resident companies are defined as firms carrying on business in the Bahamas or owned in part or all by Bahamian residents. The companies incur annual tax expenses ranging from $250 to $1,000.

Non-resident companies are specified as companies which do not do business with the Bahamas and do not have any Bahamian shareholders. These companies incur an annual tax expense of $100 and work permit fees are obtainable.

The use of nominee shareholders is standard practics in the Bahamas. A permit is required by an non-Bahamian citizen wishing to take up residence for more than eight months, or wanting to be employed or wanting to engage in business. For a senior professional the fee is $5,000.

An individual wanting to go into the manufacturing of government designated "approved products" enjoys several incentives. These include duty-free importation of raw materials and machinery and tax exemptions. "Approved products" are products whose manufacture will benefit the Bahamas, both economic and social considerations are taken into account.

Any income from sales of products or goods manufactured in the Bahamas is not subject to current U.S. taxation, even though the purchase of some items would involve the parent U.S. corporation. When profits are returned to the U.S. company in the form of dividends, they are taxable.

A trust can be set up on the Bahamas with the trust assets kept in another nation. If it is a non-resident trust, assets may be invested in any currency.

There are three general guidelines for accepting trusts by Swiss banks in
the Bahamas. They are: (1) No U.S. beneficiaries; (2) minimum requirement
of $250,000 corpus and (3) they won't accept "work-intensive" trusts (those
which require extensive work by their people. except on a case-by-case basis.)
In late 1981, the Bahamian Government drafted new legislation which would
afford secrecy to captive insurance companies in the Bahamas. Since that
time more than 20 captive insurance companies have established operations in
the Bahamas.

Bermuda imposes no income, capital gains, sales, dividends, remittance, accumulutated profit, estate, inheritance or death taxes. Bermuda is a useful haven for persons wishing to incorporate a captive foreign insurance company, trust establishment, offshore mutual funds and registry of foreign vessels.

Captive insurance companies (1,100 as of August 1981) are usually incorporations which are called "parent" companies. A captive insures primarily the foreign risks of its multi-national parent which could otherwise be covered only at a rate the parent considers prohibitive. Captives can give their parent equivalent coverage at a lower cost. Also, a captive is not restricted by American insurance laws and it can choose to make speculative investments that would be illegal in the United States. Premiums made to captives by its American parent are a deductible expense on the parent American's tax return. By having high premiums, the parent company can siphon untaxed funds out of the United States.

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Insurance companies in the tax haven are usually not subject to rigorous regulations. Once a person has incorporated one and loaded it with bad paper (stolen, fraudulent, counterfeit securities or bad checks), he can start to write policies and collect premiums.

Bermuda also provides favorable trust operations. There are no limitations or restrictions on accumulation of income, absense of currency controls and income taxes.

Offshore mutual funds are available in Bermuda and provide anonymity for the investor and a high yield to investors due to Bermuda's no tax status.

Vessel registry can be accomplished in Bermuda through the use of Exempted Shipping Companies. As of July 1982, approximately 122 commercial vessels were registered in Bermuda.

One of the more popular tax havens is the Cayman Islands. To take advantage of the Cayman's tax benefits is to establish a trust or company.

Trust development in the Caymans is almost identical to those circumstances in the Bahamas with one exception.

Caymans permit the establishment of "exempted" trusts which carry a government guarantee that no taxes will be imposed on them for a period of 50 years from the date of establishment provided no beneficiary becomes a Cayman resident. The trust may have a fixed duration of 100 years, an exception to the common-law rule against perpetuities.

A trust can be administered by a bank (Swiss, if you like) in the Caymans with the trust assets located elsewhere, i.e., other haven country.

Non-residents could own Caymanian property through a trust or company subject to certain stamp taxes. While property is expensive, it is less so than Florida's better areas.

To qualify as a non-U.S. controlled foreign corporation several partners would own more than 51% of the company. The U.S. firm could still own the largest single block of shares and still essentially maintain control of the corporation.

The non-U.S. controlled foreign corporation in the Caymans can purchase U.S. products and make adjustments or assemblies before reselling them to the European and South American markets. This process should actually involve real manufacturing, which can be accomplished by purchasing a key item required for foreign use from another firm. The U.S. firm could be taxed on the basis of products sold to the Caymans, but the profit made between this price and the modified unit would not be taxable in the U.S. or Caymans.

"Exempted companies" are used by foreigners who wish to have the Caymans tax advantage but who do their main business outside the islands. An exempted company may not trade in the Cayman Islands except in furtherance of its business carried on outside the islands. Exempted companies need not reveal the identity of shareholders and bearer shares may be issued.

Shares in a Cayman company may be issued for cash, property, or services. A Cayman company can also issue several classes of shares, i.e., voting versus not-voting; dividend versus non-dividend, as well as preferred (redeemable) stock.

There are approximately 500 domestic and offshore insurance companies in the Cayman Islands.

As the Channel Islands (Jersey and Guernsey) are not part of the United Kingdom, they retain full powers to establish their own levels and means of taxation. This they have opted to do at the point of 2% of net income for both corporations and individuals. However, an important caveat to this taxation law makes certain companies subject to only an annual tax (about $525), similar to the annual fees in the Caymans and Bahamas.

Although there is no trust law per se in the Channel Islands, they do follow the same rules and regulations maintained under common-law as