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The use of offshore companies to buy real estate abroad is a common strategy among investors and, contrary to what many may think, there is nothing illicit in the strategy. Offshore are companies generally created in countries with a favorable tax environment, the so-called “Tax Havens”. These countries usually offer tax benefits, financial confidentiality and flexibility in business structuring.
A well-designed corporate structuring, using an offshore company, allows to considerably minimize the tax impacts of investments in the US. In this article we explain what an offshore company is and how the constitution of this company can help in the strategy of buying a property in Florida.
What is an Offshore?
The term “offshore” refers to any entity, whether it is a company, fund or account that is established outside the country of residence of its beneficiaries.
Similarly, a normal company created within the country can be called “onshore” (within the territory).
Offshores are usually incorporated into tax havens, such as the British Virgin Islands or the Bahamas, which offer tax benefits.
Are Offshores Illegal?
There is nothing illegal in setting up an offshore entity.
The term “offshore” often brings a negative connotation because of news that is usually published in the press, involving irregular schemes for tax evasion or illegal activities. However, it is a legal instrument like any other.
In the same way as a normal company created within the country, what will characterize the irregularity or bad faith of its founders is not the legal instrument itself, but the way and purposes for which these legal instruments are used.
It is essential to note that the use of offshores needs to comply with the tax legislation of both the country where it is constituted and the country of residence of the beneficiaries, to avoid legal problems.
IMPORTANT: This article is merely informative based on the experience that we at AMG International Realty, as a real estate company, have gained during these more than 20 years of operation in the Florida market. To learn more about the various legal and corporate instruments, we recommend contacting a tax lawyer specialized in the subject and accountants. We work with several lawyers and accountants specialized in the area that we can recommend.
Inheritant Tax in Florida
In the case of buying real estate in Florida, a corporate structuring involving an offshore company can bring advantages with regard to Inheritance Tax. In Florida, the rate of this tax for foreigners is approximately 40% on the value of the property, an amount far from reasonable for those who think about investing in the region.
The good news is that, with a simple and cheap corporate structure involving an offshore, this tax becomes non-applicable.
The whole strategy is to create an understanding that there is no inheritance! How?
The first step is to prevent the ownership of the property being of an Individual. For this reason, we always recommend purchasing the property by a company (PJ). A company “never dies”, which could eliminate the understanding of “inheritance”. However, some additional steps are necessary! In addition, there are several other advantages, in addition to the issue of inheritance tax, that a company can bring to its investment. Learn more in the article: Buy by Individual or Legal Person?
It is not enough just to open a company and acquire the property. Most tax specialists understand that only this step would not eliminate the incidence of inheritance tax. A small corporate structure, involving an offshore, must be created.
When a property is acquired via an offshore company, the shielding on inheritance tax becomes even more consolidated, because there is no way the company can be taxed in the US, since it is in a tax haven, that is, where there are no taxes.
Offshore then invests as a parent company in a company in Florida, which can be an LLC (Limited Liability Corporation) or a Corp. (Corporation). This company in Florida, in turn, acquires the property. Thus, inheritance tax would not be applicable.
There are, therefore, two corporate layers. The offshore acquiring the company in Florida, which invests in the property.
As above, it seems very complicated, however, in practice, it is all very simple, fast and economical. Lawyers and accountants in Florida are already used to this procedure due to the large number of global investors in the region.
How Much Does it Cost to Open an Offshore Company?
The costs for the establishment of an offshore company is approximately US$ 3,000 (three thousand dollars), however they may be higher depending on the corporate structure involved and also the country where the company will be opened. Generally, the professionals who provide this service usually also charge an annual maintenance.
About AMG International Realty
AMG International Realty is a global real estate agency specialized in Florida and aimed at the foreign public. If you want to know more about Florida’s real estate market, contact me right now : +1 305 761 2655 (Heloisa Arazi).
