Hi ,

In China the EU and the US retirement plans are generally exempted from securities laws. The broad rule is that all retirement plans are collective investment schemes. Gloabl tax compliance is key.

If you wish to invest internationally (for example in the U.S.) or want U.S. dollar ROI exposure, then you must take heed of both FATCA, CRS and the AIFMD. We are at your service, to navigate offshore.

Complying with AIFMD, FATCA and CRS

Any financial institution, regardless of its global location, that does not voluntarily comply with FATCA will find that 30% of any US-sourced payments (e.g. a corporate dividend or a maturing principal payment from a US corporate or government bond) will be withheld. Because U.S. stocks and bonds are so widely owned across the globe, virtually all financial institutions receive substantial U.S.-sourced payments, mostly on behalf of clients who have no connection to the U.S. Allowing 30% of these payments to be withheld is clearly not an acceptable option.

Moreover, adequate grounds to establish a U.S. connection can be deceptively simple, since the U.S. government claims that simply using the U.S. dollar — which nearly every bank in the world does — gives it jurisdiction, even if there are no other connections to the U.S.

It is clear that institutions must either comply with the provisions of FATCA or seek exemption. It is possible for a firm to be awarded ‘limited conditional’ FATCA status, which means that the institution is exempt from reporting because it is deemed to be compliant and information secrecy laws come into force.

When analyzing an investment account, the provisions of FATCA require the account to be classified into one of the following three categories:

• ‘Approved’ as of 1 July 2014
• ‘Limited conditional’ until the end of 2015. These administrators are deemed to be FATCA compliant and may register first and verify their status later.
• The enormous quantity of FFIs that fall into neither category. The IRS calls them ‘rejects’

The first step in seeking ‘limited conditional’ status is to establish whether or not a U.S. individual or entity is part of a foreign financial institution (FFI) and then whether the FFI concerned is in a jurisdiction that restricts the provision of information.

If this is indeed the case, then ’limited conditional’ registration is awarded and the FFI is declared compliant with FATCA. This means that the FFI can sign the new W8 BEN-E declaration. If not, then the FFI must first register for a Global Intermediary Identification Number (GIIN) before it can sign the W8 BEN-E.

It is possible for an FFI to be dealing with restricted and unrestricted information. An example would be an FFI having both a Foreign Retirement Plan and a Mutual Fund would mean this FFI would have ''limited conditional'' covering the retirement plan and a GIIN covering the mutual fund.

The rule is simple: no W8 BEN-E, no transactions in U.S. dollars, but what exactly is a W8 BEN-E Declaration? A W8 has been in existence for a long time. It is a declaration by a non-U.S. individual concerning their tax status for U.S. tax purposes. The W8 BEN declaration used to be very simple: a foreign company would declare that it was not a U.S. company, not U.S. controlled and that it didn’t have U.S. income. This was all that was necessary to allow any foreign company's U.S. counterparty to remit gross income rather than deducting the required amount.

This has all changed since the introduction of FATCA, which has resulted in the introduction of the new W8 BEN-E declaration. Unless the investment platform is able to sign a W8 BEN-E on behalf of the individual, they cannot be party to any U.S.-dollar investment without having some level of FATCA registration.

The FATCA status ‘limited conditional’ means that the institution is exempt from reporting because it is deemed to be compliant and restricted information secrecy laws override FATCA.. This is explicitly for foreign retirement plans as exempt beneficial owners and also for administrators of FATCA identification number pension funds.

The Privacy of Pensions

Many countries have laws imposing secrecy on information about retirement plans and this is in essence why FATCA allows for the ‘limited conditional’ category.

By their very nature, retirement plans are viewed and governed differently. There are sanctions on dealing with retirement plan information which only a Regulator can decide on. There are so many organizations with powers of search and seizure these days that might otherwise demand access to sensitive information. Preventing this is important because retirement plans are proprietary.

Moreover, the US Treasury has formally determined that pensions carry a low risk of tax evasion and they are therefore exempt from FATCA reporting.

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A Clean Nominee Bank Account structure is not an off-the-shelf product and can be tailor-made in compliance to a statutory tax law mechanism and the clients financial situation.

How To Extend The Tax Holiday On Carried Interest

1. Private Equity because they could be caught by the carried interest definition and three year tax holiday; which means they could suffer to pay tax on money not yet received
2. Captive Insurance Passive income solution
3. Hedge Fund specific solution to continue deferral of carried interest.

Private Equity caught by the carried interest definition; which means they could pay tax on money not yet received.

This structure extends the tax holiday indefinitely.

This structure makes overseas passive income rules irrelevant.

That means the top marginal tax rate applies to overseas passive income because the general tax rate deductions and the new participation exemption rules reductions do not extend to Passive income and gains. (See 4501 and 1297)

The 2018 ''participation exemption'' in tax law changes makes the way an American Company financed their business no longer tax neutral.

Carried Interest

• The Tax Reform Act did not eliminate the tax advantages of carried interest but instead adjusted the holding period for private equity funds and real estate partnerships.
• The Act treats carried interest gains on partnership assets held for three years or less as short-term capital gain and as long-term capital gain if held more than three years. The three year timeline limitation begins at the start of the Fund.

The non-contentious part of that limitation is repatriation of carried interest for Corporations and Funds. Funds will suffer a ''double whammy'' of taxation and loss of yield. Which means funds not only kiss investor money away and suffer a huge tax bill.

Summary of 402(b) solutions for the 2018 overseas tax problem.

1. Extend the tax holiday on private equity, hedge funds and stock options.
2. There are no time limits to a tax holiday

• Removal of a promise by a US tax indifferent entity to pay a carried interest and replacement with a possibility of later payment
• In exchange, the certainty of taxation in 2018 is replaced by the certainty of taxation sometime later: in other words, deferral

The economics

• Tax deferred is tax saved
• The return on deferred tax is always better that the return on the 457A after-tax residue

The legal framework

• Use of a 402(b) compliant non-qualifying unvested deferred compensation plan organized under Hong Kong law with existing hedge fund clearer's as asset-holder of the plan
• Transfer of existing carried interest assets to the plan by the existing US tax indifferent entity as plan sponsor
• Vesting schedule by means of a generic award plan by which plan administrator decides on allocation to plan members, which is a tax event.

Additional benefits

• By-passes probate, useful for business succession planning
• Creditor-proofing
• Not a discretionary trust and 409A and 83 compliant

Request Case Study: Capital Deductible That Is Pre-Tax Capital Raising