Patricia Woo and Michael Colicky on the reasons family offices have to take an approach that is global in tax management. A well-organise and efficiently run family office is essential to maintaining a wealthy family’s wealth and well-being in the long run. A well-run family office can cater for a wide range of functions that include succession planning, protection of assets and wealth planning and management, family governance and passing down family values. The list could go for a long time, however the primary element is a holistic international approach for tax administration. Family offices that take this approach will contribute a lot to protecting capital and increasing returns for the entire family.
A family of wealth with members and businesses across many nations is likely to be under the watch of different tax authorities. Additionally the more countries are affect the more complex and delicate the tax consequences. If a company is serving an individual, internal international tax management is crucial.This doesn’t mean you have to pay an enormous sum to employ an entire team of tax specialists that cover all jurisdictions concern.Also, hiring one tax professional who must know all jurisdictions isn’t recommend.The best method to deal with tax concerns is to make sure that the family office has sufficient amount of knowledge and sensitivity to recognise problems when they occur and also to recognise the time it is need for advice and who to.
Three-dimensional matrix model
Tax issues vary base on the family, and also base on the area and the location of family members, its business as well as the types of investments and other aspects.
There are no rigid and unchanging rules for family offices, they can make their own checklist of tax-sensitive questions by using this tax-management matrix illustrate in the image below.
The model arranges tax management components in the form of a three-dimensional matrix. One dimension is the planning of various tax issues which affect family members individually.
The second one is planning for investments made via the office of family members.
The last dimension focuses on tax management in three different sub-groups: management including compliance, review, and improvement.
Family planning for members of the family
However the family office must always conduct a cost-benefit analysis to determine if a plan arrangement is worthwhile.
The costs of setting up and continuing compliance costs have to be consider and consider in conjunction with the possible tax savings.
It is also important to consider current anti-tax planning attitudes of the populace that could cause structuring to fail if confidentiality isn’t secure.
A family office must also informing itself of the family member’s tax situation in the country where they reside.
The way a gain is classify as capital or income accounts can impact taxation in a variety of countries.
In certain jurisdictions like Hong Kong, capital gains are tax-free. Other countries, like China have lower tax rates for capital gains as well as other countries are not so fortunate.
Indonesia and Thailand as an example are taxe as normal income. Strategies to delay taxation can help in extending the timeframe of taxation.
Trans-border transactions can also provide opportunities for planning. For instance, a resident of the UK non-domicile remittance-base taxpayer will not be taxe for foreign income or capital gains, until they enter the UK.
Therefore the family office should establish and implement segregation and management procedures to ensure that there are no accidental or unintentional UK payments.
To stay clear of the control foreign corporation (CFC) rules The family office should assist in ensuring that ownership remains within the deem threshold for income and make the most of exemptions.
Double-tax problems are also possible therefore the family office must assist the family in avoiding having to pay twice for foreign-source income Family Office Singapore.
Additional complications arise when family members are residents or citizens of various countries, since planning needs to take into account the tax laws for each jurisdiction concern.
Planning for the family’s investment in the office
A lot of family-own businesses expect to earn huge returns through their investing. Naturally, taxes reduce returns.
Tax effects should therefore be observe throughout the entire investing process, from making of investment decisions until the extraction of earnings (or the actualisation loss).
The use of companies to construct an investment holding structure that is tax-efficient is not uncommon but the family office must be aware of the different rules in tax laws in the local area.
It is not unusual to find layers of offshore businesses, e.g. in the BVI and BVI, utilize to keep investments.
When the investment is locate in Hong Kong there is no tax consequence when there is any change in the shareholdings of one company
Holding shares however, there could have tax consequences if investments are locate in Japan, Malaysia or China.
The family office needs to be aware of the tax implications for various types of investments. Real estate investments are typically subject to more regulation than investing in shares that are list
Opportunities for planning may be offer through corporate structures, however there will be rules applicable to the real estate sector.
Certain jurisdictions provide tax-efficient policies or exempts from certain business-relate actions, which makes them an investment that is more appealing. The amount investe also affects.
The size of the investment is also important.
Australia capital gains aren’t taxe if the investment is not more than 10% of a publicly trad company.
In a significant way the tax treatment differs from country to country. methods affects how family office invest.
Tax withholding on dividends, capital gains and interest are often reduce with careful planning, however.
It is becoming increasingly difficult because jurisdictions are increasingly overlooking interpose entities, and instead focusing on the people who own the most of the income.
The less well-known to outsiders However, at the center of the family office is the way in which the location.
The legal entity and ownership structure affects its own taxability as well as that of its employees.
The key executives and investment professionals are always looking for tax-efficient strategies to increase their earnings, management charges, and other incentives fees.
Review and compliance functions
Compliance is a vital purpose of family offices to handle tax-relate personal and investment taxes.
The more regular tasks include the filing of tax returns and records requirements , as well as handling tax inquiries or inquiries, as well as demands for treaty or other benefits.
These are annual tasks to be complete at the personal, corporate , and trust levels (especially when income is earn by the trust (or CFC).
Other functions include reviewing arrangements to ensure they are tax efficient as well as examining the latest tax laws to determine whether they can provide tax advantages.
For instance, if a family chooses to use an Dutch firm to make investments in Indonesia to benefit from 10% in dividend tax
Withheld as well Hong Kong then enters into the treaty with Indonesia which grants the rate of 5 percent. In this scenario the family office may look into restructuring.
In tax management the family office must be more than just responsive and be proactive by monitoring changes in the tax landscape in order to increase efficiency of taxation.