As discussed in a previous article about using trust for assets protection it is also a way for people to establish charitable entities.
As a recap:
The definition of trusts and foundations are the same for this article, as this is an introductory explanation. Offshore means outside your own country. Offshore trusts and foundations then are those entities organized or placed abroad.
Trusts are entities setup under common law to keep assets for beneficial parties by an individual or a group of people, to be administered by a trustee in the country of settlement. This trustee would manage these assets on behalf of the beneficiaries and in line with the wishes of the settlor.
Offshore foundations are the civil law entity equivalent of the common law trust and work along much the same lines as a trust.
Now the use of offshore jurisdictions for charitable trusts and Foundations is becoming more relevant and fashionable as the more traditional onshore jurisdictions begin to over regulate and restrict the activities of charitable organizations. The range of countries constructing laws to be used for charitable means is growing as this sector is becoming more competitive, these changes to laws make the requirements to establish and maintain these charitable entities more user friendly. As expected, wealthy individuals and corporations have begun choosing countries with the most attractive and convenient laws.
The Benefits of Offshore Charitable Foundations
Questions like why there are people willing to spend on charitable organizations are quite varied. The more you look into the legacy family’s you will see the fact that by being born into these rich family’s can place some serious social expectations and responsibilities over their names. Think Rockefeller or Rothschild names. In the same way that corporate social responsibility makes organizations look good to the community, philanthropic deeds of wealthy individuals and family’s increases name recognition, forms stronger alliances and increases influence and power.
But why would they opt to place these organizations in another country? Because putting them up offshore satisfies their charitable goals legally while operating under less strict regulatory conditions and also providing a degree of privacy allowing them to investing and profit at the same time.
Tendai Musakwa enumerated some of the benefits of having offshore foundations in his article, The Benefits of Offshore Charitable Organizations. The following reasons are the most significant:
1. Barriers to Entry. International charitable organizations are often easier to be established in some countries like China than the local ones. While local foundations are having a hard and meticulous registration process in setting up their organization, offshore foundations undergo easy establishment and operations.
2. The Ability to Build and Accumulate Capital. Compared to onshore charities’ tremendous amount of required donations and taxes, offshore foundations have close to none – most of the jurisdiction would not require payout requirements and a low tax to non-taxable operation. This would mean having a very attractive income statement.
3. Business Restrictions. The low tax nature of offshore charities enables them to engage in businesses not directly related to charity. Thus allowing for the organization to grow the asset base for the long term growth and sustainability of the charity.
So we can see that setting up your charitable organization offshore has a lot of benefits to it. But you also need to make sure that the needs of the charitable goal are always at the forefront of any decision to incorporate and hold your charitable assets offshore.