How are such foreign structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?
As already explained trusts, private foundations and any other similar arrangements are treated as trusts for French tax purposes. The tax treatment of trust is explained in § 20.
See 20. The same regime applies to foreign family foundations.
See Question 18 and 20.
- There is no tax imposed upon the assets held by foreign trust and private foundations. Generally, the Greek framework of tax rules applied in these structures is targeting the distributions, “fruits”, income and liquidation proceeds.
- Distributions made to beneficiaries, in their capacity as settlors/founders, are treated as income from dividends [see notes in question 2 above].
- Capital returned to settlor is not subject to tax.
- Non distributed income may, subject to CFC rules, be taxed upon beneficiaries.
- The dissolution and liquidation proceeds of such entities may be treated as scalable “other-sourced income” or as –usually lower cost- dividends, depending on whether the entity was dissolved and liquidated pre or post 1.1.2014 respectively and depending on whether the liquidated amount superseeded the contributed capital.
- Distributions made to beneficiaries are taxed as gifts [if settlor is alive] or inheritance [if settlor is deceased]; notes made in question 5 are applicable here.
The tax treatment very much depends on the individual structure. If the settlor or beneficiaries have significant control over the foreign trust’s or foundation’s assets, the entity may be completely disregarded for German tax purposes and assets, income and gains may be directly attributed to the controlling individual(s) for all tax purposes. In case of a fully discretionary and irrevocable structure without significant control of the settlor or beneficiaries, the foreign entity will generally be recognized for German tax purposes. German gift tax may apply to transfers to and from this entity in case German resident or property located in Germany is involves (see above No. 5). Accumulated income or gains of the entity will generally be attributed to a settlor or beneficiary with German residence according to his or her “share”. However, there is an escape clause for entities within the European Union or European Economic Area if it can be demonstrated that the settlor and beneficiaries have no control over the trust’s or foundation’s assets. Distributions at least of income or gains (yet unclear whether this would also apply to a distribution of assets) to beneficiaries with German residence may also trigger German income tax (if the relevant income or gains have not been attributed already as the escape clause did not apply).
Tax inspectors sometimes struggle with the tax treatment of trusts, especially in the field of inheritance taxes. Although some take the position that any distribution by a trust upon or even after the death of the settlor should be taxed with inheritance tax, the opposite can be argued for certain types of trusts.
For income tax purposes, Belgian resident founders and third-party beneficiaries of a ‘legal construction’ must report its existence in their annual income tax return. Trusts and low-taxed foreign legal entities (including foundations) are considered as such legal constructions. In addition to this reporting obligation a look-through tax (commonly referred to as the ‘Cayman-tax’) has been introduced in 2015 for these legal constructions. Their founders (which is a broadly defined concept) or third-party beneficiaries are taxed as if they themselves received the income generated by these legal constructions.
British Virgin Islands
These would essentially be taxed in the same way as the equivalent BVI structures and persons.
All foreign structures are deemed tax neutral.
The key to taxation of a foreign structure turns on the residence of the settlor/founder and the beneficiaries. Foreign structures established by New Zealand tax residents are taxed in New Zealand on their New Zealand sourced and worldwide income.
A foreign company which is owned by a New Zealand foreign trust (which by definition is tax-free) or a non-qualifying trust is not treated as a controlled foreign corporation (“CFC”) and is therefore not taxable in New Zealand on that basis.
In the first instance, provided the company is owned by less than 40% NZTR’s (in the case of individuals) and there are no other controlling interests from New Zealand, the company’s shareholders will not be treated as taxable in New Zealand on the company’s overseas income, except on income distributions.
Alternatively, if the company is owned by a vehicle which is treated as tax exempt in New Zealand, such as a New Zealand foreign trust, the company will be exempt from the CFC rules because, by definition, the shareholder is not taxable in New Zealand. It should be ensured that there are no other control interests in relation to the company which would otherwise make it taxable. By utilization of these structures, a New Zealand entity can hold part or the whole of the participation in a foreign company without incurring a tax liability in New Zealand.
Regarding foreign trusts, the rules provided by Law 1.381 apply. See question 20.