All About Succession Planning for Foreign Companies

When a business owner passes away, numerous procedures must be undertaken to guarantee a smooth transition and business continuity, while minimizing any interruptions. However, the succession of foreign company ownership can be prolonged and complicated without proper planning.

For shareholders in foreign companies based in the British Virgin Islands, Belize, Bahamas, Nevis, Panama, or Canada, various methods and mechanisms can simplify the share transfer process after a shareholder's death, ensuring swift and efficient ownership and control transition.

Upon the death of a shareholder, the shares must be transferred to the designated beneficiaries. In these jurisdictions, however, the shares are considered to be located abroad. As a result, interests in a foreign company cannot be validly transferred to the intended heirs without adequate planning using one of the available options.

Planning Options Available

1. Joint Shareholders

Shares in a company can be owned jointly with rights of survivorship. Upon the death of one owner, their interest in the shares automatically transfers to the surviving joint tenant, eliminating the need for probate.

If a foreign shareholder sells shares in a US company, any capital gains realized may be subject to US capital gains tax. The rate depends on the holding period and the type of asset (e.g., short-term vs. long-term gains). Additionally, some tax treaties provide relief from US capital gains tax for foreign shareholders.

2. Will

Registering a Will in the foreign jurisdiction where the company is situated can greatly streamline the probate process in that area. Additionally, it can shorten the time needed to secure a grant letter (the legal authorization for asset transfer), since a foreign procedure may proceed alongside any probate application or its equivalent in the deceased's country of origin.

However, it's important to recognize that while a Will registered in a foreign jurisdiction can facilitate and expedite the legal transfer of shares, such transfers might be superseded by any "forced heirship" provisions that the laws of the deceased's home country might enforce.

3. Foreign Trusts

Trusts are established for asset protection and succession planning purposes. In this context, the primary benefit of holding shares in foreign companies' trusts, includes:

• Probate is not required in respect of shares settled in a foreign company trust on the death of the settlor (i.e. the person who contributes the shares into the trust).
• Assets held in a properly constituted trust are not subject to any right, claim, or interest conferred by a foreign law upon any person because of personal relationship to the settlor or by way of heirship rights.
• Shares placed in foreign trusts are safeguarded against claims of forced heirship that could emerge upon the death of a shareholder, which would not be the case if the shares were held personally.

How do I set up a foreign trust?

Setting up a foreign trust involves several steps, and it’s essential to seek professional advice to ensure compliance with legal requirements. Here’s a general overview:

1. Consider who the beneficiaries will be and what assets you want to place in the trust. 
2. Research and select a foreign jurisdiction where you want to establish the trust. Common choices include countries with favorable trust laws, tax benefits, and political stability.
3. The trustee is responsible for managing the trust assets and ensuring compliance with the trust’s terms.
4. You can choose an individual or a corporate trustee. Corporate trustees often have experience in cross-border trust administration.
5. Work with an attorney to create the trust deed (also known as the trust agreement or instrument). This document outlines the trust’s terms, including the powers and duties of the trustee.

Furthermore, comprehending the existing regulations and forthcoming legislative changes concerning estate and gift taxes is crucial, particularly in the context of ultra-high net worth individuals (UHNWIs) and family offices. The growing movement of people across state lines within the US, coupled with immigration, has introduced additional intricacies in wealth management strategies. Several states with high-income taxes are also contemplating the introduction of wealth taxes.

How we can help?

At H&CO, we have a team of skilled tax professionals (CPAs) with an in-depth understanding of the intricacies of income tax preparation. Our specialists are dedicated to guiding you through the process with the highest level of care and attention. We offer outstanding service and a tailored approach to assist you in navigating both US and international income tax regulations, ensuring you're informed of the latest updates.

With offices in the US cities of Miami, Coral Gables, Aventura, Fort Lauderdale, Orlando, Melbourne, and Tampa, and in over 29 countries, our global CPAs and tax advisors are ready to support you with all your tax planning, tax preparation, and IRS representation needs. To discover more about our accounting firm's offerings, explore our Individual Tax Services, Business Tax Services, International Tax Services, Expat Tax Services, SAP Business One, Entity Management, Human Capital, and Audit and Assurance Services.