Seychelles International Trusts
Trusts in Seychelles are governed by the Seychelles International Trusts Act of 1994. Amendments to the original act were made in 2011 by the International Trusts (Amendment) Act of 2011, which served to increase the desirability of Seychelles as an international trust jurisdiction by introducing greater flexibility into Seychelles International Trusts.
The government of Seychelles drafted the Act after a thorough study of best practices in other top trust jurisdictions, and incorporated all of the best features of other trust legislation, while also including various modifications and innovations that allowed for greater flexibility and stronger asset protection. As a result, Seychelles law is an exemplar of premier asset protection trust legislation.
Seychelles International Trusts are commonly used in conjunction with the Seychelles International Business Companies. By using a trust to hold shares in the IBC, an additional layer of legal protection is provided for the owner. Moreover, this can enable beneficiaries to defer or avoid any possible tax on the profits of the IBC for an indefinite period.
Types of Seychelles International Trusts
Seychelles international trusts are deemed to be irrevocable by default, but revocable trusts are also permitted. The majority of Seychelles international trusts are established as discretionary trusts, which allows for greater flexibility in dealing with changes in the needs and situations of beneficiaries.
The Act specifically provides for the following types of trusts: (a) international trusts; (b) charitable international trusts; (c) purpose international trusts; and (d) other trusts – these are referred to in the Act and include commercial (trading) trusts, life insurance trusts, cash deposit trusts and trusts resulting from acts of the Court.
This list, however, is not exclusive, and alternative trust varieties tailored to client specific needs are also available.
Advantages and Applications of a Seychelles International Trust
The primary benefits of Seychelles International Trusts are the opportunities for tax minimization, financial planning, and succession planning and financial privacy. The trust act was drafted to specifically include strong asset protection provisions in order to emphasize such benefits.
These trust benefits arise from the formal, legal separation of ownership of an asset from the enforceable rights of beneficial use and enjoyment of that asset. This particular characteristic of trusts has led to their widespread use in asset protection, estate planning, and the preservation of family wealth.
An “offshore trust” (a Trust established in an international financial center, or tax haven – like the Seychelles International Trust) provides the additional benefit of no domestic taxation, as Seychelles International Trusts are exempt from Taxation in Seychelles. Furthermore the tax benefits of Seychelles International Trusts are very attractive when the trust is used as holding vehicle deployed to hold shares in an IBC. Such a setup enables the beneficiaries to defer or avoid any applicable international taxes on the profits of the IBC for an indefinite period. Some of the most common applications of offshore trusts are as follows:
Assets transferred by the Settlor to a Trust no longer form part of the estate owned by the Settlor. Potential creditors of the Settlor have no access to Trust assets, as the trust assets are not considered to be the property of the Settlor. Additionally, A Settlor cannot be indicted for not reporting or declaring such assets, as they are not legally considered part of the Settlor’s estate. For asset protection purposes it is important that the Trust is established well in advance, ideally at a time when the Settlor could not even anticipate the existence of the future creditors, otherwise the trust may not be upheld as valid. Trust established with a purpose of avoiding the claims existing creditors are frequently found to be fraudulent and, therefore, invalid. Hence, early planning for Trusts is essential.
As trust assets are not deemed to be the property of the Settlor, trusts are often used to hold assets that would otherwise have to be reported or declared by the Settlor in his country or residence. In particular, trusts are widely used to hold shares in an IBC or in other offshore assets where the true ownership must be kept away from public scrutiny. This way, a legal additional level of confidentiality is provided for any offshore-based business. Seychelles International Trusts are particularly well-designed for this purpose. Although Seychelles International Trusts are officially registered with the regulatory agency in Seychelles, there is no formal requirement that the trust deed itself be filed with the registry. Additionally the Trust Act has no requirements for filing details about the Settlor or Beneficiaries, unless there are Seychellois beneficiaries.
Trust assets are not considered to be property of the Settlor. Hence, all profits and capital gains earned by the Trust would normally be taxable according to the laws regulating the Trust. These would usually be the laws of the country where the Trust is established. Seychelles International Trusts are expressly exempted by law from all income and corporate taxation. No estate, inheritance, succession or gift tax, nor any stamp duty is applicable to Seychelles International Trusts as long as all trust income is derived from outside of the Seychelles. As such, a Trust can clearly be a tax-free instrument for wealth preservation and accumulation. However, the beneficiaries of a trust should be aware that any income or benefit they receive from trust (even from an international or exempt trust), may still be taxable “in their hands”, at receipt of such income. In this respect, professional tax advice should be sought at home by any individual receiving income from a trust.
Estate planning and probate avoidance
In most jurisdictions the estate of a deceased must go through a probate procedure. This may be a lengthy and costly process, also involving undesired publicity during the distribution of the estate. By establishing a trust, the probate can largely be avoided, because the ownership to the trust assets has been transferred during the life of the Settlor. Hence, the death of the Settlor does not influence the Trust assets in any meaningful way and the Trust continues an uninterrupted operation for the benefit of the beneficiaries after and beyond the demise of the Settlor. Through a Trust, a person may lay precise plans for providing a source of income for his remaining family, make provisions for the education of children or for emergency situations in the family. A trust is arguably the most appropriate and flexible instrument for making arrangements of this kind.
Avoidance of forced heirship
For various reasons, an individual may not wish his property to pass outright to his heirs, and may wish instead to make some other arrangements. However, in many countries the law does not permit a person to freely dispose of his property in the event of his death. More typically, especially in Civil Law jurisdictions, the law prescribes that certain heirs (usually, the closest blood-relatives) may not be excluded from inheritance and must receive a predetermined minimum share of the estate – even if the deceased would not have wished them to receive anything. As trust property will not be deemed to constitute part of the Settlors´ estate, such property will be exempt from any such forced heirship rules. In essence, a Trust may largely fulfil the function of a Last Will and Testament, without being subject to the lengthy and expensive probate process and other burdensome regulations.
Estate planning and long-term preservation of assets
An individual may wish to ensure that the business built, or the wealth accumulated over a lifetime is not divided up among heirs and consumed irresponsibly, but retained to accumulate further, with provision for payments to members of the immediate family as the need arises. Along the same lines, if shares in a business are transferred to the Trustees prior to death of the Settlor, the Trust can be used to prevent the unnecessary liquidation of a family company. The terms of the Trust Deed may then include detailed provisions for support payments to be made to members of the family from dividend income received by the Trustees but that the Trustees retain the shares and keep the company running save in special circumstances justifying sale or liquidation. This approach may be particularly advantageous where the remaining family may have little business experience of their own or where they are unlikely to agree on the way forward for the business.
Tax Advantages of the Seychelles International Trust
As long as all Trust income is derived from outside of the Seychelles, then Seychelles International Trusts, and the respective trust property is permanently exempt from income and business tax, estate, inheritance, succession or gift tax and all instruments relating to the trust property or to transactions carried out by the trustee on behalf of the trust are exempt from stamp duty.
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