Best country for Opening an investment fund company using Interactive Brokers as the broker

[BillyBoy]

Hi everyone,

I am doing some research on opening an investment fund with IBKR and which country is best for it.

Basically the idea is to delay the taxes on my home country (Australia), as if I have participations on an investment fund I wouldn´t have to pay taxes until I close that, but the investment fund (managed by me) would be able to buy and sell international stocks without paying taxes on the country that is based on (for example, Singapure, Luxembourg, HK etc)

Does anybody have any experience doing this? Any country recomendations? Happy to pay for a consultant that can help me with this.

Thanks!

 

[Mike Williams]

Very difficult to do unless you change your residence. And then you can be stuck with withholding taxes depending where you trade. There are a few posts dealing with this on the forum in the last year. There is one guy who posted that he has residence in Panama and trades in Singapore and HK to avoid the WHT.

 

[Sols]

You're resident in Australia, so there's no way you can really defer taxes by placing company (that you manage/control) overseas. Any deferral is probably illegal and would constitute tax evasion. It's one thing to be an unregistered investment fund physically operating in Australia. Things get worse if you add tax evasion on top of it.

In my experience, ASIC is very reasonable to work with. Have you looked into forming the fund locally?

Otherwise, as @Mike Williams said, the right thing to do is to relocate. Find a place whose tax laws align with your expectations.

 

[jafo]

Hi everyone,

I am doing some research on opening an investment fund with IBKR and which country is best for it.

Basically the idea is to delay the taxes on my home country (Australia), as if I have participations on an investment fund I wouldn´t have to pay taxes until I close that, but the investment fund (managed by me) would be able to buy and sell international stocks without paying taxes on the country that is based on (for example, Singapure, Luxembourg, HK etc)

Does anybody have any experience doing this? Any country recomendations? Happy to pay for a consultant that can help me with this.

Thanks!

@Sols

Let me ask this question for the OP then:

If you could move and have NO constraints, what is the best city/country to move to and create an investment fund & manage it where you ALSO keep most of what you earn?

 

[Sols]

If you could move and have NO constraints, what is the best city/country to move to and create an investment fund & manage it where you ALSO keep most of what you earn?

Two ways to answer this:

1. Go live in a place where funds are often set up, such as Cayman Islands, Bermuda, Singapore, Cyprus, where taxes are usually low or non-existent. This is technically the most legit way to do it as there is no risk your fund is effectively operated from some place where it isn't authorized to.
2. Go live in a place where tax laws are permissive (or not enforced) in such a way that you can operate a fund with minimal tax burden on yourself. Depending on where you live, there is some degree of risk that the fund is considered operated from a territory it's not authorized for. But if you don't take customers there or actively market, these things usually are never picked up.

 

[JohnnyDoe]

You can always setup a Cayman (BVI/Bermuda etc.) fund with real local substance, relinquish active control over it and act as a passive investor. I don’t know however how investments in offshore funds are treated by the Australian taxman.

 

[Ancova]

Hi everyone,

I am doing some research on opening an investment fund with IBKR and which country is best for it.

Basically the idea is to delay the taxes on my home country (Australia), as if I have participations on an investment fund I wouldn´t have to pay taxes until I close that, but the investment fund (managed by me) would be able to buy and sell international stocks without paying taxes on the country that is based on (for example, Singapure, Luxembourg, HK etc)

Does anybody have any experience doing this? Any country recomendations? Happy to pay for a consultant that can help me with this.

Thanks!

We are CIMA regulated in Cayman and can assist with your inquiry.

 

[BillyBoy]

@Sols

You're resident in Australia, so there's no way you can really defer taxes by placing company (that you manage/control) overseas. Any deferral is probably illegal and would constitute tax evasion. It's one thing to be an unregistered investment fund physically operating in Australia. Things get worse if you add tax evasion on top of it.

In my experience, ASIC is very reasonable to work with. Have you looked into forming the fund locally?

Otherwise, as @Mike Williams said, the right thing to do is to relocate. Find a place whose tax laws align with your expectations.

Thanks for your answer Sols,

I was looking into it, but as it's only to manage my own money I thought it was quite incovenient to set up a fund (as it requires a business plan, CGT etc).

I was looking into creating an australian company and invest using it to reduce the tax from the personal bracket of up to 45% to the company one of 30%.

By any chance do you know if this option makes sense? Couldn´t find much info online and the few accountants I asked around here were not sure.

Or do you still think that makes more sense to set it up as a fund in Australia?

My main idea was that, being set up as a fund I could deffer taxes until I actually pay myself at a personal level.

 

[Sols]

I was looking into it, but as it's only to manage my own money I thought it was quite incovenient to set up a fund (as it requires a business plan, CGT etc).

I was looking into creating an australian company and invest using it to reduce the tax from the personal bracket of up to 45% to the company one of 30%.

By any chance do you know if this option makes sense? Couldn´t find much info online and the few accountants I asked around here were not sure.

If you're just managing your own money, you probably don't need to worry about ASIC. I didn't understand from your original post that it was just your own money you were talking about managing.

Have you looked into just setting up a company (locally) and have that company's purpose be to make investments for the benefit of the sole shareholder? If it's all your own money, you don't probably don't need to form a fund as such.

Speak with a good law firm about it. Most accountants can't help with tax and legal affairs.

Or do you still think that makes more sense to set it up as a fund in Australia?

I think tax evasion is one of the dumbest crimes a person can commit. The repercussions are so much greater than the short term benefits. Your opponent would be AUSTRAC, which is comparable to its north European peers in skill, aggression, and commitment.

And you would be probably be looking at potential tax evasion charges if you form a foreign company and get caught not having registered it as tax resident in Australia.

My main idea was that, being set up as a fund I could deffer taxes until I actually pay myself at a personal level.

Companies aren't required to pay out dividends, so you can keep the profits in the company indefinitely. There may be some limits on how long you can go without distributing profits (many, many years), but such limits are usually reasonable.

 

[BillyBoy]

If you're just managing your own money, you probably don't need to worry about ASIC. I didn't understand from your original post that it was just your own money you were talking about managing.

Have you looked into just setting up a company (locally) and have that company's purpose be to make investments for the benefit of the sole shareholder? If it's all your own money, you don't probably don't need to form a fund as such.

Speak with a good law firm about it. Most accountants can't help with tax and legal affairs.


I think tax evasion is one of the dumbest crimes a person can commit. The repercussions are so much greater than the short term benefits. Your opponent would be AUSTRAC, which is comparable to its north European peers in skill, aggression, and commitment.

And you would be probably be looking at potential tax evasion charges if you form a foreign company and get caught not having registered it as tax resident in Australia.


Companies aren't required to pay out dividends, so you can keep the profits in the company indefinitely. There may be some limits on how long you can go without distributing profits (many, many years), but such limits are usually reasonable.

Thanks Sols,

Really appreciate your answer.

I will look into that option, I think it's probably the best one for my purpose, which is legally paying my taxes while living in Australia but just trying to reduce the burden of it (I am ok with paying up to 30% of CGT but anything above that I think it´s just too much).

If by any chances you have any law firm you could recommend me in Australia that would be great, you seem to know quite a bit about this country

 

[Sols]

If by any chances you have any law firm you could recommend me in Australia that would be great, you seem to know quite a bit about this country

It's a mix of first and second hand experiences. You may want to reach out to firms like Ashurst, Norton Rose Fulbright, Hall & Wilcox, and/or Allens. They might be very keen on selling you a full investment fund setup, though. Be clear you're just seeking a legal opinion/advice regarding forming an Australian company into which you will inject capital as a shareholder/director. The company will then use that money to make various investments and pay the profits to you as dividends.

Make sure you get a full view of the taxation, to work out if there actually are any savings vs. what you're doing now. For example, if you're at the highest tax bracket and paying 45% on income above 180,000 AUD, how does that compare to paying corporate tax and then CGT? If my understanding is right, capital gains are considered ordinary income. So maybe all you do is introduce 30% corporate tax as a donation to the government, unless there are exemptions you can make use of.

 

[BillyBoy]

Thanks Sols, very useful advice.

I'll check with those law firms.

Yes, my situation is that I am at the highest bracket so my idea was to set up the company, to pay 30% and then if it pay to myself it should be consider franking dividends so I can control the distribution to pay me every year at a personal level that doesn't pass that 30%.

It's basically delaying the taxes over 30% until I need it so I can keep that money and use it to continue trading.

 

[Ancova]

Thanks Sols, very useful advice.

I'll check with those law firms.

Yes, my situation is that I am at the highest bracket so my idea was to set up the company, to pay 30% and then if it pay to myself it should be consider franking dividends so I can control the distribution to pay me every year at a personal level that doesn't pass that 30%.

It's basically delaying the taxes over 30% until I need it so I can keep that money and use it to continue trading.

Feel free to email us, we can assist you with opening such fund in Cayman Islands