A PROGRESSIVE OFFSHORE JURISDICTION
The Cook Islands is a progressive offshore jurisdiction with sophisticated and innovative legislation designed for
asset protection trusts
and international partnerships
Next, we outline the Cook Islands offshore legislation and the services provided by EUROFINANZZA
A Company is not permitted to carry on business in the Cook Islands as a trustee company unless it is registered pursuant to the provisions of the Cook Islands Trustee Companies Act 1981-1982.
Carrying on business as a trustee is widely defined and includes acting as trustee, executor or administrator.
The control of the registration of trustee companies lies with the Cook Islands Financial Supervisory Commission, which looks at the suitability of the applicant and the experience of this associated with the applicant. Minimum capitalisation requirements also apply.
THE ACT 1981-1982
A Company can be incorporated under the International Companies Act 1981-1982 as an international company if its shareholders are non-resident of the Cook Islands, however, a trustee company registered under the Trustee Companies Act 1981-1982 may hold shares in an international company and may be the sole shareholder. EUROFINANZZA can incorporate an international company within 24 hours of receipt of instructions.
CAPITAL REQUIREMENTS AND SHARES
There are no minimum capital requirements and shares may be of no par value. Shares may be designated in most major currencies and bearer shares may be issued (but must be “immobilized” with a Cook Islands custodian, which can be a Trustee Company), unless this is prohibited by the Articles of Association.
DIRECTORS AND SECRETARY
Only one director of an international company need be appointed and there is no obligation to appoint a resident director. It is obligatory to have a resident secretary who must be an officer of a registered trustee company. Additional secretaries may be appointed who need not be residents.
An international company may be incorporated for any lawful purpose, other than that of a trustee company, but shall not carry on the business of banking or insurance, unless it is licensed under the relevant Act.
Principals or promoters of international companies may remain anonymous as there is no obligation to disclose any details of beneficial ownership of shares.
Such anonymity is further guaranteed by virtue of the provisions of Section 8(5) of the Act which impose penal sanctions on any person who discloses information derived from an inspection of the records of an international company.
The documents lodged with the Registrar of International Companies are only available for inspection by directors, members and debenture holders. Court proceedings relating to the rights or obligations of officers or members or debenture holders must be heard in camera, unless the Court orders otherwise.
All companies must lodge annual returns accompanied by audited accounts unless the members of the Company (being a private company) resolve at each annual general meeting that auditors should not be appointed.
The legislation expressly provides that international companies and foreign companies registered under the International Companies Act 1981-1982 and their shareholders will not be subject to any form of taxation including stamp duty. The legislation also provides such entities with a guarantee that the Crown will not compulsorily acquire or expropriate their property situated in the Cook Islands except under specified circumstances defined by law.
A foreign company incorporated outside the Cook Islands may register under the International Companies Act 1981-1982 if it has a place of business or is carrying on business from within the Cook Islands. Once registered under the Act it is subject to the same provision as an international company.
FORMS OF ENTITIES
The Act permits the incorporation of various types of companies other than companies limited by shares. These include no liability companies, companies limited by guarantee, unlimited companies and mutual companies.
Special features of the Cook Islands International Companies Act 1981-1982 include:
TRANSFER OF CORPORATE DOMICILE
One of the essential criteria for international tax planning is flexibility.
There should be an ability to modify promptly an offshore structure as a consequence of a change in circumstances and the Cook Islands legislation permits such flexibility through provisions which enable a company to transfer its domicile.
The International Companies Act enables:
(a) companies incorporated in other jurisdictions to transfer their registration to the Cook Islands as international companies,
(b) international companies to transfer their registration to other jurisdictions.
STOCK EXCHANGE LISTING
Amendments to the International Companies Act in 1991 provide for International Companies to become listed on a number of major Stock Exchanges. In addition foreign companies already listed on designated stock exchanges can now make application to transfer their domicile to the Cook Islands.
The Act provides considerable flexibility in regard to reduction of share capital. Specifically, the Act allows:
• a Company to purchase and cancel its own shares;
• redemption of shares without maintenance of capital and without the need for a Court order;
• a Company to finance the purchase of its own shares.
The Cook Islands insurance legislation readily facilitates the establishment and operation of captive insurance and re-insurance companies.
The Offshore Insurance Acts of 1981-1982 and 1984 control the licensing of companies that wish to conduct offshore insurance business from the Cook Islands.
Offshore insurance business is defined as any insurance business where each of the insured, the policy beneficiary and the owner of the policy are not domiciled
Nor ordinarily resident in the Cook Islands and are not domestic companies or a trustee company.
Only an international company or a foreign company registered under the
International Companies Act 1981-1982 may be licensed to carry on offshore insurance business. A licensee is not permitted to transact any insurance business other than offshore insurance business and must use the services of a registered trustee company to conduct such business.
An offshore insurance company is required by Regulation to have a surplus of tangible assets over liabilities of USD$100,000 unless this requirement is exempted by the Minister of Finance under Section 23A.
A licence is not required for offshore insurance business transacted between companies which are related or for the re-insurance of risks ceded from a licensed offshore insurance company. The companies are deemed to be related if they have a parent subsidiary or fellow subsidiary relationship.
A company licensed under the Offshore Insurance Act is exempt from any form of taxation and duty, it must however file audited annual accounts with the Cook Islands Financial Supervisory Commission which administers the Act.
In addition to the general secrecy provisions of the International Companies Act 1981-1982, the Offshore Insurance Act contains strict secrecy provisions which impose penal sanctions on any Government official, officer or employee of a licensee or of its auditor who discloses any information concerning the offshore insurance business of the licensee.
EUROFINANZZA is fully experienced in the formation and management of captive insurance and re-insurance companies and further details are available through any office of the EUROFINANZZA Group.
BANKS AND MERCHANT BANKS
Banking business in the Cook Islands may only be carried on under a licence issued by the Financial Supervisory Commission under the Banking Act 2003.
The Banking Act requires that all licensed banks have a physical presence in the Cook Islands. The Financial Supervisory Commission considers that “physical presence” means that the mind and management of the bank must be based in the
Cook Islands, that the bank have an office in the Cook Islands which is open to the public during normal business hours, that all records of the bank must be kept within the Cook Islands and that all transactions of the bank must be approved by the management of the bank in the Cook Islands.
A trust, which is registered under the Cook Islands International Trusts Act 1984 (as amended) is entitled to the benefits and protection provided by that Act. The Act provides a registration system whereby a registered trust is sheltered from both the general common law and Cook Islands statue law insofar as those laws are inconsistent with the Act.
Application for registration is made by a licensed Trustee Company. The application must certify that no resident of the Cook Islands is a beneficiary, advise the date of the trust deed, the name of the trustee and the name of the trust.
There is no requirement to file the trust deed with the Registrar. Any information pertaining to an international trust, including the deed of trust and the identity of parties connected with the trust is confidential and subject to the secrecy provisions of the Act.
The Act creates a flexible tax effective environment in which the familiar English trust concept can be used for both tax planning and asset protections purposes.
The trustee(s) beneficiaries and Settlor of an international trust are exempt from any form of taxation and duty in the Cook Islands. The legislation removes some of the difficult aspects of the common law relating to trusts.
The modern rule against perpetuities has been abolished although if desired a specific perpetuity period can still be selected by the Settlor at the time the trust is established. Other common law rules such as the rule against accumulations and double possibilities do not apply.
The Act, as a consequence of amendments in 1989 and 1991, contains no innovative statutory provisions for the protection of assets held under international trusts.
The legislation overcomes specific common law problems to provide protection for settlors and beneficiaries from unwarranted claims against trust assets.
More recent amendments in 1996 and 1999 have expanded the definition and role of the protector, expanded the scope of the Purpose Trust and adopted with slight modification Section 50 of the New Zealand Trustee Act 1956 in respect of Custodian Trustees. Asset protection trusts are explained further.
The International Partnerships Act 1984 provides for the registration of partnerships in the Cook Islands including the exemption of the partners from any taxation and duties in the Cook Islands.
An international partnership must have at least one partner who is either a trustee company, an international company or a registered foreign company. All partners must be non-residents of the Cook Islands.
The Act also permits the registration of limited partnerships comprising of at least one general partner and one limited partner. One of the general partners must be either a trustee company, an international company or a registered foreign company.
Registration of an international or limited partnership is a simple procedure and the partnership agreement does not need to be filed. The International Partnerships
Act contains extensive secrecy and confidentiality provisions, including penal sanctions for their breach.
THE COOK ISLANDS
LEADS THE OFFSHORE WORLD
COOK ISLANDS ASSET PROTECTION TRUSTS
The concept of using trusts to protect assets has been established for several centuries. Asset protection trusts, as they have come to be known, were created to protect beneficiaries from a wide range of potentially adverse eventualities. The common objective has been essentially to protect the assets of the Settlor against the consequences of financial disasters which may arise from the imposition of excessive death duties, the extravagance of family members, mismanagement of business ventures, or from the actions of third parties.
In recent years greater emphasis has been placed upon the need to preserve wealth from the ravages of litigation, political risk and government expropriation, marital or family breakdown, and contingent creditors.
This trend has been fuelled by the economic downturn of the late 1980’s, major political changes in Europe and elsewhere, and the growing influence in international law of the US generated penchant for litigation.
In various jurisdictions we have seen over the past 10 years, an escalation of personal risk as a consequence of penal awards by juries or over zealous courts, increased exposure of non-executive directors as corporate laws become overly protective of creditors and shareholders, and in the case of the latter, the loss of traditional protection as the corporate shield has been removed by legislation. As a consequence liability and professional indemnity insurance protection has become inadequate and, where available, expensive.
Increasingly, wealth protection planning has become an essential consideration in the development of financial strategies of high net worth individuals, company directors and professional practitioners.
In turn asset protection trusts, particularly those based offshore have emerged as a primary component in such planning.
The starting point of any asset protection plan is a consideration of the laws of the client’s domestic jurisdiction. Laws which may be relevant would be those governing issues such as exchange controls, estate duties or inheritance taxes, capital gains taxes, bankruptcy and in particular fraudulent conveyances, and matrimonial settlements.
The relevance or otherwise of such laws will in many instances help determine the nature of the assets which the client will settle into the asset protection trust, and whether or not such trust should be located in an offshore jurisdiction.
It must be recognised that basing an asset protection trust offshore will not absolve the client from the need to comply with his domestic laws. As the principle objective of the client will be to protect assets against the prospect of his or a beneficiary’s future bankruptcy, the domestic laws against fraudulent transfers of property are of paramount importance. In most jurisdictions there are laws which operate to set aside transfers of property which are made with the intent to defraud creditors.
Such intent need not be express and in many instances intent to defraud is deemed to occur where transfers of property are made within a specified period of time.
Often criminal prosecution may result from such actions. It is essential that asset transfers are made well ahead of any potential creditor action, properly documented, and placed in a legal environment which offers the utmost protection from potential attack.
There are a number of reasons why most advisors recommend that asset protection trusts be established offshore. Obviously assets held in a domestic trust are more susceptible to attach. However, one of the principal attractions for placing assets in an offshore trust is the legislation which has been introduced in some offshore jurisdictions specifically to facilitate asset protection.
The Cook Islands was the first offshore jurisdiction to enact such legislation under the International Trusts Amendment Act 1989. Further amendments were enacted in 1991, 1996 and 1999.
As a result the Cook Islands currently has the most modern international trust legislation with particular emphasis on the protection of assets, the protection of beneficiaries and flexibility of “control” by the Settlor.
The Cook Islands international Trust law is derived from English common law but the legislation has removed some of the problem areas of the common law pertaining to trusts.
FEATURES OF THE COOK ISLANDS LEGISLATION INCLUDE:
1. An international trust will not be void or voidable as a consequence of the settlor’s bankruptcy, notwithstanding any law to the contrary in the settlor’s domestic jurisdiction.
2. If a creditor establishes that an international trust was settled with the principal intent of defrauding a creditor and such settlement rendered the settlor insolvent or without property by which the creditor’s claim could be satisfied, the settlement shall not be void or voidable but the trust shall be liable to satisfy that creditor’s claim from trust property which was the subject of such settlement.
3. Generally foreign judgements cannot be entered against an international trust in the Cook Islands.
4. An international trust shall not be fraudulent against a creditor or the settlor if:
(a) the transfer of property takes place more than two years after the date upon which the creditor’s cause of action arose; or
(b) such a transfer takes place within two years from the date of the cause of action
accruing to that creditor and the creditor fails to bring that action within one year from the date of such transfer.
5. The settlor may retain certain powers and benefits without invalidating the trust.
6. The interest of a “spendthrift” beneficiary in an international trust may not be alienated by a creditor.
7. The avoidance of forced heirship rights shall not render an international trust void or voidable.
8. A trustee may delegate its functions, discretion’s and powers (other than dispositive powers) beyond the general common law rule on delegation.
9. Co-trustees may make valid decisions as a majority rather than unanimously. Title to trust property may be held by a single co.-trustee.
10. The settlor, beneficiaries and the international trust are not subject to any form of taxation in the Cook Islands. It is important to note that whilst the legislation allows such flexibility, the provisions outlined in 5. - 9. above do not apply unless specifically adopted in the trust document.
It will be apparent that the Cook Islands constitutes an ideal legal environment for asset protection trusts whilst preserving commercial responsibilities to the creditors.
EUROFINANZZA TRUST SERVICES
EUROFINANZZA provides a complete range of international fiduciary services for businesses which utilise offshore locations as a base for their international business operations.
We provide a consultancy support service to professional advisors and their clients. Our extensive experience in offshore financial matters and our creative but practical approach enables EUROFINANZZA to assist professional advisors in maximising the profit potential of their clients. This added value concept also ensures that clients enjoy optimum flexibility in their asset protection and wealth accumulation structures.
EUROFINANZZA network of offices, and contacts in other offshore centres, enables us to facilitate global structures for our clients.
Specifically our services include:
STATUTORY CORPORATE SERVICES
• formation of international companies and registration of foreign companies under the Cook Islands International Companies Act 1981-1982
• corporate secretarial services as required under the relevant corporate legislation including provision of local or non-resident directors, registered office, nominee shareholders and company secretary including maintenance of statutory records and filing of statutory returns.
CORPORATE MANAGEMENT SERVICES
• general administration services including operation of bank accounts, negotiating trade finance, attending to commercial documentation, handling of letter of credit transactions, invoicing, banking, income collection including royalty administration and general representation
• offshore management services
• accounting services including maintenance of both computerised and manual accounting records, preparation of financial statements and management of bank accounts.
• registration of trusts under the Cook Islands International Trusts Act 1984 (as amended)
• trustee services including establishment of inter-vivos settlements and acting as trustee of discretionary family trusts
• acting as trustee or co.-trustee of asset protection trusts.
• administration of offshore family trusts and estates
• nominee facilities for private investments including custodianship and acting as escrow agents
• acting as trustees or alternate trustees of offshore-based employee pension or provident funds
• unit trust or offshore mutual fund services including acting as trustee, administrator or custodian of investments
• provisions of Protector services for trusts in other jurisdictions.
• private banking services including portfolio management are available through selected international banks and fund management companies.
OFFSHORE INCORPORATION SERVICES
COMPANY FORMATION & MANAGEMENT SERVICES
TAX PLANNING AND ASSET PROTECTION SOLUTIONS
INTERNATIONAL BUSINESS COMPANIES
PRIVATE LIMITED COMPANIES
LIMITED LIABILITY COMPANIES
LIMITED LIABILITY PARTNERSHIPS
PRIVATE & FAMILY FOUNDATIONS
PANAMANIAN LICENSED FINANCIAL CORPORATIONS
NEW ZEALAND OFFSHORE FINANCIAL INSTITUTIONS
SECURE & CONFIDENTIAL NOMINEE STRUCTURES
INCORPORATION IN EUROPE AND
MAJOR INTERNATIONAL OFFSHORE CENTRES
WORLDWIDE FULL SERVICED VIRTUAL OFFICES