Many people often regard offshore trusts as the preserve of the super-rich who use such structures as part of their personal wealth management strategy. However, less well appreciated is that offshore trusts, with their inherent flexibility, are being increasingly used by a completely different type of client – expatriate employees of major corporations based in the UK.
Growing competition for highly qualified staff, the globalisation of the workforce and a greater emphasis placed on personal retirement planning and the provision of privately funded medical schemes, have forced multinationals to provide more flexible benefits plans for their employees working overseas or for their foreign nationals working in the UK.
These firms have found that trusts established in the Channel Islands or the Isle of Man have provided them with powerful staff recruitment and motivational tools with the flexibility and scope to meet the remuneration needs of their employees – who do not have to be millionaires to take part.
Offshore retirement benefits plans
In the field of retirement, some companies have sought to use a standard UK-approved pension scheme for their foreign national UK resident employees (non-UK domiciled). However, this has lacked the flexibility required for expatriate employees likely to relocate as their careers progress. Further, while these provide tax benefits to the employer, the employee is likely to ultimately pay UK tax on the benefits, regardless of where they are living in retirement.
This has led to the search for more flexible and efficient alternatives, employing offshore trust structures. Overseas employers, with UK resident, non-domiciled employees, can now make payments to retirement benefit plans which can obtain corresponding approval to a UK-approved pension plan, and, therefore, offer valuable benefits to both the employee and the employer.
The benefits are clear. The fund in the plan may accumulate gross, without the incidence of UK tax (other than withholding tax), while the accumulated fund does not have to be used to purchase an annuity on the member's retirement date. Rather it may be taken as cash, and providing they are not resident in the UK, when the benefits are taken, no UK tax is chargeable. The employers not only have the opportunity to offer an attractive remuneration package, capable of attracting and holding quality staff, but will also be able to claim a UK Corporation Tax deduction on their contributions.
Employee share option schemes
Another growing use of offshore trusts for the benefit of employees has been the provision of trustee services to employee share option schemes (ESOPs). The ESOP concept, which originated in the US, is designed to nurture a greater degree of ownership, participation and loyalty through wider share ownership by a company's employees.
In recent years, with the clarification of company tax uncertainties, a number of companies have blazed the ESOP trail in the UK. In an effort to enhance remuneration packages and staff loyalty, many multinational companies have sought to extend these schemes to their overseas subsidiaries.
An employee benefit trust, established in the Channel Islands, can prove an effective vehicle to administer the ESOP for overseas employees. A properly structured arrangement will have no liability to taxes in the Channel Islands and the trustees will not be taxed on capital gains.
Global employment companies
The growing sophistication of domestic employment packages has raised the expectation of expatriate employees when they leave their home shores. They have become far more sophisticated and frequently require a tailored employment package, not dissimilar to one they would recognise at home.
These expectations and demands have led to the development of global employment companies. Such a company, located in the Channel Islands, would provide a multinational corporation with the flexibility to implement new remuneration packages for overseas employees which recognise the commercial realities of local employment conditions in each location.
The additional flexibility will allow employees to receive their salary in the appropriate currency and split the payment of their salary between two locations, which can be a major consideration for employees working in politically unstable environments.
By establishing standard benefits for expatriate employees, such as retirement benefit schemes, ESOPs and medical insurance provision, a global employment company can also aid a company wishing to rotate its expatriate workforce around the world without having to establish new employment contracts in each jurisdiction.
So, far from being the preserve of the ultra-wealthy, offshore trusts are playing an important role in the human resource strategies of leading multinationals which understand the advantages and flexibility they have to offer.