Compliant International Business Vehicle

There are three main reasons why you would pay to have a Compliant International Business Vehicle (CIBV), established for your use.

1. Because the fund you wanted to invest with, does not deal with entities from certain jurisdictions.
2. Because the fund you wanted to invest with has an initial investment amount that you cannot afford.
3. Because you want to form a relationship with a source of money.

1. Because the fund you wanted to invest with, does not deal with entities from certain jurisdictions.

This is not because there is anything illegal or wrong with taking investments from you or other entities in your jurisdiction, but because the fund chooses not do take those investments. In many high tax countries like Australia, New Zealand, Canada and the United States, in addition to having high tax laws, their Governments also pass investment laws that severely restrict the investment marketplace.

What this means is that for anybody wishing to offer investments in those jurisdictions, they have to comply with very strict licensing requirements. These licensing requirements create substantial costs and substantially erode the profitability of any business. The licensing requirements will also require the business and its operators to submit to that jurisdiction’s regulatory bodies, in addition to the regulatory bodies where the investment fund is operated.

Almost always, high tax countries have similar investment laws that allow the Government to have access to all records about investors and which allow that Government to control and regulate where investments are placed and how they are placed. They will usually also have very invasive and costly taxation laws that leave the fund managers with no privacy and certainly leave the investors with no privacy and which severely limit the returns that can be achieved.

In relation to the investment laws of most high tax countries, there is no law that stops an offshore fund from having a website and accepting investment offers made to it, by an entity from those countries. The difficulty arises because the regulatory bodies of that high tax country may allege that the offshore fund “solicited” the investment, even though the investor approached the offshore fund.

While these type of allegations can be disproved, most regulatory bodies are Government funded agencies, that are able to spend hundreds of thousands of tax payers dollars in trying to prevent offshore funds making their products available to onshore entities. This is simply so that onshore entities will not move their money offshore and out of Government scrutiny and control, especially the scrutiny of the relevant tax authorities.

Because of the attitudes and behaviours of Government bodies in these jurisdictions, many of the best performing fund managers simply choose not to deal with any entity from those jurisdictions, to avoid the difficulties that are created. Using a Compliant International Business Vehicle can be a way around that problem.

2. Because the fund you wanted to invest with has an initial investment amount that you cannot afford.

The other reason is that the particular fund has an initial entry investment amount that you alone cannot meet. It may be that the fund only accepts investors with a minimum of say $40,000 or at the other end of the scale the initial investment may need to be $250,000.

In order to be able to participate in those funds, the use of a Compliant International Business Vehicle may also be beneficial as the Compliant International Business Vehicle may be able to accumulate funds from several different investors to enable them to jointly reach the entry fee for the particular investment.

3. Because you want to form a relationship with a source of money.

The simple reality is, that if you are investing with a Compliant International Business Vehicle and it is paying you a rate of return, then it is most likely making a greater rate of return. This would mean that the Compliant International Business Vehicle would have surplus funds generated from investing your investment, which may be available to be loaned to you on commercial terms, if the appropriate security and loan documentation is put in place.

Many people utilise their home equity to supplement their lifestyle and as a rule, offshore lending is at far more competitive rates than onshore lending and like any investor, a Compliant International Business Vehicle may place some of its investment portfolio in secured real estate. While the returns are usually lower than can be achieved in offshore funds, secured real estate is fairly much a capital guaranteed investment, which can provide the basic security for any Compliant International Business Vehicle's investment portfolio.

By forming relationships with offshore entities for the purpose of your investment growth, you can then use those same relationships to use the benefits of your investment growth by way of low cost borrowing. Often by borrowing money at a low cost you can use it in your business and make a positive return on that money or use it to supplement your lifestyle.

4. What type of Compliant International Business Vehicles are there?
5. How does this system all work?
6. What happens to the surplus earnings?

4. What type of Compliant International Business Vehicles are there?

There are a number of different Compliant International Business Vehicles available to be used by people. People can utilise a corporation, a trust, a foundation, limited partnerships and a range of other differently named structures that are hybrid combinations of the main types.

In the Federal Territory of Labuan (the International Finance Centre located within Malaysia), the two main form of Compliant International Business Vehicles are Offshore Trusts formed under the Labuan Offshore Trusts Act 1996 and Offshore Companies formed under the Offshore Companies Act 1990.

Offshore Companies

For expatriates actively involved in undertaking their own investing or business activities in the international marketplace, the Offshore Company is usually the best option, as it is an entity that can be controlled by the person making the investment decisions and is the same as a company that is owned and controlled by someone in any jurisdiction. If this is the way a person wishes to go, while still being an onshore taxpayer in a high tax country, they will have to declare the investment earnings that they make in their onshore income and pay tax on those earnings.

Offshore Trusts

The more commonly used Compliant International Business Vehicle ("CIBV") for investors looking to invest through Labuan, is the Offshore Trust. The Offshore Trust is ideally suited to a passive investor and by using an Offshore Trust, the investor does not "control" or "own" the CIBV, but merely uses it to access international investment opportunities. Even then, the actual offshore investment may be one placed by the CIBV itself and not the investor. The investor may simply receive a debenture from the CIBV, giving the investor a return on their money and the return they receive is made possible from the investment that the CIBV places.

The Offshore Trust also has other advantages as a CIBV, as it is taxed in Labuan the same way as an Offshore Company, which means that any earnings it makes from investments are not subject to any tax in Malaysia. This means that the CIBV may be able to offer more consistent and regular returns to anybody requesting a debenture from it. If the CIBV is able to make a high return for a few years followed by an expectation of a lower return with the economic cycles that develop, it is able to accept request for debentures that pay a moderate return over a sustained period, and still maintain a surplus profit for the CIBV.

In addition to that, an Offshore Trust is subject to laws relating to privacy and people involved with it are not allowed to discuss with anybody the affairs of the Offshore Trust, including the terms of the debenture that you may have requested from it, which allows you to maintain privacy about your affairs. You are still required to disclose the returns received on your debenture to the mainland tax authorities of your jurisdiction, but all other dealings with the Offshore Trust remain strictly private and no other person can find any information about your debenture investment.

What is this Debenture?

A debenture is a document many people would have heard about, mostly to do with banks and large corporations. But it is simply a contract of debt between two entities. A debenture can be very complex with hundreds of clauses, or it can be one page with very simple obligations.

The essential things about a debenture, is that it must state:

Who is lending the money;
Who is borrowing the money;
How much money is being loaned;
When the money is due to be repaid; and
How much money will be repaid.

If a person or entity has been involved with lending money to an Offshore Trust in Labuan (a CIBV), then that person or entity would have requested and received a debenture issued to them, on behalf of the Offshore Trust. The Trustee of the Offshore Trust would have issued the debenture, but it is the Offshore Trust that is actually borrowing your money, so that it can invest that same money to earn a profit to pay your debenture.

5. How does this system all work?

i. The first step is simple - you join Sovereign International Association Inc, so that you can take advantage of the price discounts that they have negotiated with third party service providers (TPSP's).

ii. The next step is that you would engage a TPSP to establish a Compliant International Business Vehicle (CIBV) for you. Mentor Group Asia is able to provide a web-based portal for people or entities to request Mentor Group Asia to establish a Labuan Offshore Trust - a CIBV.

iii. After you request Mentor Group Asia Inc to establish the CIBV for you, they will engage a licensed Trust Company in Labuan, a Special Purpose Co-trustee company in Labuan and a Special Purpose Protector company in Labuan, so that a Labuan Offshore Trust can be created.

iv. The Labuan Offshore Trust will be created and it will have a Settlor, 2 Trustees and a Protector appointed. The Labuan Offshore Trust will also be given a unique identification number (which is also its name) and that number will be the date and time (to the second) that the Labuan Offshore trust was created. You have nothing to do with the creation of the Labuan Offshore Trust and have no role to play other than asking Mentor Group Asia to find a CBIV that you can use to access International Business opportunities.

A. The Settlor is the person who actually creates the Labuan Offshore Trust by declaring that 1 Euro is thereafter held on trust for the beneficiaries of the Labuan Offshore Trust. At the time the Labuan Offshore Trust is created, the only beneficiary is World Vision International.

B. One Trustee will be a licensed Trust Company, because if one of the Trustees is not a licensed Trust Company, then the trust will not be a Labuan Offshore Trust. In addition to that, the licensed Trust Company can provide and supervise regulated trustee bank accounts for the handling of money.

C. The other Trustee will be the Trustee that issues any debentures for and on behalf of the Labuan Offshore Trust. It will also be appointed as the agent of the Licensed Trust Company, to do all the administrative work related to the operation of the Labuan Offshore Trust. The Trust Deed for the Labuan Offshore Trust contains a special section that appoints the second Trustee as the agent of the Licensed Trust Company.

D. The Protector is a Special Purpose Labuan Offshore Company that has as its sole purpose in existing, the role of a protector of trusts. The Labuan Offshore Trusts Act 1996 has at section 35 a special person called the Protector, who has the power to supervise, instruct and replace a Trustee - the Protector appointed to the Labuan Offshore Trust will do just that.

v. The Labuan Offshore Trust is created for you to use, but you did not create the trust, you did not appoint any person to be a Trustee or Protector and the power to control, supervise and replace Trustees (and thereby control the Trust) rests with the Protector, not you.

vi. After the Labuan Offshore Trust has been created by Mentor Group Asia Inc, they will write to you and tell you that that has happened and they will provide you with a secure encrypted email address at a domain called "idfkmail.com" that you can use to communicate with the Trustee and the Protector. The email address will have its user name as the Labuan Offshore Trust name (identifying number) and you will be given instructions on how to use the mail system.

Mentor Group Asia Inc will also tell you that there is an annual fee to keep using the Labuan Offshore Trust and advise you when the annual fee is due to be paid. The fees paid to Mentor Group Asia for establishing the CIBV and maintaining the CIBV should be expenses that you can claim against the returns you make on any investment.
vii. When you use the email system you will receive an email from the Trustee setting out what the Trust can be used for and explaining to you how to start to use the Labuan Offshore Trust.

viii. If you decide that you would like to lend some money to the Labuan Offshore Trust, there will be a form you can download and fax to the Trustee. That form will be a Debenture Request Form and will be a request from you to the Trustee to issue a debenture to you on the terms that you propose in the Form - which will be the amount of capital, the interest to be paid to you and the term of the loan. Along with that Form, you will need to fax to the Trustee a copy of some photographic identification (passport or motor drivers licence) for the Trustee to place on its file so it can identify you in the future.

ix. Once the Trustee receives your Debenture Request Form, the Trustee will consult with the Protector as to whether the Trustee should accept the Debenture request or not.

x. If the Protector advises the Trustee to accept the Debenture Request, then the Trustee will send you an email confirming its acceptance of the Debenture Request and provide you with bank account details of where you can send your money for the debenture from the Labuan Offshore Trust.

xi. Once you have sent your money to the Labuan Offshore Trust the Trustee will issue you a debenture in the agreed terms and the debenture will be sent to you in an electronic format that you can print of. If necessary, a hard copy of the debenture can be posted to you as well.

xii. Once the Trustee has placed your loan money into the Trustee's own investment, the Trustee will offer you the opportunity to have on-line web access to view the performance of the Trustee's investment of the loan money. This is done so that you can monitor the performance of the Trust's investment and its capacity to pay the return on your debenture. Having on-line access will be optional and will be charged for on a monthly basis, as the Trustee will be charged a fee to have on-line access.

xiii. As the Trustee receives returns on its investment, it will be able to pay to you what it has agreed to pay on the debenture.

6. What happens to the surplus earnings?

The surplus earnings that the Trustee makes, over and above what he pays to you, become part of the Trust Fund. It is money that ultimately belongs to the beneficiaries of the Trust Fund but is legally owned by the Trustee until the money is distributed. The surplus earnings made by the Trustee for the Labuan Offshore Trust, do belong to the beneficiaries of the Labuan Offshore Trust. The Trustee may distribute the surplus earnings to the beneficiaries or pay things for the benefit of the beneficiaries. The Trustee may also re-invest the surplus earnings into other investments, such as loans secured against real property with caveats or mortgages. In Labuan, the loans made to people are usually done on the basis of Islamic Banking style loans that do not allow for the charging of interest as that is prohibited.