How to fund a trust?
- Donation
By simply donating or giving your money to a Mauritian trust you will trigger donations tax in South Africa, the likes of which is levied at 20% on the the value of the donation under R30 million, 25% for an amount over R30 million. The first R100 000 is tax free.
All growth that occurs in the trust can also be seen as a ‘gratuitous disposition’ by SARS, resulting in all gains in the trust to be attributed to the settlor personally.
For these reasons a loan is the preferred method.
- Loan
By loaning the funds to your offshore trust it is important to do so at ‘arm's length’. This means you cannot make the loan at an interest rate that is lower than the structure would have been able to obtain from an independent party. If you do make the loan at a zero or below fair rate then the difference will be seen as a donation and taxable at 20% with the danger of gratuitous disposition rearing its head. Be aware that when you loan the funds to the offshore trust that you are fully taxable on the interest at your personal marginal rate. Partial exemptions do not apply to foreign interest but you could use your annual donation allowance to reduce the burden.
Should you finance a portion of the property in Mauritius the interest owed to the bank will encompass the entire value of the property, as the loan from a Mauritian bank is made in the client's personal name. However, you can potentially claim back the portion that the bank financed in Mauritius.
- Distribution from SA trust
South African trust legislation allows for offshore beneficiaries to be paid from South African trusts, once proper authorisation from the tax and regulatory authorities have been obtained. These offshore beneficiaries include offshore trusts.
This means, subject to the proper procedures followed at the masters office and regulatory approval a South African trust could distribute funds to an offshore trust, with no loan account established. This process can be complicated as approval from the Masters office, SARB and SARS needs to be obtained, and fortunately FFG Global is able to assist with this process.
Financing
Mauritian banks are willing to finance properties bought in Mauritius as investments or as homes. They finance properties bought in personal name by residents or non-residents, and have many solutions on offer. Most banks offer financing up to 70% of the purchase price.
Loans can be made in USD, Euro, GBP or Rupees, and terms vary between 30 years (residents), and 10 years for non-residents.
Most banks only finance up to age 65, but exceptions can be made for high-net worth individuals willing to pledge investment portfolios.
Mauritius has very competitive interest rates nd at the time of publishing the Rupee rates were between 5-6% and the USD rate was between 7-9%, subject to credit and risk profile rating
Banks:
Properties bought by trusts can be financed by having the settlor sign surety once proving personal income streams capable of servicing the repayments.
Refinancing
Trusts or companies that own properties can apply for financing. This process is known as an equity release or equity realisation. Up to 50% of the value can be applied for.
You can utilise an equity release for
- Home renovations
- Funding higher education
- Helping their children buy a home
- Repaying short-term debts
- Starting a business
- Extra income as you retire
Existing offshore trusts
Existing offshore structures can be used to purchase property in Mauritius, for example an existing Guernsey trust can buy Mauritian real-estate, however it is advisable to use a local Mauritian company called a Domestic Company to hold the property, and the shares of the company can be held by the existing trust.
Transferring property from personal name to trust
If you have already bought Mauritian property, but it is in your own name and you now wish to transfer to a structure, you need not be dismayed. Normally transferring the property from one person/entity to another will trigger a 5% sales tax in Mauritius, but if you are the UBO (Ultimate Beneficial Owner) of the structure you can rest assured that the transfer will not trigger the 5% duty. Likewise properties can be transferred between entities if the ultimate ownership does not change. Notaries can effect this change for between $800 and $1200.
Other benefits of your offshore trust
The trust is a versatile estate, wealth and tax planning instrument and can be used to hold a wide range of assets, including but not limited to digital currencies, bank accounts across the world, private and listed shares, unit trusts, properties, worldwide investment portfolios and so much more.
The minimum recommended investment into a trust is $200 000.00 (liquid or fixed assets). The trust is taxable in Mauritius where no capital gains tax or tax on local dividends will apply.
Total Fee oversight
Additional Costs: When purchasing a property in Mauritius, you should also consider standard additional costs beyond the purchase price, including:
● Government registration fee: 5 %
● Notary Fee: Around 1% of the property's value, excluding VAT.
● Agency Fee: Typically, 4% of the property's value (each party pays 2%).
● EDB Fee: Approximately Rs 50,000.00.
Trust Year 1: $4500-$5000
Trust Ongoing: $2000-$3000
Company Year 1: $2000-$2500
Company Ongoing: $2000-$2500
When dealing with management companies who incorporate and administer these structures it is important to be sure that the fee structure is all inclusive as many companies charge a low annual fee but send the client hefty invoices on a time spent basis.
