Indirect ownership of real estate: is it legal and what risks exist?

Indirect ownership of real estate

Indirect ownership of real estate, also known as indirect holding, refers to a situation where the documented owner of the property does not match the person who actually manages the property and uses it for their own needs.

Such a nominal owner can refer to either an individual or a group of people, including both natural and legal persons. This form of ownership is often used in various schemes, which creates a negative image of this approach.

The reason lies in the fact that indirect ownership creates favorable conditions for money laundering and tax evasion, especially through offshore companies and trusts, which play a key role in these operations.

What is trust?

A trust is a specialized relationship model in which assets are transferred under the management of a trustee, while the income from these assets is directed to the true owners, known as beneficiaries.

This circumstance significantly complicates the identification of the actual owner of the property. Moreover, in jurisdictions with attractive tax conditions, information about beneficiaries often remains shrouded in secrecy.

Well-known "tax havens" include:

• Bahamas
• Cayman Islands
• British Virgin Islands
• Cyprus
• Monaco

Responsibilities of property owners

According to current legislation, property owners are required to inform the tax authorities of their country about real estate transactions only at the moment of signing the purchase agreement. This information is usually known exclusively to the owner of the document.

If the owner needs to sell the property, the nominal owner can easily transfer the rights to this contract to a new buyer, which creates difficulties in identifying the actual owner. In some offshore jurisdictions, the trustee may not disclose information about the income of the trusts.

In such countries, he may also be exempt from paying inheritance tax, which makes the use of such schemes even more attractive.

Complex ownership structures

Some buyers resort to complex multi-tiered ownership structures, combining several legal entities with trust funds, which complicates the accounting and oversight of such transactions.

In other cases, actual buyers register transactions in the names of individuals acting as fronts, such as relatives or acquaintances. However, this approach carries certain risks, as it does not guarantee complete confidentiality.

Tax authorities can compare data on income and expenses and identify discrepancies, which raises questions about the legality of the actions of the nominal owner.

Risks and recommendations

According to Anna Savon, the director of tax practice at Ernst & Young, tax authorities may ask the nominal owner questions about the origin of the funds and the reasons for acquiring the property.

Additional risks can arise in the context of inheritance as well. To protect their interests in the event of the sudden death of the nominal owner, it is often required to draft a will that specifies the actual owner of the property at the time of its registration.

Thus, indirect ownership of real estate becomes a complex and risky scheme that requires a careful and cautious approach, as well as a detailed understanding of all legal nuances. Compliance with legislation and tax regulations highlights the complexity of this ownership model.

Owners must be especially attentive and prepared not only for the legal but also for the financial consequences of their actions.

Issues related to inheritance and property ownership

In situations where the formal owner has minor children or dependents with disabilities, disagreements among heirs regarding property rights may arise. It should also be noted that the nominal owner has the right to change the terms of the will without the knowledge of the actual owner. It is important to emphasize that in some circumstances, indirect ownership of real estate can be legally formalized and does not require the use of any circumvention schemes.

Rules for acquiring real estate in different countries

First of all, in a number of countries, foreign citizens are allowed to acquire real estate only through legal entities. For example, in Slovenia, this practice is mandatory, so it would be wise to consider the possibility of setting up your own company to purchase property or conducting the transaction through an already existing legal entity.

There are also some Asian countries, such as:

• Vietnam
• India
• Indonesia

In these countries, there are laws that restrict the ability of foreign citizens to own property and land. This means that they are allowed to acquire real estate only in partnership with local residents, and the foreigner's share cannot exceed 49%.

Conclusion

In conclusion, it can be said that indirect ownership of real estate is a complex and multifaceted process that requires careful analysis and understanding. On one hand, this form of ownership offers numerous advantages, such as the ability to legally optimize taxation and comply with local laws in countries where direct ownership of real estate by foreigners is restricted. On the other hand, it also carries risks and drawbacks associated with misuse.

Individual approach

As the author of this material, I understand that each case is unique, and making an informed decision requires consultation with professional lawyers and tax advisors in the jurisdiction where the property is intended to be purchased. This is especially important when it comes to large commercial or residential properties, where mistakes can be quite costly.

Knowledge is power.

In today's world, where real estate is not only a means of comfortable living but also a significant asset, it is important to consider all aspects of owning and using such assets. I hope this article has helped readers better understand what indirect ownership is and how to avoid the pitfalls associated with this approach.

Main findings

• Indirect ownershipIt can be a beneficial tool for tax optimization.
• It's important to consult withprofessional lawyersfor making informed decisions.
• Every case is unique and requiresindividual approach.
• Knowledge and understanding of all aspects of property ownership are the key to successful investments.

As in any other field, knowledge is power, and the more you know about your options, the more confidently you can act in the real estate market.