The Nevis government enacted an amendment to the Nevis Limited Liability Company Act in December, 2018. The amendment pertains to the taxation of Nevis limited liability companies that does business in Nevis. The amendment appears to be in response to international movements to restrict use of offshore tax havens.
The amendment provides that Nevis LLCs formed on or before December, 2018, are not subject to Nevis taxation if they do not carry on a business in Nevis. Subsection (3) of the amendment provides that an LLC is not considered to do business in Nevis is if does nothing more than hold a Nevis bank account, have a Nevis registered agent, hold meetings in Nevis and other similar administrative acts. The amendment is effective until June, 2021.
The amendment does not state whether Nevis will impose any taxes on Nevis LLCs after June, 2021, nor does it provide for treatment on LLCs formed in 2019. I’ve been told that the government promised to pass simultaneous legislation regarding taxation after June, 2021. I suspect that Nevis may change its tax structure on corporations doing business in Nevis to reduce the attractiveness of Nevis as a tax haven. For example, if a foreigner operated a business in Nevis that was subject to corporate taxation ( like U.S. C corporations) then a lower Nevis tax rate would be advantageous.
U.S. citizens are subject to our income tax on all worldwide income. The IRS would impose tax on income earned through a Nevis business, but the IRS allows a credit against taxes paid to the offshore jurisdiction.
In any event, I do not expect that the Nevis tax law will affect U.S. citizens who are forming Nevis LLCs to hold financial assets for asset protection. The asset protection LLCs are typically taxed as partneships so that income and losses flow through to the partners. Nevis LLCs formed for asset protection typically do not carry on business in Nevis. The contact with Nevis is limited to the administrative functions carved out from business in the current Act amendment.
People currently owning interest in Nevis LLCs as part of an asset protection plan should watch and wait to see how the Nevis tax laws develop. There appears to be no need for immediate changes in previously formed Nevis LLCs.
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