How to protect and spread your wealth optimally

by | May 13, 2020

Showing ways and solutions to the High Net Worth Individuals to protect and optimise their assets. Wealthy people – the so called High Net Worth Individuals – keeping their property on a foreign account are currently under a general suspicion of tax evasion. The case involving Uli Hoeneß appears to prove the opinion of all those who see a close correlation between a growing bank account and declining moral standards.

Protecting and spreading the wealth in an optimum manner within the framework of legal regulations

There are several substantial reasons for having one or more accounts abroad. Risk-diversification spreading of wealth, corporate and financing strategies, holding companies, family or succession planning, alternative life planning are aspects that are equally as valid as the differing taxation in the various countries. And last but not least: keeping costs as low as possible is the main aim of most companies. This also applies to the building up of wealth. More precisely this point includes the minimising of tax burdens within the statutory framework and making use of admissible forms of creative leeway.

The current debate

The current debate does not consider the fact that, in all countries outside of Germany, the taxes paid are those required by the corresponding state. For example, a person buying an apartment in New York may have the transaction processed via a US company with its headquarter in the Cayman Islands. This case the purchase money is invested legally and in an optimum manner from a tax perspective and future rental income fed into the fiscal cycle.

People buying a ship with taxed money may possibly operate it under a foreign flag – e.g. Malta or Cayman Islands –and channel the purchasing price and the operating costs via these countries, as social insurance charges, taxes etc. are cheaper under these flags than with a German or Swiss flag. Do you know of a cruise ship operating under a German flag?

In the same way as every citizen looks for favourable purchasing prices in the internet, internationally operating companies utilise competition between tax systems. This means tax optimisation within the limits of applicable law.

Also allowed is complying with one’s own wish for discretion and investing one’s money outside Germany. People living in small towns who have built up wealth or acquired wealth through the sale of their company, do not necessarily wish to keep the whole of the large amount with the local savings bank. Keeping one’s private old-age provision from taxed assets in countries with lower taxes than in Germany is likewise a rational approach. Additionally, the euro is no longer the first choice currency of many people with respect to long-term investments. Diversification is the solution.

People should also give consideration to controls on capital transactions. In Europe, nobody must reckon with a repetition of the common practice of the 1950’s to 1980’s. Capital interrelations are too strong to allow this. Nevertheless, measures aimed at limiting the daily amounts of money available at cash dispensers or for bank transfers can no longer be fully excluded. The only protection in such cases is an internationally diversified portfolio.

Spread the wealth in an optimum manner

Of course, there will always be those who wish to avoid the charges completely and who therefore evade tax. This has always been the case and this is clearly not our aim. However, the overwhelming majority aims to use the above perspectives to spread their wealth in an optimum manner, protect it and ensure their liquidity. They pay tax on their wealth but reduce the tax burden with the approval of the legislators. As long as there is competition between tax systems, as long as global income is not recorded and taxed everywhere, it will be legal and correct to apply the rulings created by the law and to diversify. That too is globalisation.

Dirk W. Kolvenbach is a German attorney at law and Senior Partner with HEUKING KÜHN LÜER WOJTEK in Zurich and Dusseldorf. Further, he is the head of the Practice Group “Private Clients” and a renowned specialist in all Private Clients matters (e.g. succession, asset protection and transaction).

Dirk W. Kolvenbach

Dirk W. Kolvenbach

Heuking Kühn Lüer Wojtek

Gerd D. Kostrzewa

Heuking Kühn Lüer Wojtek