Judgments outside Nevis against Nevis LLCs or their members or managers aren’t automatically enforced.
To enforce the judgment in Nevis, the creditor must first retain a Nevis attorney, who under local rules may not work on a contingency basis. A creditor must also post a cash bond with the local court to cover any damages or court costs incurred as the result of any counter-claim the debtor may be awarded. Nevis is also a “loser-pays” jurisdiction; the prevailing party in litigation is generally entitled to have its legal fees reimbursed by the loser.

“Charging order” exclusive creditor action permitted against Nevis LLCs.
An LLC shields assets from claims against its owners by limiting the remedy available to creditors to a legal concept called the “charging order.” Under the charging order concept, creditors of individual members of the LLC don’t generally have the right to force the business to liquidate, or to seize the interests of the liable member or members. Creditors only have the right to receive future distributions made from the business to the liable member. Because US judgments aren’t automatically enforced, charging order protection in Nevis LLCs is stronger than in any US state.

Enhanced burden of proof.
The Nevis statute requires proof “beyond a reasonable doubt, rather than the lower “preponderance of the evidence” standard used in the US, that a transfer was fraudulent for a creditor to prevail in a fraudulent transfer claim. If a Nevis court finds a transfer fraudulent, it will generally be set aside only to the extent necessary to satisfy actual damages (not punitive damages) suffered by a particular creditor. Each creditor must bring a separate action in the local court.

Only the LLC may be named as a defendant in any lawsuit.
A lawsuit against a Nevis LLC that also names its members or managers as defendants may be dismissed. This procedural requirement makes the process required to attach the interest of a member significantly more difficult.

Flexible US taxation.
A Nevis LLC may be used to hold a portfolio of passive assets or operate an international business. Depending on the purpose of the LLC, US persons have the option of filing a form with the IRS to choose the optimal taxation, depending on the circumstances.

No taxation in Nevis.
There is no taxation in Nevis on a Nevis LLC that generates its profits outside Nevis.

To hold an offshore portfolio. Working directly with Fortress partners, you choose an offshore bank or asset manager to hold a portfolio of after-tax or pre-tax (pension or IRA) funds. You or your pension fund/IRA then forms a Nevis LLC to hold the account to create a tax-compliant and asset-protected structure. Once the Nevis LLC is formed, you (or your IRA custodian) open the account and funds it in the name of the Nevis LLC.

To operate a bona-fide offshore business. In certain circumstances, you can defer the profits from a bona-fide non-US business indefinitely. Fortress and its international partners have successfully set up many such arrangements, which often involve a Nevis LLCs. In addition, US clients operating such a business while living full-time outside the United States may exclude salary payments up to $101,300 annually from US income, social security, and Medicare taxes (2016 exclusion, adjusted annually for inflation). A tax advisory firm with which Fortress works can file the appropriate election with the IRS for your LLC and prepare the required annual information returns for all components of your international structure.

For estate planning purposes. A compelling tax-savings strategy for high-net-worth clients involving LLCs is to gift minority membership interests to family members or others. Those interests have a market value less than the value of the underlying assets. Since the interests aren’t publicly traded, nor do they represent a controlling interest in the LLC, the market value of the underlying assets is significantly less than their nominal value. For gift tax purposes, you may discount the value of these minority interests 30% or more. A gifting strategy utilizing valuation discounts can increase the effective value of the lifetime gift tax ceiling of $5.45 million (2016). It also augments asset protection.

In conjunction with an offshore trust. An offshore trust that in turn forms a Nevis LLC can offer both state-of-the-art asset protection, estate planning and investment flexibility. You can be appointed asset manager of your LLC to manage a self-directed portfolio, or choose an offshore asset manager. (Follow this link to learn more about Nevis trusts.)

Do you want a flexible entity to hold real estate or other investments out of your own name in another country? In that case, a Nevis LLC can help “privatize” your personal and financial life as well as serve as an effective shield against litigation.

Are you feeling entrepreneurial? Let’s say you want to form a company to operate a small business outside the US. You want the fewest hassles, both operationally and tax-wise, as possible. The solution is in many cases a Nevis LLC. When properly formed and operated, they provide outstanding asset protection.

Until a few decades ago, if you wanted to form a business entity to limit liability, you would form a corporation. But times change. The fact is, a corporation doesn’t limit liability as effectively as an LLC. To understand why, consider what might happen if you decide to start a business and form a corporation to own it, or if you simply form the corporation to hold a portfolio of passive assets. We’ll call the corporation “Me, Inc.”

The liabilities of Me, Inc. (contractual obligations, utility bills, etc.) are “inside liabilities,” so named because the liabilities are “inside” the company. The company’s creditors are “inside creditors.” Your financial risk in operating Me, Inc. should be limited to your initial investment with respect to inside liabilities and inside creditors as long as you:

• Don’t personally guarantee Me, Inc.’s debts.
• Segregate Me, Inc.’s assets from your own assets.
• Keep enough capital in Me, Inc. to service existing obligations.
• Don’t use Me, Inc. to commit a fraud.
• Make a reasonable effort to maintain whatever “corporate formalities” are required wherever you formed Me, Inc.

Like a corporation, a properly constituted LLC is generally effective at protecting personal assets from inside liabilities. But the legal mechanisms in an LLC that isolate inside liabilities can also shield against “outside liabilities”—liabilities that arise due to your personal actions. And to that end, a Nevis LLC offers outstanding protection.

What’s an “outside liability?” The easiest way to illustrate this is by way of example. Let’s say that you create a domestic corporation to run a business or hold a portfolio of passive assets. Then one day, you are driving and have an accident in which you’re at fault. The driver of the other vehicle is seriously injured.

If your victim sues you and wins a judgment beyond the limits of your auto liability insurance, he can seize anything you own, other than what’s called “exempt property” up to the full amount of the judgment. (“Exempt property” is property that under state, provincial, or federal law is protected from seizure by most creditors.)

It gets worse. The shares of Me, Inc. that you own are your personal assets, and a judgment creditor can seize them in most cases. The incident leading to the liability had nothing to do with Me, Inc. Your creditor—the person you injured—is an “outside creditor” and the liability you created for yourself is an “outside liability.”

To seize Me, Inc., your creditor simtply forecloses against your stock. (And you may not only lose your stock, but the IRS may treat the foreclosure as a sale or exchange, and hold you accountable to pay income or capital gains tax on income you never received!)

It’s more difficult to protect personal assets against outside creditors than inside creditors. However, business entities have evolved that can do so, and the one most commonly used today is the LLC. The owners of LLCs are called “members” and their ownership is called a “membership interest.”

Like a corporation, a properly constituted LLC operating a business is generally effective at protecting personal assets from inside liabilities. But the legal mechanisms LLC laws contain to isolate inside liabilities, LLCs also can shield against outside liabilities. And to that end, a Nevis LLC offers outstanding protection.

An LLC typically protects its assets and operations from creditor claims against a member by limiting the legal “remedy” available to creditors to a legal concept called the “charging order.” Under the charging order concept, creditors of individual members of the LLC don’t generally have the right to force the business to liquidate, or to seize the interests of the liable member or members. Creditors only have the right to receive future distributions made from the business to the liable member.

A charging order forces a creditor to wait in order to satisfy a judgment. This gives the debtor leverage. The charging order concept often makes it possible to convince a creditor to settle on more reasonable terms than might otherwise be possible.

However, not all LLC laws are equally effective at protecting from outside liabilities. In many US states, creditors may persuade a judge to write a very restrictive charging order that effectively prevents the business from functioning until the debt is satisfied. If applicable law allows, the charging order may prohibit loans, advances, or other transactions that are “distributions in disguise” or “deferred distributions” until the creditor receives the debtor-member’s interest, up to the full amount of the debt owed.

Not all LLC laws are equally
protective.

A determined creditor may seek a court order permitting it to foreclose upon the liable member’s ownership interest. In some states, this may occur without the consent of the non-liable members. State law may even permit the creditor to be appointed as a substitute member in place of the debtor-member.

That won’t happen with a Nevis LLC. Nevis law provides that the charging order is the only legal remedy available to a judgment creditor against a liable member (owner) of a Nevis LLC. The Nevis LLC ordinance requires proof “beyond a reasonable doubt” that a transfer was fraudulent for a creditor to prevail in a fraudulent conveyance claim. If a Nevis court finds a transfer fraudulent, it will generally be set aside only to the extent necessary to satisfy actual damages (not punitive damages) suffered by a particular creditor. Each creditor must bring a separate action in the local court.

The icing on the cake is that in Nevis, a creditor must generally post a bond in order to bring a legal action against an LLC. Nevis is also a “loser-pays” jurisdiction; the prevailing party in litigation is generally entitled to have its legal fees reimbursed by the loser.

A Nevis LLC is a sophisticated, state-of-the-art structure designed to hold investment assets or operate an international business. It’s suitable for individuals and families seeking to shield international portfolios. It’s also a good fit for individuals who own professional practices or businesses at a high risk for litigation, such as medicine, oil & gas, etc.

A Nevis LLC is also an ideal stepping stone into the larger world of international estate planning and wealth preservation. As your international assets grow, you can easily integrate a Nevis asset protection trust into your structure for even greater flexibility, asset protection, and estate planning opportunities.

If you’re interested in creating a Nevis LLC, contact us.

A Nevis LLC is an “eligible entity” for US entity tax classification purposes. Eligible entities can choose how they will be treated by the US for tax purposes.

The default classifications for foreign eligible entities are as follows:

1. Partnership – if two or more owners and at least one owner does not have limited liability.
2. Corporation – if all members have limited liability.
3. Disregarded Entity – one owner who does not have limited liability.

These rules are different from the default classifications of LLCs formed in a US state.

Because each tax classification has a different tax consequence, it’s important to choose the proper tax classification for your specific situation; each has its own advantages and disadvantages. A correct classification for one person may not be the correct the classification for another. Fortress and its international partners can assist with this determination.

For example, if you’d like to use your Nevis LLC to hold a securities portfolio at an international bank, you would likely choose disregarded entity (one owner) or partnership (two or more owners) status. Conversely, if you’re using your Nevis LLC to operate an international business, you may prefer the default treatment of having the LLC taxed as a foreign corporation to allow for deferral of business profits.

It’s important that you consult an experienced international tax advisor to determine the proper classification of your Nevis LLC. Furthermore, your international tax advisor can advise you of your compliance requirements – i.e. what forms need to be filed – and ensure they are filed in a timely manner.

Incidentally, all Nevis LLCs formed by Fortress include a consultation with a qualified international tax advisor to advise you on the best option for you, given your specific situation.

If you’re ready to create a Nevis LLC, please download and forward to us a completed LLC Formation Questionnaire. Please contact us if you have any questions about the formation process.