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Establishing a charity in Hong Kong (Part II)

Setting up a charity in Hong Kong may sound an attractive proposition, but they are subject to more, not less, compliance requirements than ordinary companies.

Part I of this series briefly summarised basic requirements and structures for such establishment. In this second article, the author focuses on requirements on corporate governance of charities, as well as continuing obligations for compliance after establishment.

Governance and compliance  

Good corporate governance and compliance is very important to companies, businesses and organisations incorporated in Hong Kong, and the concept of corporate governance covers a lot of aspects.

While legal requirements for corporate governance differ among various types of businesses, they generally include requirements on: accountability of the board of directors, senior management and committees; auditing and reporting; relationships with shareholders and stakeholders; and internal control systems and risk management mechanisms.

Charities, as organisations incorporated and existing under the laws of Hong Kong, must also have in place a sound governance system subject to a series of compliance requirements.

The Guide to Corporate Governance for Subvented Organisations, issued by the Social Welfare Department, outlines best governance practices for subvented organisations, including charities.

Governing Instrument

Charities must be established by a written governing instrument. In the case of companies limited by guarantee, the governing instrument is their articles of association. The governing instrument should contain clauses that cover:

  • Objectives for which the charity is established;
  • Limiting application of its funds to achieving stated objectives;
  • Prohibiting distribution of incomes and properties among members;
  • Prohibiting members of its governing body (e.g. directors, executive committee members, trustees) from receiving remuneration, except in circumstances where the charity can demonstrate that the payment of allowance or remuneration is necessary and reasonable, in which case the prohibition may be relaxed;
  • Requiring members of its governing body to disclose material interest, and not to vote in respect of a transaction, arrangement or contract in which they are interested;
  • Specifying how the assets should be dealt with upon dissolution; and
  • Requiring the keeping of sufficient records of income and expenditure, proper accounting books and compilation of annual financial statements.

Continuing Obligations

Since 1 August 2018, charities are required to upload audited accounts of every charity fundraising or lottery activity approved by the Social Welfare Department or Home Affairs Department to the fundraising activities page on the GovHK website.

This applies to all charities, regardless of whether exempted from profits tax under section 88 of the Inland Revenue Ordinance.

After confirmation as tax-exempt, charities are subject to the following continuing obligations:

  • Submitting accounts, annual reports and other documents to the Inland Revenue Department (IRD) for review of its charitable nature, and if its activities are compatible with the governing instrument. Generally, the IRD performs a review at least every three years on each exempted charity, and the organisation is required to reply within one month of receiving the IRD’s questionnaire;
  • Informing the IRD within one month of any changes to its correspondence address, alteration to its governing instrument, termination of its subsidiary body, or cessation of its operation, dissolution or winding-up. Failure of notification may lead the IRD to cease accepting it as a tax-exempt charity;
  • If the organisation has earned or is beginning to earn chargeable profits, informing the IRD in writing within four months after the end of the basis period of the relevant year of assessment; and
  • Reporting remuneration paid to employees for each year of assessment and preserving such remuneration records, including reporting obligations in respect of the commencement and cessation of employment.

Most charities are companies limited by guarantee, and accordingly must comply with the general requirements under the Companies Ordinance, including the following continuing obligations:

  • Preserving corporate records such as the register of shareholders, directors and company secretaries, as well as meeting minutes;
  • Notifying the Companies Registry within 15 days of any change to the registered correspondence address, company secretary or director, or company name;
  • Companies limited by guarantee should submit an annual return within 42 days from the date of the return (i.e., the end of the nine-month period after the company’s accounting reference period), along with certified true copies of the financial statements, directors’ report and accountant’s report;
  • For each accounting year, an annual meeting among members should be held within nine months after the end of the accounting period;
  • If the number of members increases beyond the registered number, the Companies Registry should be notified within 15 days from the resolution of increasing members or the increase itself (whichever is earlier).

While governing members generally cannot receive remuneration, charities should nonetheless assume responsibilities of compliance with corporate governance obligations with diligence and professionalism.

Qualified auditors should be engaged to audit the accounts and annual reports submitted to the IRD. The full content of annual reports, including a breakdown of received donations, main costs and expenditures, should be published on the IRD website and made publicly available at all times.

Ultimately, charities may be subject to compliance with even more obligations than an ordinary company. For this reason, prior to establishing a charity, founders are advised to thoroughly consider the issues associated with relevant continuous reporting and compliance requirements.

First published in July/August issue 2022 of China Business Law Journal.

Tax Advice For U.S. Expatriates Living Abroad

If you are an American expat, understanding and filing your tax returns can seem overly complicated and it can be difficult to keep track of all the tax allowances that may be available to you if you file the paperwork in time. Here is some tax advice to get you started on filing your taxes correctly and determining how you can reduce the tax net applicable to you with your current income and employment.

Worldwide Income Is Always Taxable 

A common misconception among expats is that they only need to pay taxes in their destination country and that until their return they are more or less exempt from tax except on holding assets like houses, cars, or other valuables. This is distinctly untrue as expats are taxed on the entirety of their worldwide income regardless of where the majority of their year is spent living and working. There is a threshold that needs to be surpassed but most expats are able to exceed it easily (more so if there is heightened inflation in their current country). 

An expat’s worldwide income is a fairly wide-ranging concept including both the largest and smallest sources of income including earned, passive, or inherited. Typically wages and salary are always taxed, this figure does grow if an expat owns a business overseas or has a commercial enterprise both in their home country and abroad. An expat tax CPA can direct you regarding tax to be paid from interest from money loaned, rental income, acquisition of large assets or valuables, dividends from shares, and so forth.

Reduce Tax Liability Through Provisions 

Tax provisions like Foreign Earned Income Exclusion can prove very beneficial when you are trying to protect your wealth and income from excessive taxation. If you successfully apply for Foreign Earned Income Exclusion you can save hundreds of thousands of dollars of income from falling inside the tax bracket. Other provisions such as the Foreign Housing Exclusion allow you to get tax returns on household utility bills, rent, and other costs of living in a foreign country. 

It is worthwhile to note that the above-mentioned provisions and others like them that may fit in certain cases are not automatically updated to your tax paperwork. Separate forms and paperwork have to be filed by the deadline and it is up to the IRS to decide if an individual expat can warrant those exclusions or not. Form 2555 or 2555-EZ have to be correctly filed by the due date. 

Work Around Double Taxation 

Many US expats can owe very little tax to the government because the IRS is keen to avoid the phenomenon of double taxation that can needlessly burden expats in their tax obligations. Being taxed twice on income means that the expat has to pay tax both in their resident country and home country. An expat can certainly apply for Foreign Tax Credit so they are not taxed double on their income. 

A Residency Test

Individuals that are working abroad for only a few months or a short period of time due to a contractual obligation will not usually qualify as expats in the eyes of the law. For that reason, they will almost never be provided the provisions available to expats who have spent a year or more than a year in a foreign country. Expats should take a bona fide residency test to prove they have not returned to their home country in 365 days and have no current intention to do so. 

It is important to be very specific when relaying the number of days for the residency test paperwork. Days you have spent back home or on a flight will be excluded so it is better to not make assumptions that less than at least 330 days will be accepted for awarding tax exemption privileges. If you have a pending case in the US you may be unlikely to make a move as an expat at all or may have to return for proceedings so always discuss the situation with a Tampa criminal defense lawyer

Children-Specific Provisions & Tax Treaties 

If you are an expat with children, that makes you eligible for various tax provisions that relate to the cost of child maintenance in particular. Child and Dependent Care Credit for example can result in refunds of various taxes you may have paid as long as all children have a US social security number. Being aware of tax treaties that apply to your host country in relation to the US can also result in considerable personal tax exemptions. 

The English Courts Take a Step Towards Mandatory Mediation

Mediation is globally recognized as an effective dispute resolution mechanism. A trained mediator can assist apparently diametrically opposed parties in finding a resolution that avoids the time and costs of court proceedings, especially fully contested and lengthy final hearings. Over 50 countries have signed the United Nations Convention on International Settlement Agreements Resulting from Mediation (the Singapore Convention) under which settlement agreements resulting from a mediation process can be recognized and enforced internationally without the need to bring a court claim for breach of the settlement agreement.

In England, where mediation is well established and continues to increase in popularity, parties to potential court claims have long been required to engage in pre-action correspondence, and to consider a form of alternative dispute resolution (ADR), (resolution outside of the court process, whether by negotiation, mediation, arbitration or expert determination), before formally issuing a claim.

The Ministry of Justice (MOJ) is, however, currently consulting on the scope of the first ever mandatory requirement on parties to participate in mediation as part of the litigation process. This article will provide an overview of the steps a party ought to take before issuing a claim in England, and then explain how the MOJ’s consultation might impact these steps.

Pre-Action Protocols (PAPs)

The pre-action steps parties are expected to take before issuing claims in England & Wales are codified in the Civil Procedure Rules (CPR). There are both a general scheme applying to all civil claims (contained in a practice direction, which operates as guidance to the CPR), and specific protocols for particular types of disputes, including construction & engineering, professional negligence, personal injury, debt claims and judicial review.

The six-fold objectives of the PAPs are to help the parties to:

  • understand each other’s position;
  • make decisions about how to proceed;
  • try to settle the issues without proceedings;
  • consider a form of ADR to assist with settlement;
  • support the efficient management of those proceedings; and
  • reduce the costs of resolving the dispute.

While not mandatory, parties should take compliance with the PAPs seriously. With England & Wales being a cost-shifting jurisdiction, the successful party’s reasonable and proportionate costs incurred in relation to pre-action steps are normally recoverable from the losing party in the usual way. Failure to comply, however, can lead to adverse cost consequences and a winning party who fails to comply with the PAPs without good reason can be penalized by being limited in its costs recovery. A party may also have no good grounds to resist a stay of proceedings to consider ADR, on the application of the other party or the Courts’ own motion.

English judges increasingly see ADR as an integral part of the process. Sir Geoffrey Vos, Master of the Rolls (the head of civil justice in the court system of England & Wales), recently opined that “Alternative Dispute Resolution should really be renamed as “Dispute Resolution” since it is not alternative at all.

Compulsory Mediation

It does not look like ADR will remain purely optional (albeit strongly “encouraged”) for long. The MOJ recently announced that it intends to require parties in certain types of claims to attempt mediation. The initial proposal is to make mediation compulsory for county court claims valued up to £10,000, whereby the parties involved will receive a free hour-long telephone call with a professional court-trained mediator.  The proposed compulsory mediation would take place after a claim is issued (so would not be part of the PAPs), but still at a relatively early stage of the proceedings, after the claim is allocated into the small claims track within the court system (reserved for lower value, less complex claims).

The aim, however, is to extend mandatory mediation to more types of claims, including higher value and more complex commercial disputes, over time. This proposal is currently in a 10-week consultation with practitioners, due to close on 4 October 2022, with the results expected shortly thereafter. Even just the first limb relating to small cases is expected, annually, to give an additional 272,000 parties access to mediation. The MOJ expects that up to 20,000 cases will settle through this process, freeing up significant judicial resource to be used for more complex cases.

Concerns about the proposals are expected to include human rights challenges, the dichotomy of forcing parties into a “consensual” process, the lack of flexibility, and potential for increasing time and costs of resolution if the requirements are used as a tactical delay. Several such matters have, however, already been anticipated; for example, the Civil Justice Council’s report on 12 July 2021 concluded that making mediation compulsory does not breach Article 6 of the European Human Rights Convention and is, therefore, lawful.

The political desire eventually to expand the scheme outside of the county courts and to larger and more complex cases is already evident. The government has also introduced a pilot scheme for contractual claims up to £500,000 in the Court of Appeal, where, upon permission to appeal being granted, the relevant papers will be automatically referred to a mediator. Although this is a voluntary scheme, parties should expect to have to justify to the Court of Appeal a decision not to attempt mediation.

The latest proposals address some of the backlog seen in the courts, including as a result of the COVID pandemic, but also tap into a wider consciousness about ADR.  Similar compulsory mediation schemes have been successfully operated in New Zealand and Ontario, Canada, and have been seen to increase access to justice. The UK government is also considering acceding to the Singapore Convention.

The government and the judiciary have made it clear that they see ADR, and in particular, mediation, taking an increasingly important role in the early resolution of disputes in England & Wales. Whether formally required or simply expected, due consideration and appropriate use of ADR must form part of any well-advised party’s litigation strategy. Outside injunctions and other urgent relief, the English Court will expect a claimant to have at least attempted to keep its claim out of the courts.

Article By

Julia Bihary
Dorothy Murray

Charles Bishop also contributed to this article.

DLA Piper represents Centroid in its strategic investment in Concert Golf

DLA Piper represented Centroid Investment Partners (Centroid) in its strategic investment in Concert Golf Partners (Concert Golf), a boutique owner-operator of premier private golf and country clubs across the US.

Centroid, a Seoul-based private equity firm and the owner of TaylorMade Golf Company, joins Clearlake Capital Group, L.P. and management in the investment in Concert Golf. Clearlake Capital originally invested in Concert Golf in April 2022.

“It is always a pleasure to work with Centroid, and this transaction was a great opportunity to combine our deep industry knowledge and experience to support Centroid’s expansion efforts,” said Adam Ghander, the DLA Piper partner who led the deal team. “We look forward to continue supporting Centroid in its future growth.”

In addition to Ghander (Boston), the DLA Piper team representing Centroid included partners Peter Alfano (New York), Michael Bedke (Miami) and Ryan Starr (Boston), as well as associates Michael Jamieson and Julie Steven (both in Boston) and Scott Luftig (New York).

With more than 125 US lawyers who provide strategic counsel to private equity funds and their industry-leading portfolio companies, DLA Piper’s Private Equity practice has the capacity, experience and relationships to help drive value across the investment life cycle by delivering responsive, efficient and integrated solutions around the world.

With more than 1,000 corporate lawyers globally, DLA Piper helps clients execute complex transactions seamlessly while supporting clients across all stages of development. DLA Piper’s global investment funds team provides a dynamic, integrated service to sponsors, fund managers and institutional investors, supported by the firm’s international tax and regulatory networks. The team advises clients on the full spectrum of private investment funds, all major investment strategies and all stages of a private investment fund’s life cycle.

Markus Fell­ner joins Leaders in Law as the Banking & Finance Law Member in Austria

Leaders in Law the leading platform in its field, is delighted to welcome Markus Fell­ner as our exclusively recommended & endorsed Banking & Finance Law expert in Austria.

Markus Fellner is a founding partner at fwp and specialises in banking and finance, corporate and M&A, insolvency law and restructuring, and dispute resolution.

As a specialist speaker and author of specialist publications on banking & finance, company law, insolvency law as well as restructuring, Markus Fellner, with the support of his team, stands for exceptional quality, profound expertise and long-term experience. His clients include both domestic and international companies and financial institutions. The international character of the Austrian business law firm fwp is highlighted by regular cooperation with leading partner law firms in a network spanning all relevant jurisdictions.

Firm Description:

Fellner Wratzfeld & Partners is a well-respected player in the reorganisation and restructuring space and has traditionally focused on advising credit institutions but has steadily expanded its client share in the corporate arena. The team led by founding partner Markus Fellner is a key fixture on some of Austria’s most high-profile restructurings such as the restructuring of the Steinhoff Group and is well equipped to assist clients with associated distressed M&A transactions and insolvency proceedings, including enforcement claims.

4 Legal Considerations For Raising Capital

Starting a business can be challenging, especially in the real estate world. There are many things to consider, one of which is raising capital for your startup. Although you may be able to build a business with your own money, you’ll likely need some external funds at some point. This setup is especially true when forming a real estate syndication business.  

Essentially, real estate syndication refers to a partnership wherein the investors combine their financial resources to purchase properties for business. Under this business setup, a syndicator or a sponsor is tasked to acquire the property, make repairs, and manage it on behalf of the passive investor. However, raising the necessary capital for this kind of business isn’t easy, especially regarding the legal aspects. You may end up in potential legal trouble when you can’t follow the rules and regulations.  

Read on to learn the four legal considerations for raising capital for your business.  

  • Registration Exemption With The U.S. Securities And Exchange Commission (SEC) 

Raising capital for a real estate business is never easy. Even if private placements can be considered the best alternative for getting funding, there are still rules and regulations that should be followed to prevent investor misinformation, fraud, and other illegal activities. One of these regulations is registering the securities with the SEC of the United States.  

Thankfully, there are exemptions to the said requirement involving private offerings. This is where Regulation D enters the picture. It outlines specific rules and regulations allowing companies that sell securities not to register with the SEC. It aims to help businesses gain easy access to the capital market without paying the costs of an SEC registration.  

Under Registration D, two rules should be kept in mind when it comes to raising capital. These can include: 

  • Rule 506(B): It provides that businesses selling securities can raise any amount of capital from accredited investors, individuals, or entities dealing with securities unregistered by any financial authorities. Moreover, these businesses are prohibited from executing general solicitations or doing any advertising activities for their offerings.  
  • Rule 506(C): It allows businesses to promote private offerings to raise capital but prohibits them from obtaining funding from non-accredited investors.  

Indeed, there are Regulation D rules that should be kept in mind if businesses selling securities want to be exempted from the standard SEC registration. However, some SEC regulations may be rigid or harsh for companies. This is where the enactment of a new piece of legislation that defines the JOBS Act enters the picture. Its primary objective is to loosen the regulations imposed on startups and small businesses. As such, some changes it provides may include making crowdfunding much easier and exemptions available to a wider range of securities issuers. It also simplifies the disclosure and reporting documents required for companies generating less than USD$1 billion in revenue.  

  • Drafting Of A Private Placement Memorandum (PPM) 

Another legal consideration you need to take when raising capital for real estate businesses is drafting a PPM. It’s an essential document that should be filled out to raise funds for real estate. It’s also a document mandated by the SEC for real estate syndication businesses. Without a PPM, you can’t present investment opportunities to accredited and sophisticated investors.  

So, if you want to obtain external funding for your real estate business, make sure to draft a quality PPM.  

  • Avoiding Unregistered Finders  

It’s also essential to stay away from unregistered finders when raising capital for your business. Generally, using a finder classified by the SEC as an unregistered broker-dealer to find investors and sell securities on behalf of the business is prohibited under the securities laws. 

When you violate this condition, your investment offering may become invalid, your business may be required to refund the investors for the money they invested, and your company may incur civil and criminal liability.   

  • Working With Legal Professionals  

Raising capital for a real estate business can be a huge undertaking. Hence, working with legal professionals to avoid mistakes in obtaining funding is crucial. Because it requires compliance with some SEC rules and regulations, you need trustworthy legal professionals who can help you with the process. For example, the lawyer you hire should have valuable securities law experience to help guide you through the capital raising process without legal problems.  

Conclusion  

Indeed, raising capital for businesses in the real estate industry can be a challenging process. With all the rules and regulations involved, it can be easy to lose track and make mistakes. Thus, if you don’t want to get into any legal trouble, keep the information mentioned above in mind, and you’ll be able to obtain funds legally and seamlessly.  

Financial and Business Crime Investigations in Indonesia

Karimsyah Law Firms litigation team has worked together with Thomson Reuters Practical Law on an overview of financial crime and business crime in Indonesia.

Please see the links to the publication below:

KarimSyah Law Firm

KarimSyah Law Firm was established in 1997 as one of very few Indonesian firms with both transactional and contentious practices, and has quickly become recognized as one of Indonesia’s premier law firms, in particular with respect to international dispute resolution.

KarimSyah is universally recognized as Indonesia’s market leader in dispute resolution, financing, and resources. Areas of specialisation on the transactional side include oil and gas, energy and infrastructure matters, insurance, all manner of financing and restructuring, including Islamic financing and capital markets, information technology, land transactions, bankruptcy, joint ventures and other cross-border transactions and business structures, mergers and acquisition, and foreign and domestic investments. On the contentious side, the firm handles commercial litigation and both local and international arbitration and mediation, with unique specialisations in medical malpractice defense and aviation disaster settlements.

KarimSyah’s lawyers are qualified in both civil and common law, with long experience representing foreign companies doing business in Indonesia, and vice versa, and are well attuned to the cultural nuances necessary to make cross-border relationships succeed. Our lawyers use their legal skills and knowledge of Indonesian business practices to arrive at a customised legal solution for each client. Working as a team, both internally and together with external financial and other support-service organisations, KarimSyah can lead the client through all aspects of its transaction of business.

Investor Identification Regime at the Trading Level for the Securities Market in Hong Kong

Background

Currently, for securities orders placed by intermediaries for their clients, the trading system of The Stock Exchange of Hong Kong Limited (SEHK) only captures information of the intermediaries, but not of its clients which instruct the orders. When suspicious trading activities arise, the Securities and Futures Commission of Hong Kong (SFC) has to issue notices to the intermediaries to identify the underlying clients, and may not be able to deal with such activities as promptly as the regulator would like to. From the perspective of the intermediaries (including SFC licensed corporations and registered institutions), they have to incur substantial compliance costs in handling with SFC’s enquiries. Thus, the SFC determined to introduce a new investor identification regime for the securities market in Hong Kong so that securities trading orders can be traced to those who give instructions.

Features

The Hong Kong investor identification regime will be launched in the later part of Q4 2022 at the earliest.

Under the new regime, a regulated intermediary is required to assign a unique Broker-to-Client Assigned Number (BCAN) to every client. Each BCAN should be mapped to the client’s identification data (CID). The intermediary should also submit the BCAN-CID matching files of its clients to the SEHK.

When the intermediary submits the client’s order to the SEHK trading system for execution or reports the off-exchange trade order to the SEHK, such on-exchange order or off-exchange trade report is required to include the relevant client’s BCAN.

Off-exchange trades refer to trades conducted outside SEHK’s trading system but are required to be reported to SEHK under the SEHK Trading Rules. They include trades matched between clients of an intermediate or two different intermediaries directly through an alternative liquidity pool as well as trades matched on a pre-IPO trading platform operated by an intermediary licensed or registered to provide automated trading services.

The new regime would facilitate market surveillance by regulators because the originators of the on-exchange orders and off-exchange trades can be identified via their BCANs.

Having said the above, the Hong Kong investor identification regime and the investor identification regime launched on 26 September 2018 for northbound trading under Stock Connect are expected to work independently.

Personal data privacy of clients

An intermediary has to collect each individual client’s CID, including name and identity document number, type, and place of issue. If the client has a Hong Kong identity card but uses different identity documents to open securities accounts, the intermediary should follow up with the client to update the CID with his/her Hong Kong identity card information.

To comply with the Personal Data (Privacy) Ordinance of Hong Kong, intermediaries have to obtain their clients’ consents before submitting their CID to the SEHK. Clients who do not give consents will not be able to purchase securities through the intermediaries but will still be able to sell their securities.

Also, the BCAN should not be generated, assigned or handled in a way which would identify any individual client, compromise the confidentiality of the client’s identity, or give rise to non-compliance with the applicable privacy laws.

With reference to the industry standards and practices, the SFC and SEHK have considered appropriate measures to ensure the security and confidentiality of CID in aspects including data transmission/storage, access to CID, incident management and cybersecurity.

Practical impacts

When taking steps to comply with the investor identification regime, intermediaries are enhancing data security for their clients. Some of them are taking this opportunity to make additional investments in financial technology at the same time, in order to further develop online and mobile clientele and businesses.

The new regime is also described as a “real-name system” for Hong Kong securities trading. In the past, there were incidents where different investors used the same securities account to participate in Hong Kong securities trading. This practice may cease because orders placed by persons other than the securities account holder will be tagged with the BCAN of the account holder who may no longer be willing to let other persons’ orders be taken by the regulators as his/her own orders.

(The author would like to thank Ms. Mandy Kong (paralegal) for her contribution in this article.)

LC Lawyers LLP

 

 

Gowling WLG Further Strengthens Presence in the Middle East

Gowling WLG is pleased to announce an expansion of its presence in the Middle East with the opening of a new office in Abu Dhabi.

The firm has more than 30 years of experience in the region, including an established office in Dubai since 2007. Launching an office in Abu Dhabi is a logical next move for the firm with Abu Dhabi clients already accounting for 30% of the firm’s revenue in the UAE.

David Fennell, Chief Executive of Gowling WLG (UK) LLP, said: “We have considerable experience and strength in the Middle East and establishing an office presence in Abu Dhabi is a natural step in order to bolster our services for our clients.”

Tim Casben, Head of Gowling WLG in the UAE, added: “Opening an office in Abu Dhabi is an important step for us and is driven by the significant increase in work that we have been winning in the city. Abu Dhabi represents a clear opportunity for Gowling WLG. The UAE is at the forefront of innovation and sustainable development and has ambitious plans for growth. Our key target sectors of tech, infrastructure and IP in the Middle East are perfectly aligned with the UAE’s ambitions for the future. The opening of our office in Abu Dhabi will enable us to be closer to a number of our core clients and we look forward to building our presence in the capital.”

Gowling WLG’s UAE team includes multilingual lawyers who combine international expertise with local knowledge and influence supporting clients across sector and practice areas including tech, intellectual property, energy and infrastructure and corporate and commercial.

In July, the firm was pleased to announce the arrival of Imran Mufti as a partner in its Projects Group in the UAE. Imran is leading the firm’s Saudi Arabia practice and will be responsible for its relationship with Al Ghazzawi & Partners, Gowling WLG’s strategic partner firm in Saudi Arabia.

A Brief Guide To Digital Asset Protection

Digital assets come in many forms. They can be documents or any other type of file that has financial value. Cryptocurrencies, like Bitcoin, Ethereum, and Litecoin, are digital assets. With its anonymity and high return, more and more individuals and businesses are now putting a significant percentage of their wealth into it.

However, cryptocurrencies are also prone to risks. In countries that treat crypto as property, cryptocurrency holders must report all of their crypto transactions, and gains are taxable. So, anonymity is not guaranteed. If a business or a crypto holder is involved in litigation, the court may order them to disclose their digital assets. That’s why crypto asset protection plays a significant role, so creditors and other claimants cannot go after your digital assets.

Read on to learn how you can protect your digital assets.

Protecting Your Crypto Assets From Creditors And Other Claimants

If you’re holding many digital assets, you need to take extra care to protect them from creditors and other claimants. One way to do this is to create a trust.

What Is A Trust?

A trust is a legal arrangement where a trustee holds and manages property or assets for the benefit of a third party. The settlor is the person who creates the trust and transfers the estate to the trustee. The beneficiary, on the other hand, is the person who will receive the benefits from the trust.

The advantage of setting up a trust is that it can help you protect your assets from creditors, lawsuits, and other claims. If the settlor is sued, the court cannot go after the assets in the trust since the trustee legally owns it.

Another benefit of setting up a trust is that it can help you minimize taxes. Taxing digital assets doesn’t only exist in the United States. Other countries like Thailand have also implemented taxes on cryptocurrencies. So, regardless of where you live, setting up a trust to minimize or even avoid paying taxes on your digital wealth is crucial.

The settlor can put conditions on how the assets can be used and when the beneficiaries can receive them. This can help you minimize estate taxes since the assets in the trust are not included in your estate.

Different Types Of Trusts

Asset protection trusts have different types that you can set up to safeguard your digital wealth.

  • Domestic Asset Protection Trust (DAPT)

A domestic asset protection trust or DAPT is a trust created under the law of your home country where the settlor can be the beneficiary as well. Some find DAPT a more convenient option because you don’t have to deal with the regulations of another country. Creating a DAPT for your crypto assets will not only safeguard your digital wealth from creditors but also from a soon-to-be ex-spouse and other potential claimants.

  • Foreign Asset Protection Trust Or Offshore Trust

A foreign asset protection trust is a trust created in a jurisdiction other than your home country. People who want more privacy and protection of their assets from their home country’s laws use offshore trusts. The laws of the foreign country where the trust is created will govern the trust. If a claimant from your home country sues you, they will have to deal with the foreign country’s laws that have jurisdiction over the trust.

If you’re thinking of setting up an offshore trust for your digital assets, countries with strong asset protection legislation are the ideal places to set this up. They make it hard for foreign authorities to access information about the trust and its assets.

Safeguard Your Digital Wealth From Hackers

Creating a trust will protect your digital assets from creditors and other claimants. But it won’t safeguard your wealth from hackers. Whether you’ve set up a trust, you need to take extra steps to protect your digital assets from hackers.

Here are some of the best ways to do it:

  • Keep Your Crypto In A Cold Wallet

A cold wallet is a cryptocurrency wallet that stores your private keys offline. Storing private keys offline makes it more difficult for hackers to steal them since they need physical access to your cold wallet.

There are two types of cold wallets: hardware and paper. Hardware wallets are physical devices that store your private keys, like a USB. Paper wallets are simply printouts of your private keys. Both hardware and paper wallets are more secure than hot wallets, which store your private keys online.

  • Limit The Number Of People Who Have Access To Your Wallets

When delegating trustee responsibilities, you must limit the number of people who have access to your wallets—the more people who have access, the greater the risk of theft. Since creating a trust means giving someone else control of your assets, choosing the right trustee is essential. Whichever entity you entrust your digital wealth with must carefully determine who should have access to your wallets and to what extent.

Factors you need to consider when choosing a trustee include their expertise, trustworthiness, and ability to follow their client’s instructions.

Final Words

Crypto asset protection is essential, especially in countries treated as property. Setting up a trust is one of the best ways to protect your digital assets from creditors and other potential claimants. But this won’t be enough. You need to designate a qualified trustee, use a cold wallet, and restrict access to your cold wallets.