The Purpose of a Nevis LLC
If you are a small business owner, then it is likely that asset protection is one of your primary concerns.
If asset protection isn’t a central concern of yours, then it should be. As we’ve discussed before, modern American society is uniquely litigious, far above and beyond almost any other country in the world. Being innocent of wrongdoing will not necessarily protect you from a lawsuit, and even if the lawsuit is ultimately ruled groundless, you may lose a lot of time and resources defending against it.
As a result, one of the most important things that you can do as a business owner is protect your assets, both for the sake of protection in and of itself as well as for the dissuasion of future lawsuits. But how should you do this?
Limited Liability and Offshoring
If you have created a corporation or a limited liability company (LLC), you have already taken the first step towards asset protection.
Corporations and LLCs both have limited liability, which means that owners and shareholders will not be personally liable for the debts of the corporation. A creditor will not be able to recover your personal assets, only those assets which are actually within the business entity. This is known as the corporate veil, and unless you pierce the corporate veil by mingling personal and business assets or other similarly reckless behaviors, your personal assets will be safe.
However, losing your business assets might be bad enough. If someone sues your company and you lose everything that you’ve spent decades building up, then this will still cause you a lot of financial and personal grief.
Asset Protection Options
To protect the assets within your LLC, you have a couple of options.
First, you can create an LLC in another state. There are a few states, including Wyoming and Nevada, which have laws that are extremely friendly to asset protection.
Second, you can go even further, and move your LLC to a foreign country. Once your assets are offshore, they will be even more secure than they would be anywhere in the United States. This is perfectly legal to do, and could end up saving you a lot of money.
Some ships register themselves under a “flag of convenience,” rather than the flag of their own country, to avoid certain regulatory complications. Similarly, when you set up an LLC in a foreign country for the purposes of asset protection, you are flying a “flag of convenience” for your business.
If you want to create an offshore LLC, then the best jurisdiction in which to do this is Nevis.
Where Is Nevis?
Nevis is a tiny volcanic island of only 36 square miles, located in the Caribbean, with a grand total of 12,000 residents. Along with its neighboring islands, St. Kitts (St. Christopher), it forms a sovereign state, the smallest in the Western Hemisphere.
Most Americans don’t know much about Nevis, unless they’ve heard about it as the birthplace of Alexander Hamilton (and site of a couple other historical events of note).
However, this tiny island is ahead of every other country in the world for offshore asset protection, particularly when it comes to creating an offshore LLC.
There are a couple of reasons why Nevis is such a good location for this purpose. First, although the island may be volcanic, its legal institutions are anything but. The Federation of St. Kitts and Nevis is a member of the British Commonwealth, having gained independence from the United Kingdom only in 1983. The legal system of the islands is based off English common law, and the citizens are generally well-educated and fluent in English.
But the benefits are not purely geographical. In addition to being a peaceful and stable place to store your money, Nevis has passed laws specifically designed to make the island a haven for foreign LLCs.
The Nevis Limited Liability Company Ordinance
General Benefits of a Nevis LLC
The benefits of setting up a Nevis LLC are outlined in the Nevis Limited Liability Company Ordinance, which was first passed in 1995 and has been amended a number of times since then.
This ordinance has made Nevis the friendliest jurisdiction in the world for creating an offshore LLC.
Some of the benefits offered to offshore LLCs under Nevis law include:
- Confidentiality. When you create an LLC in Nevis, there will be no public records of your doing so. Records about your LLC can only be accessed by attorneys who are licensed to practice in Nevis. This will make it much more difficult for creditors in the United States to find you.
- Zero Taxation. There will be no new taxes imposed by Nevis on your LLC, or any income earned outside of Nevis. This makes the Nevis LLC effectively tax-neutral: your tax rate will be no higher than if you had created it in the United States.
- Low Corporate Compliance Costs. When you create an LLC in Nevis, you will have to do very little in the way of corporate compliance. For instance, you are not required to hold company meetings in Nevis, keep minutes, or submit your LLC to audits.
- Flexible Operating Agreements. You will have a lot of autonomy in determining the structure of your operating agreement; essentially, you will be able to give the LLC members whatever responsibilities and powers you choose.
- Single-Member LLCs. Your LLC can have as many or as few members as you like, including one single member. This is important if you are looking to protect your IRA. You may also create different tiers of managers or have the LLC managed by a third party.
These are some of the most basic benefits of a Nevis LLC, but when it comes to asset protection, the benefits are even greater.
How a Nevis LLC Can Protect Your Assets
Placing your money in a Nevis LLC doesn’t mean that no creditor will ever be able to get their hands on it. It does mean, however, that if they attempt to do so, they will have to go through a lot of extremely difficult steps.
First, a Nevis LLC offers you protection against foreign judgments. Nevis does not automatically recognize a judgment by a foreign court, even one in the United States. To enforce a judgment in Nevis, a creditor must hire an attorney in Nevis. This can be extremely expensive, as contingency fee arrangements are not allowed in Nevis, so the plaintiff will have to pay their legal fees up front. In addition, all plaintiffs must file a $100,000 bond to cover court costs, and the lawsuit must be filed against the LLC itself, not the individual member who owes the debt.
Fraudulent Transfer Protections
Nevis also offers much stricter protection against claims of fraudulent transfer than the United States and most other countries. Nevis has an extremely short (two-year) statute of limitations for such claims, and the creditor is required to prove the fraudulent transfer beyond a reasonable doubt (a much higher standard of legal proof than in most civil cases). The transfer is not considered fraudulent if the amount of membership interest you received in the LLC is equal to your transfer. Finally, punitive damages are not allowed in such cases.
But there is one benefit which Nevis has even over other jurisdictions which are friendly to offshore LLCs, and that is protection against charging orders. A creditor must obtain a charging order (i.e. an order to pay) before they can recover your assets, but if they do, they will find themselves in a sticky situation. They will only be able to recover from distributions that the LLC makes to the member against whom the charging order was obtained, and the business has no obligation to make any such distributions. In addition, Nevis charging orders expire after three years, and under U.S. tax law, the creditor will have to pay taxes on the assets they recovered from the charging order… even if they did not recover anything.
This makes it nearly impossible for anyone to take your money, even with a charging order, and is one of the central reasons why Nevis LLCs are the strongest LLCs out there.
Reasons for Creating a Nevis LLC
The first, and most obvious, reason to create a Nevis LLC is to protect your business assets. Many individuals who set up LLCs in Nevis also benefit greatly from the confidentiality and flexible structure.
An additional benefit of a Nevis LLC is that it can be used to protect your personal assets as well as your business.
As we mentioned above, single-member LLCs are permitted in Nevis. This means that you can create an individual retirement account (IRA) LLC in Nevis. Even if you are not a business owner, just about everyone needs to protect their retirement funds, and if you have an IRA and want to create an IRA LLC, Nevis may be the place for you.
Are Nevis LLCs Legal?
Nevis LLCs are perfectly legal. You will have to file certain forms with the IRS and with your state government, but so long as you clear the necessary procedural hurdles, you should have no problem.
However, although LLCs intended for the purpose of asset protection are legal, they cannot be used for tax evasion. Although Nevis does not impose any taxes on LLCs, you will still have to pay the same taxes to the United States government that you would be required to pay if your LLC was set up on American soil.
Some people do set up LLCs and other accounts in Nevis (and other jurisdictions such as the Cayman Islands) with the hopes of evading taxes, but this is very different from asset protection, even if the two sometimes get confused in the public imagination.
When to Set Up an LLC vs a Corporation?
An LLC is not the only type of business entity that can be moved offshore. You may also choose to create an offshore corporation.
Which is the right option for you? Corporations have certain tax benefits, including the Foreign Earned Income Exclusion (FEIE). However, the costs of setting up an offshore corporation, in particular compliance costs associated with filling out IRS paperwork, are higher than those of setting up an offshore LLC.
To take advantage of the Foreign Earned Income Exclusion, you must be earning at least $200,000 in annual net profits from your business. It is only at this stage that the benefits of an offshore corporation start to outweigh the costs.
Essentially, if you are earning a significant amount of income from your business, an offshore corporation may be the right idea; for smaller business entities, you should stick to an LLC.
Nevis versus the Cook Islands for Asset Protection
In previous articles, we’ve spoken about the Cook Islands as the best place to set up a foreign asset protection trust. So why are we recommending Nevis, rather than the Cook Islands, for a foreign LLC?
Well, both jurisdictions have extremely friendly laws to both trusts and LLCs. The devil is in the details.
The Cook Islands is generally recognized to be the best place for creating an offshore trust. They have the oldest and best laws regarding asset protection trusts in the world. In addition, and just as importantly, Cook Islands trusts have extremely strong legal precedent backing them up. The courts have tested Cook Islands trusts from every angle, and they have been established as largely unassailable. Nevis trusts do not have the same degree of precedent behind them.
The LLC Advantage
However, for the creation of a safe and well-protected LLC, Nevis beats the Cook Islands and all other jurisdictions.
There are a couple of major reasons for this. One is the time limit for charging orders to expire, which is three years in Nevis but five years in the Cook Islands. Another is the $100,000 bond to cover court costs, which is required in Nevis but not the Cooks.
Even though Nevis is best for LLCs and the Cook Islands best for trusts, that does not mean that you must choose between one or the other. The best asset protection plans are complicated and multilayered, to make it as difficult as possible for creditors to get ahold of your money, and so a comprehensive asset protection plan might involve multiple financial instruments in different offshore jurisdictions.
Hiring the Right Asset Protection Attorney
Creating an offshore LLC in Nevis can be extremely useful.
It will also be very complicated, and you will need to be absolutely sure that you are complying with all the applicable laws.
That is why it is important to consult with an attorney when setting up an LLC.
Here at Bohm Wildish and Matsen, we have extensive experience setting up offshore LLCs, and we are widely regarded as one of the top law firms for helping to protect clients’ assets. If you want to set up a Nevis LLC, we can help you do it with minimal difficulty and maximal