STEP Asia Conference 2014 OPTION 2: PLANNING FOR NORTH ASIA - JAPAN / PHILIPPINES / TAIWAN

Transcription

1 2014 Morrison & Foerster LLP All Rights Reserved mofo.com STEP Asia Conference 2014 OPTION 2: PLANNING FOR NORTH ASIA - JAPAN / PHILIPPINES / TAIWAN Wednesday, October 8, 2014 Presented By: Japan: Michael H. Shikuma, TEP (Morrison & Foerster LLP - Tokyo) Philippines: Craig Murphy, TEP (Lutea (Hong Kong) Limited) Taiwan: Nathan Kaiser (Eiger)

2 CASE STUDY Harold has built a successful family business which he holds 100% of in a Family Company in his home country ( HC ). The business in now worth US$100 million. Harold has retired from active management of the Family Company, and his son, Samuel, has taken over. His grandson, George, is being groomed to take over management in the future. Harold is elderly and wants to pass ownership of Family Company to his children. This is MoFo. 2

3 CASE STUDY: Harold s Family NAME RELATIONSHIP AGE CITIZENSHIP RESIDENCY OCCUPATION Harold Husband 75 HC HC Retired Founder of Family Company Wendy Wife 70 HC HC Homemaker Samuel Son 50 HC HC President of Family Company Serena Son s Wife 44 HC HC Homemaker Gary Samuel s Son 20 HC HC Student Gloria Samuel s Daughter 16 HC HC Student Deborah Daughter 48 HC/U.S. U.S. Homemaker George Deborah s Son 25 HC/U.S. HC Employee at Family Company Grace Deborah s Daughter 20 HC/U.S. U.S. Student This is MoFo. 3

4 Intestacy vs. Will. JAPAN SUCCESSION Statutory Shares. Surviving spouse - 50% of each asset; Children 50%, shared equally. Will. Disproportionate Allocation of Shares to Son. Legally Secured Portion. One-half of Statutory Share. Disproportionate Allocation of Other Assets to Satisfy Forced Heirship Right. Legal Adoption of Grandchild. Maintain Family Owners for Future Generations. Minimize Tax on Transfers to Future Generations. This is MoFo. 4

5 Gift vs. Inheritance. JAPAN TAXATION Tax Rate/Exemptions. 55% (from 2015), but higher threshold/exemptions for inheritance tax. Gifts to Family at Current Value. Taxation of Family Company Assets. Valuation of Shares. Comparable vs. Net Asset Methods. Partial Deferral on Succession of Family Companies. Gifts to Non-Japan Residents/Nationals. Global taxation now applies if the donor/decedent was domiciled on the date of the gift/death. This is MoFo. 5

6 TAIWAN TAXATION Gift vs. Inheritance. Inheritance Tax Rate: 10% Exemption: TWD 12 million Deduction: Surviving spouse: TWD 4.93 million Children: TWD 0.5 million/ person Gift Tax Rate: 10% Exemption: TWD 2.2 million/ year This is MoFo. 6

7 TAIWAN TAXATION Cont. Valuation of Family Company Assets. Valuation of securities of companies limited by shares other than exchange listed, OTC listed, or emerging company shall be based upon the net worth of the company s assets on the date of inheritance or gift Gifts to Non-Taiwan Residents/Nationals. Property/ Estate located in Taiwan is subject to gift/ inheritance tax This is MoFo. 7

8 TAIWAN SUCCESSION Intestacy vs. Will. Statutory Shares. Surviving spouse - 50% of each asset; Children and Surviving spouse 50%, shared equally. Will. Disproportionate Allocation of Shares to Son. Legally Secured Portion. One-half of Statutory Share. This is MoFo. 8

9 Philippines Who pays? Philippines citizens, regardless of tax residence, on worldwide assets Resident aliens of Philippines, on Philippine situs assets Note that Filipinos resident outside Philippines and resident aliens may be subject to estate taxes in more than one jurisdiction, e.g. USA and Philippines. This is MoFo. 9

10 Philippines Estate tax Graduated rates from 5 20% on net estate over PHP20mio Various deductions from gross estate include: Spousal share (50% of net estate) PHP1mio (max) home deduction PHP1mio standard deduction Certain expenses, losses, indebtedness, taxes Property previously taxed (vanishing deduction) Payable on Bank, securities and other accounts All investments including offshore funds Real estate anywhere in the world Shares in private companies This is MoFo. 10

11 Philippines Donor s (Gift) Tax Graduated rates from 2 15% on amounts over PHP15mio If transfer is to a stranger (not within 4 degrees, inlaws are always strangers) transfer / donor s tax is 30% This is MoFo. 11

12 Philippines Forced heirship (i) Applies when donor or donee is a Filipino Forced heirship restricts inter vivos gifts and testamentary freedom i. Legitimate children and descendants inherit first half* ii. iii. iv. If there are none, they are replaced by legitimate parents or ascendants* Then surviving spouse Then acknowledged natural children and natural children by legal fiction v. Then illegitimate children and their descendants other than those covered in iv. above *Subject to the rights of surviving spouse and illegitimate children This is MoFo. 12

13 Philippines Forced heirship (ii) Heirs Spousal legitime Other legitime Free Portion Spouse alone 50% N/A 50% Spouse, 1 child 25% 50% 25% Spouse, 2 children 25% 50% divided equally 25% Spouse with legitimate parents of deceased 25% 50% to Parents 25% Spouse, illegitimate children 1/3 rd 1/3 rd to illegitimate children 1/3 rd Spouse, 4 children 12.5% 50% divided equally 37.5% Spouse, 1 legitimate, 2 illegitimate children 25% 50% to legitimate child, 25% between illegitimate children 0% Notes: Spouse, illegitimate child(ren) are paid from the Free Portion. Hereditary Estate subject to Forced Heirship excludes conjugal (community) property. This is MoFo. 13

14 Philippines Conjugal property Absent marriage settlements (pre-nups)executed before marriage, property of both spouses from before and after the marriage becomes joint community property, except: Property acquired before marriage by either spouse who had legitimate descendants from a prior marriage Property acquired during marriage by gratuitous title Property for personal and exclusive use of either spouse, except jewelry Spousal consent generally required to transfer or sell property. This is MoFo. 14

15 Philippines estate planning (i) Transfer by sale of property Sufficient consideration Capital Gains Tax for Filipinos in respect of worldwide asset sales Resident aliens in respect of Philippines sourced asset sales CGT on real property or shares in a PH company is 6% of gross selling price; or 10% of net capital gain from sale of shares of stock in PH company. This is MoFo. 15

16 Philippines Estate planning (ii) Transfer to a controlled corporation Tax free transfer to a corporation in exchange for shares of stock No income or capital gains taxes provided at least 51% of voting power remains with transferor Tax free transfers are quite complex and BIR ruling must be obtained. Various strategies can be used to reduce value of estate upon death of transferor. Can pay donor s tax on value after structuring to reduce value of gift This is MoFo. 16

17 Life Insurance Philippines Estate planning (iii) Proceeds are not includable in gross estate and not subject to income tax provided there has been an irrevocable designation / appointment of the beneficiary Consider using Private Placement Life Insurance Annuities and pensions are generally subject to income tax. This is MoFo. 17