Nevis LLCs: Are they worth it?

LLCs are almost perfect. They’re easy to form and administer, making them a great way to hold a business or investments. But they’re also an amazing asset protection tool. Why?

Because if you (personally) get sued and lose, a legal concept called the “charging order” makes it difficult for creditors to grab your ownership (“membership”) interest in the LLC.

Difficult, but not impossible. In the United States, a creditor with deep pockets may eventually convince a court to let it seize your LLC or its assets. For stronger protection, you need to look internationally to places like Nevis, a small island in the Caribbean that has some of the strongest asset protection laws in the world.

In this article, we explain exactly how Nevis LLCs provide asset protection, who is the right fit for this structure, and whether you might consider this entity the next time you update your wealth protection plan.

Why Nevis is a Top Choice for LLCs

Depending on the state you live in and the state in which you form an LLC, a domestic LLC can offer decent to very good asset protection. But a domestic LLC can never escape the jurisdiction of US courts.

Nevis, on the other hand, doesn’t automatically enforce foreign judgments in its own courts. And Nevis LLCs are shielded by some of the strongest asset protection laws in the world. An LLC properly drafted and registered there is extremely difficult to attack.

Here’s a closer look at why Nevis is such a great place to establish an LLC.

#1: It’s expensive (and risky) to launch a lawsuit against a Nevis LLC.

Nevis doesn’t automatically enforce foreign judgments against Nevis LLCs. A creditor must start the whole legal process over again in Nevis.

Not only that, but in Nevis:

• A creditor can only sue your Nevis LLC – not you personally. Unlike the US, a Nevis court has no personal jurisdiction over you unless you are physically present in St. Kitts or Nevis.
• A case against a Nevis LLC must be proven “beyond a reasonable doubt.” This is the standard to be found guilty of a crime in the US. In most states, a civil case must be proven “on the balance of probabilities;” a much weaker legal standard.
• Creditors have to post a bond as collateral before they can even access the Nevis legal system.
• If the creditor loses, they will forfeit part or all of the bond under Nevis’ “loser pays” system.

#2: Even if you lose, a Nevis court can’t force you to turn over LLC assets.

The odds are stacked against a creditor coming after you in Nevis. But even if a Nevis court issues a charging order against a Nevis LLC, your creditors have no right to take its assets or your membership interest.

The most they can claim are future distributions from the LLC to you. This gives you a tremendous amount of power to force the other party into a settlement.

#3: Anonymity and Privacy

Nevis LLCs also offer a high degree of privacy. There is no public record of the LLC’s existence, making it nearly invisible to potential creditors.

This does not include Uncle Sam. You will need to file various forms with the IRS and Treasury Department letting them know about any foreign companies and foreign accounts you have an interest in.

How to Use a Nevis LLC for Tax Savings and Asset Protection

A Nevis LLC can be a powerful tool for a variety of wealth preservation purposes, from holding offshore investments to estate planning to operating an international business. Let’s take a closer look at some of the key ways you can use a Nevis LLC.

#1: Holding an Offshore Investment Portfolio

A Nevis LLC is an ideal vehicle for holding a portfolio of passive assets, like stocks or bonds, in an offshore account. By forming the Nevis LLC and opening the investment account in the LLC’s name, you create a tax-compliant and asset-protected structure.

#2: Estate Planning

Nevis LLCs can also be useful for estate planning strategies. For high-net-worth individuals, gifting minority ownership interests in a Nevis LLC to family members can allow you to take advantage of valuation discounts.

In estate tax planning, a valuation discount reduces the market value of assets gifted from a high-net-worth person or married couple to one or more beneficiaries. A typical valuation discount is 25%, but in certain cases, discounts as large as 70% are achievable.

This method can cut estate taxes by lowering the taxable value of assets like business interests or real estate when transferring them to heirs.

In practice, valuation discounts allow high-net-worth individuals and families to pass a lot more to the next generation before estate taxes come into play.

This is a sophisticated strategy you shouldn’t try without help from an estate planning expert.

#3: Operating an Offshore Business

If you create a domestic corporation to operate an international business, it can pay as little as 10.5% tax on its profits by having the corporation operate the business through a Nevis LLC it owns.

However, this has to be done properly. A lot can go wrong if you don’t set up and operate such a business properly and in full compliance with IRS requirements.

#4: Enhancing Asset Protection

As you’ve seen, a Nevis LLC offers outstanding asset protection out of the box. But you can improve that even further with an LLC “Operating Agreement”.

You can also place assets outside the country and beyond the jurisdiction of US courts and creditors. This places both the structure and the assets beyond the reach of US courts.

How to Set Up a Nevis LLC

The process of setting up a Nevis LLC is pretty straightforward.

1. Hire someone to set one up for you. You have two options: work with a professional who will help you figure out how to fit a Nevis LLC into your planning and then register it, or work with a wholesale company based in Nevis who will give you one. The latter is cheaper but you’re more likely to end up with a structure that’s legal but doesn’t work for your needs.
2. Pass due diligence and draft the Articles of Organization. That will need to be filed with the Registrar of Companies by a Nevis agent.
3. Stay compliant. In practice, that means paying an annual renewal fee to stay in good standing and filing the applicable reporting forms with the IRS and Treasury.

Once the due diligence process is complete, your agent can file the Articles of Organization. When we help set up Nevis LLCs for clients, we suggest planning for at least a month from start to finish.

Disadvantages of a Nevis LLC

We’ve already talked about the advantages of a Nevis LLC. But for a balanced picture, it’s worth looking at the main disadvantages from a US client’s perspective.

1. Compliance and reporting needs: US clients must meet various reporting duties when owning a foreign entity like a Nevis LLC. The US owners of the foreign entity must file an annual reporting form for the LLC. If the foreign entity holds non-US accounts in its name, its US owners may have to make additional disclosures.This includes filings such as the Report of Foreign Bank and Financial Accounts (FBAR) and possibly the Foreign Account Tax Compliance Act (FATCA) forms. These requirements can be complex. Failing to meet them can result in severe fines and penalties.
2. Costs: Both the setup and operating costs of a Nevis LLC are higher than comparable costs for domestic LLCs in most states. Compliance costs are higher as well due to ongoing foreign reporting obligations.
3. They are hard to bank: Over the last few years, it’s become harder to get banking services for Nevis LLCs. We have a lot of experience helping clients get it done. You might struggle to do it on your own.

Mistakes People Make with a Nevis LLC

Like most things, mistakes are just the process of learning. But when it comes to international planning, mistakes can be expensive. Here are the most common ones we see when it comes to a Nevis LLC.

1. Holding the Wrong Kinds of Assets: A Nevis LLC is a great way to hold many types of assets… from an asset protection point of view. But certain assets held in a Nevis LLC can create a tax nightmare back in the US. For instance, we generally suggest US clients avoid owning US investments in a foreign entity like a Nevis LLC. In our planning, that’s why we always recommend knowing what assets you plan to move into the LLC before you establish the structure.
2. Failing to Comply with U.S. Reporting Rules: One big mistake is not doing the required reporting back home. US owners (aka members) of Nevis LLCs must file certain forms with the IRS and possibly the Treasury every year. Missing these can lead to big fines and penalties.
3. Misunderstanding Tax Rules: If you don’t live in St. Kitts or Nevis and your Nevis LLC isn’t managed there, you won’t owe any tax in Nevis on any income or gain it generates. But US citizens and residents must pay tax on all global income to the IRS no matter the source. (Yes, there are ways around this, but they can be complex, and expensive to set up and maintain. Feel free to book in a free call with one of our Associates to discuss this further.)
4. Overlooking Operational Issues: Some clients don’t consider the operational challenges and costs linked to managing a Nevis LLC. The challenge of getting an offshore bank account is an example.
5. Assuming Total Privacy and Protection: Thinking that a Nevis LLC provides complete anonymity and asset protection is wrong. While Nevis has very strong privacy laws, US clients must still reveal their ownership when legally required. In practice, that means telling Uncle Sam about it.
6. Poor LLC Structure and Maintenance: Not structuring the LLC right or not keeping it in good order can ruin asset protection. It’s crucial to make the right decisions when you first form the LLC.
7. Using LLCs to dodge US taxes or for other illegal acts. This isn’t just unethical, it’s ill-advised. The legal consequences of evading tax and violating money laundering laws are severe. You could be subject to serious fines and penalties, or even go to prison. And no amount of structuring will protect you.
8. Skipping Expert Advice: Arguably the biggest mistake we see is not getting the right advice before setting up a Nevis LLC. The fact is, there are plenty of companies out there who will register a Nevis LLC for a few hundred dollars. But if the planning around it isn’t done properly, it’s a waste of money. We can’t tell you how many times we’ve had to deal with “orphan structures” that were set up with no clear purpose and just sit there empty.

Who Needs a Nevis LLC?

A Nevis LLC is a flexible structure that can fit into many different types of plans. But, like all planning, it’s better for some clients than for others. Here are a few likely scenarios:

Frequently Asked Questions

Need Help?

Over the past 40+ years, we’ve helped thousands of clients build better wealth protection plans. Structures that “de-risk” your assets and make you virtually immune to lawsuits is a big part of that.

If you’re wondering if a Nevis LLC is right for you, or you realize your plan needs some work, please get in touch to see if our services are right for you. It starts with a free, no-obligation consultation with one of our Associates to see if you qualify. You can do that here.