LLCs

LLC's are effectively hybrids between partnerships and companies. They afford limited liability to members and are treated as partnerships in the US for tax purposes.  

This means that LLC's are tax-transparent with income/dividend distributions being attributed to the members without the imposition of corporation tax. This is achieved principally by limiting the life-span of the entity and thereby avoiding the characteristic of perpetual existence, which is a principal indicator of corporate existence and hence liability to corporation tax under the US Revenue Code ("IRC").  LLC's were first introduced into TCI law by the Companies Amendment Ordinance of 1994.

Under the terms of the foregoing legislation existing TCI exempted companies (IBC's) can apply to be registered as LLC's upon application to the Registrar of Companies annexing a Special Resolution limiting the life of the company to 50 years and changing the company's name to include the suffix "LLC".  This is a simple and inexpensive process if you have an existing TCI company or an IBC which you wish to continue into the islands in order to change its nature to that of an LLC.    Feel free to contact us if you are interested in availing of this option and we will be happy to provide you with further information on the costs and other considerations involved.

How are they used?

Several multinational companies have utilized TCI LLC's as a vehicle to raise capital from US investors by the issuance of preference shares.  Where this is done the proceeds of the sale of the LLC's preference shares are then lent to the issuer's (on-shore) parent company.  Because the parent company has effectively borrowed monies from its TCI subsidiary, it can treat the entire of the monies so raised as an ordinary tax-deductible loan thereby significantly reducing its overall tax exposure.  Furthermore, as noted above, because LLC's can be classified as partnerships the TCI subsidiary can avoid withholding taxes on the interest payments.  By contrast, for normal US tax purposes if preference shares had been issued directly by the multinational, it could only deduct the interest costs of the preference share offering but not the dividends paid on the stock.

In a nutshell, parent companies can by using TCI LLC's, deduct "dividends" on preferred shares by treating such payments as interest for tax purposes.  By reducing exposure to taxation in this way the relevant multinational can build its capital reserves more rapidly than would otherwise be possible.