Don’t take investing in Facebook at face value

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Screens display the start of trading in Facebook shares at the NASDAQ stock exchange on Times Square in New York, on 18 May 2012. Facebook shares saw an opening pop fade as the wildly popular social network made its long-anticipated market debut. Photo - Getty Images

By Paul Hymers, Finance Director at Atlas Corporate Services

It can be thrilling to invest in a company you love, or to buy shares in a product you’ve used for years. However, as any savvy investor will tell you, investing your money should be a level-headed decision, not an emotional one!

Many people don’t take this advice, as can be seen by the recent rush on buying shares in Facebook when it recently became publicly listed as an IPO to the tune of US$16 billion. Despite warnings from experts and the fact that Facebook and Morgan Stanley are being sued for not declaring Facebook’s weakened growth forecasts ahead of its public offering, people are still flocking to buy up shares in the popular social networking site.

The fact that Facebook is about to open an office in Dubai may well encourage Dubai-based expats to invest in the company.  Industry experts are also predicting that the Dubai office will boost its revenues from the Middle East. However, having headquarters in the country in which you live, despite making a company seem ‘closer to home’ or more approachable, doesn’t make it a sound choice.

Despite the media excitement about major companies being publicly listed, there are special factors that expats need to take into consideration when investing in US-based companies, such as tax.

As a non-US resident anyone can invest in shares of a US-based company, such as Google, Facebook or Microsoft. There is no tax on any capital gain (i.e. how much profit on sale is above the price paid for the shares when purchased), and though there is a 30% tax on dividend income, an investor might be able to reduce this if there is a double tax treaty.

The real issue is that if an investor owns shares at the time of death in a US-based company, there is a 35% estate tax liability. To avoid this problem, the investor should set up a British Virgin Island International Business Company (BVI IBC) and transfer the shares into the ownership of the BVI IBC. The investor then owns the shares of the BVI IBC which is located outside of the US, and is therefore not liable to the US estate tax.

The bottom line is that if, as a non-US investor, you make the decision to invest heavily in a US-based company, don’t assume you won’t be liable to US taxes, and make sure you explore all the details and eventualities carefully.

About Atlas Corporate Services

Atlas Corporate Services Group is a global corporate and trust service provider, with corporate and private clients. The Group manages onshore and offshore companies, trusts and other business structures to meet the individual demands of its clients, such as corporate re-structuring, wealth and asset protection, tax reduction, international expansion and the provision of professional officers and secretarial services. Atlas Corporate Services JLT, based in Dubai, undertakes marketing functions for the Mauritius based office.

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