Technical article
Does Running the Trust Offshore Stop My Own Country Taxing It, or Only Hide It?
Your home country decides what it taxes, and it looks at people and control, not at the trustee's address.
Imagine a retired couple who ask a trustee in the Cayman Islands to run a trust of US$10 million. They still live at home. They wonder whether the move takes the trust out of their own country's tax. Or does it only take it out of sight?
Is an offshore trust a tax shelter, or just a place?
The sources show a place. The place decides what the place itself taxes. Your home country decides what it taxes, and it looks at people and control, not at the trustee's address.
What the home country looks at
Across the six settlor countries we read, the trust stays in the tax net while one of two things holds: the settlor lives at home, or a home-country heir can benefit.
| Home country | The trust stays in its net while | Tier |
|---|---|---|
| United States | A US person can benefit from the trust, or the settlor keeps certain powers. Heirs who live abroad do not by themselves break it | A |
| United Kingdom | The settlor or spouse can benefit: income and gains are taxed as they arise. Inheritance tax stays while the settlor is a long-term resident (10 of 20 years) | A, B |
| Germany | The settlor is a German resident: the trust's income is attributed to the settlor each year, paid or not, unless the assets are legally out of everyone's control | A |
| Canada | A contributor or a connected beneficiary is a Canadian resident: the trust is treated as Canadian, and income can be attributed to the contributor | C |
| Australia | The settlor is an Australian resident: attributable income of a non-resident trust is taxed to the transferor | A |
| France | The settlor is French-domiciled: duties apply to all trust assets worldwide, and a 1.5% yearly levy applies to assets not declared | B |
Germany shows the exception. In December 2024 the Federal Fiscal Court held that the escape applies to any foreign trust, not only those in the EU. It applies where assets are legally and factually removed from the control of the settlor and the heirs. The test is control, not where the trustee sits.
What the place does
Eight offshore places in our research have signed the account-information exchange: the Cayman Islands, the British Virgin Islands, Bermuda, the Bahamas, Nevis, the Cook Islands, Belize and Panama. First exchanges began in 2017 for Cayman, the British Virgin Islands and Bermuda, and in 2018 for the others. Most also have a US deal on account reporting. Belize and the Cook Islands are not on the US Treasury's list of such deals (tier A). These systems have banks report accounts held by foreigners to the owners' home tax offices.
Their own taxes are light. Cayman levies no income, gains or inheritance tax. Nevis exempts a registered trust from income tax, death tax and stamp duty, with a US$300 registration and US$300 a year. Belize exempts a registered international trust. The Cook Islands figures come from a law firm, and a government note of 2015 says some trust income is taxable, so they read as one firm's view (tier C).
The paperwork follows the home country
A settlor who keeps the trust in the net files for it.
- United States: Forms 3520 and 3520-A, with a penalty of the greater of US$10,000 or 35% for the first.
- Canada: Form T1141, with a CAD2,500 penalty.
- Germany: a report of a 10% holding in a foreign asset pool, or of cost over EUR 150,000, with the tax return within 14 months.
- France: the yearly trust declaration, with a fine of EUR 20,000 in one source and EUR 20,000 or 12.5% of assets in another.
Who it touches
The settlor, whose residence matters. Heirs, whose countries may tax what they receive. The trustee, who files the reports. A spouse who can benefit, who may count as a beneficiary for the settlor's tax.
If your family has an account reported across a border, how did you first learn of it? Share it here. Someone else may be wondering what the letter means.
Figures are estimates for planning, based on public data. Date read: October 2026.
Sources
- Internal Revenue Code ss.679, 672 and 7701 (A)
- HMRC trust and settlement manuals and GOV.UK guidance (A)
- KPMG and HaysMac notes on the UK regime (B)
- German Foreign Tax Act s.15 (A) and Federal Fiscal Court IX R 32/22, December 2024, as reported by Flick Gocke Schaumburg (B)
- Income Tax Act ss.75(2) and 94 and Canada Revenue Agency guidance (C)
- Australian Taxation Office transferor trust guidance (A)
- French General Tax Code s.990 J and Bofip (B)
- Cayman Tax Information Authority (A)
- Nevis and Belize trust legislation (A)
- OECD and Treasury exchange lists (A)
- Cayman, Bahamas and Bermuda tax guides (B)
- Cook Islands law-firm notes (C)
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