¶ 1701
Overview
Scope of the chapter. Chapters 12 through 16 examine the Nevis Limited Liability Company Ordinance as a body of company law: formation, the operating agreement, duties, the charging order and the company's life cycle. This chapter examines the company in use. Most Nevis LLCs are formed by persons who live elsewhere, hold assets elsewhere and pay tax elsewhere. The company's value to them depends on how three other bodies of law treat it: the tax law of the Federation of Saint Christopher and Nevis, the tax law of the member's home country, and the reporting regimes that collect information about the company for tax authorities around the world. The chapter takes the United States as the principal home country, because American owners are the largest group of users of Nevis structures and because American classification rules produce results that surprise owners who have not been warned of them.
Plan. Paragraph 1710 summarises the features of the Ordinance that matter in cross-border use and collects the cross-references to the earlier chapters. Paragraph 1720 examines the company's position under Federation tax law after the exemption in section 96 of the Ordinance ceased on June 30, 2021, and the central management and control test that now determines whether the company is taxable in the Federation. Paragraphs 1730 and 1740 examine the classification of a Nevis LLC under the United States entity-classification regulations, the default rule that makes it a corporation, the election that changes that result and the choice among the available classifications. Paragraph 1750 outlines the American information returns that follow from each classification. Paragraphs 1760 and 1770 examine the structures in which a Nevis LLC is most often used: the company owned by a Nevis international trust, the holding company, the joint venture or investment vehicle, and the company used with a multiform foundation. Paragraph 1780 examines the company's classification under the Foreign Account Tax Compliance Act and the Common Reporting Standard, American beneficial-ownership reporting and the practical demands of banks. Paragraph 1790 gives model provisions and a checklist.
Relationship to other chapters. The local tax position is examined in full in chapter 26, information exchange in chapter 27, anti-money-laundering and beneficial-ownership rules in chapter 28, and the American tax and reporting rules for Nevis trusts, LLCs and foundations in chapter 29. This chapter treats each of those subjects only so far as needed to choose and document a structure. The general law of entity classification, which applies to American LLCs and foreign LLCs alike, is examined in Lighthouse on Limited Liability Companies, chapters 39 and 42, and the comparative law of non-American LLC statutes in chapter 54 of that work.
Two classifications, independently made. The theme of the chapter is that a Nevis LLC has several classifications at once, each made under a different law for a different purpose. Under the Ordinance it is a legal person distinct from its members. NLLCO § 64(1). Under Federation tax law it is resident where its central management and control is exercised, which may be outside the Federation. Under the American regulations it is a foreign eligible entity whose classification depends on an election that the Ordinance neither requires nor regulates. Under FATCA and the Common Reporting Standard it is an investment entity or a passive non-financial entity according to its income and its management. None of these classifications determines the others, and an owner who assumes that the label applied by one regime carries over to another will misreport. The planner's task is to identify each classification at formation, choose those that are elective, and record the choices in the operating agreement and the company's records.