St. Kitts & Nevis

Trust and LLC framework

The Federation of St. Kitts and Nevis operates as a two-island state with separate legislation for certain matters. Nevis has enacted its own trust and LLC legislation that is distinct from the federal laws. The key statutes for U.S. practitioners are the Nevis International Exempt Trust Ordinance 1994 (as amended) and the Nevis Limited Liability Company Ordinance 1995 (as amended).

Nevis imposes no income tax on international exempt trusts or on Nevis LLCs that do not conduct business within the federation. There is no U.S.–St. Kitts & Nevis income tax treaty.

Nevis international exempt trusts

The Nevis International Exempt Trust Ordinance 1994 provides for trusts that are exempt from local taxation for a minimum of 100 years from the date of registration. These trusts are marketed primarily for asset protection, and they include features designed to frustrate creditors: a very short limitation period for fraudulent disposition claims (generally two years from the date of the settlement, or one year from the date the creditor could reasonably have discovered the transfer), a requirement that the creditor prove the case beyond a reasonable doubt (a higher standard than the typical civil preponderance standard), and a provision that foreign judgments against the trust are generally not enforceable in Nevis.

For U.S. tax purposes, a Nevis international exempt trust is a foreign trust. The asset protection features do not affect the U.S. tax classification. A U.S. person who settles a Nevis trust is subject to the full range of reporting obligations under §6048, regardless of whether the trust was established primarily for asset protection rather than tax planning.

LLC and trust combinations

A common structure involves a Nevis LLC owned by a Nevis trust. The U.S. person settles assets into the trust, which forms a Nevis LLC to hold specific investments or assets. This layered structure is marketed as providing both the asset protection features of Nevis law and the operational flexibility of an LLC.

For U.S. reporting, the trust and the LLC are analyzed separately. The trust is a foreign trust subject to §6048. The LLC, unless it elects corporate treatment under the check-the-box regulations, is a disregarded entity (if it has one owner) or a partnership (if it has more than one). If disregarded, its assets and income are attributed to the trust, and the trust reporting covers the full picture. If the LLC is a partnership or corporation, separate reporting forms (Form 8865 or Form 5471) may apply.

Practitioners should be alert to the aggressive marketing of these structures. U.S. courts have consistently held that transfers to offshore asset protection trusts are subject to U.S. judgment enforcement, regardless of the trust situs, and the IRS has challenged these arrangements in numerous cases.

Reporting obligations and penalties

All standard §6048 reporting applies. The transfer of property to a Nevis trust triggers Form 3520 Part I. If the U.S. person is the owner of the trust under the grantor trust rules—which is nearly always the case when the settlor retains any benefit or control—Form 3520-A and Form 3520 Part II are required annually. Distributions to U.S. beneficiaries require Part III reporting.

Penalties under §6677(a) are 35% of the gross reportable amount for Parts I and III. Under §6677(b), the penalty for Part II and Form 3520-A is the greater of $10,000 or 5% of the gross reportable amount. Because these structures are often used for asset protection, U.S. persons may face particular IRS scrutiny, and willful failure to file can result in additional penalties beyond §6677.