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How Can You Benefit From Going Offshore?
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| How Can You Benefit From Going Offshore? | | |||||||||||||
By: | | Robert Smith | | ||||||||||||
Date: | | 05/15/2000 | | ||||||||||||
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How Can You Benefit From Going Offshore? * Can I Legally Eliminate Taxes By Opening Offshore Accounts? If you aren't American and/or don't bring the money back into your country, chances are you can. Please consult with a local tax professional. If you are a U.S. citizen, please be aware that most Americans who go offshore for fully "legal" reasons do so in order to get their assets away from the jurisdiction of potential litigants. If most of your assets are offshore, and a nationwide "asset search" reveals that you own virtually "nothing", those profess- ional parasites usually won't waste their time on you in the first place and look elsewhere for a victim that hasn't taken the same precautions as you. Offshore Banking can also provide returns and investment alter- natives not available in your home country, allowing your funds to work harder for you while still maintaining the extra pro- tection from predators. Many offshore banks also provide credit card accounts that will allow you to make routine (and perhaps not so routine) purchases with a higher degree of privacy. So while tax reduction may or may not be possible simply by opening an offshore account, the ability to have those funds secured against hostile actions, being able to make purchases via credit card WITHOUT leaving a privacy stripping paper trail, and the ability to take advantage of investment opportunitities not available in their home country should be sufficient reas- ons to consider banking offshore. Of course, there is always the appeal of doing it the easy way and simply evading taxes. The Internet makes it indeed very easy not to pay your unfair share, and to get away with it. Look at it this way: If you could keep the money you now pay in taxes, and invest it offshore at 30% per year... how much money will you have accumulated ten years from now? Is it worth the small, but potentially devastating risk? Only you can make that deci- sion. * Can I Legally Eliminate Taxes By Setting Up Offshore Corporations? It is difficult but not impossible to legally avoid taxes by using offshore corporations. Unfortunately, if you're American, the line between legal and illegal is defined by the US gov- ernment & IRS, and obviously they have your money on their mind and have thus made it virtually impossible to legally save taxes by going offshore. However, there are still some excellent loopholes that politicians themselves (and their financial supporters of course) make use of. The primary issue here is whether an offshore corporation is deemed to be "controlled" or "not controlled". And depending upon the verdict - the tax consequences will vary. The IRS code defines a Controlled Foreign Corporation (CFC) as: "any foreign corporation of which more than fifty percent of its value or voting stock is owned by United States share- holders on any one day during the taxable year of such Foreign Corporation." A US shareholder is also specifically defined as a US person or entity holding or controlling more than 10% of the shares. Here's an example of a Controlled Foreign Corporation: Imagine that US shareholder #1 owns 50% of the voting stock of the foreign corporation "X". US shareholder #2 owns 11% of the voting stock. The remaining 39% is owned by an offshore shareholder #3. Under the existing IRS rules, this is a CFC because more than 50% of the voting stock is held by US share- holders. So you can see that the simplest way to avoid ending up with a CFC is to ensure that less than 50% of the voting stock is held by US shareholders - and that no individual shareholder holds more than 10% of voting stock. This can be done by using a foreign non-grantor trust to own the majority of the stock, or any variant where the end result is the required "less than 50%" holding. Abiding by this simple formula will put you on the right path to creating a useful (for tax purposes) offshore corporation. * How About Those Anti-IRS Strategies? There are thousands of anti-IRS strategies, however unfortun- ately most of them don't work on a consistent basis. The problem is not that they weren't "right", some legally, others morally... the problem is that the IRS "has the guns", literally speaking. If they THINK you owe them some money they have the power to destroy you completely, leaving you defenseless. They don't care about the law and don't give a damn whether you are technically "right" or not, so it is better if you do NOT attract their att- ention, e.g. by filing zero tax returns while leading a life of luxury. It's much better and easier to hide your money offshore (if you choose to do so) and keep a low profile. * I'm American - I There Anything Else I Should Be Aware Of? If you have a US Dollar (USD) account, no matter where, ALL USD transfers keep moving though US facilities even if accounts proper are held in Zimbabwe or elsewhere. Account holder names, account numbers and payable amounts of all USD transfers in the world are an open book to US authorities. There are several options to avoid this and the potential troub- les associated with these facts: 1) If you have to bank in USD, you should ALWAYS use an offshore corporation with nominee directors (e.g. Panamanian Corpor- ations). While the corporate name will be more or less public knowledge, the owner remains anonymous thanks to bearer share certificates and nominee directors, and the authorized account signatory (you) is only known to the offshore bank. If you don't tell your enemies, potential enemies, and still better if you don't tell anyone that you bank offshore through an offshore corporate bank account, noone will be able to asso- ciate that particular account with you. 2) If you have to bank in USD and want additional protection, bank through an ID free Offshore Trust, or use a Second Pass- port to operate your offshore accounts. These passports are easy to obtain from a number of countries, and will normally give you more banking safety than a US passport - especially in countries like Switzerland that routinely "sell" their US clients. 3) Do all your banking in a different currency, e.g. GBP, JPY or Euro. We recommend the Euro as there is no central clear- ing facility for Euro transactions! Most offshore bank acc- ounts are multi-currency accounts so you can use various currencies without hassles. * Which Offshore Jurisdictions Do You Recommend? Recommended are countries that are not over- and also not too underdeveloped, and have strict secrecy laws. Antigua, Grenada and Estonia are good examples for countries that currently provide a safe and secure environment for offshore bank accounts. When you join the Offshore & Privacy Club we will give you specific recommendations as to which banks to open an account with, and which banks to avoid. We'll also show you how to open accounts for free, without paying hundreds of dollars to intermediaries! * Which Offshore Jurisdictions Should I Avoid? Many countries that still call themselves "offshore jurisdict- ions" now spy on their clients just like the terrocrats back at home do. The privacy and confidentiality features of these trad- itional offshore jurisdictions are rapidly being eroded by the enactment of "mutual assistance" and "information exchange" legislation. Some negative examples are the British Channel Islands as well as ALL British offshore territories - including places like Bermuda, British Virgin Islands, Turks & Caicos Islands and the Cayman Islands. Britain is offering full citizenship (including passport and visa-free EU travel) to all 150,000 inhabitants of its remaining 13 territories. In return for full UK citizenship, the islands must clean up their laws regards money laundering, and fully cooperate with other law enforcement agencies, inclu- ding enforcement of foreign tax claims. Actually, there are already several countries that still call themselves "offshore havens" even though they are readily coop- erating with Big Brother - even in taxation matters! For the most current list of countries to avoid, join the Offshore & Privacy Club and we'll keep you up-to-date. * I Have A Job. Can I Still Benefit From "Offshore"? A valid question. And on the face of it, not a lot. The obvious first answer is to suggest that you find another secondary source of income - say on the Internet, then keep this income offshore. That can work - provided you are prepared to take on the extra work. Alternatively, get some of your investment money offshore - so it can grow in a tax-free environment. Another strategy is to consider whether the work you currently do can be "rearranged" somewhat. It depends upon the nature of your work, but have you ever considered changing your status from employee to contractor? As a contractor you would essentially still do the same job, but would give up the usual employee perks in return for the independence offered as a contractor. An example: Say you work as a computer network support person for a company. You're on a salary - a good one. You've got lots of nice perks like medical insurance and a retirement fund etc. What you don't have is the ability to claim expenses against your work - and the ability to hold on to your money until tax time. You could propose to your employer that you become an indepen- dent contractor. You'd do essentially the same work, but would invoice your previous employer on a monthly basis for work done. How would your employer view this? Probably favorably. If you have ever been an employer, you'll realize just how frustrating it is to deal with all the tax, insurance and other issues that blight the poor employer. He may very well welcome any sugges- tion you may have. You would gain your freedom - and so, in part, would your previous employer. A word of warning. Tax authorities are very loathe to see any- one take themselves of the "employment mill" - where extracting tax dollars is a breeze (at source). So you need to carefully think out such a strategy. Depending upon your jurisdiction, the tax authorities will need to be convinced that this arrang- ement is bone fide - and not just a "redefining" of an existing arrangement. If you can do it, you immediately gain all the benefits of being self-employed - including the real possibility of using offshore structures to slash your income tax liability. * What About "Unfair" Tax Competition and the Future of Offshore Banking? There's no doubt that there is increasing international pressure being put on existing tax havens. Slowly, governments in the developed nations are realizing that more and more money is finding its way offshore - and thereby eroding the tax base. The alarm bells are ringing. It is our prediction that as the "money-drain" becomes even more apparent, the revenue ministers of such high tax countries will start to fear for their very own salaries! But stop and think about the issue for a moment. These tax- obsessed gentlemen are concerned because certain countries offer lower tax rates than their home countries - and they're beg- inning to cry "foul!" And yet such competition in any other area of economic activity is deemed perfectly normal. Consider the competitive advantage of a well educated labor force, or of having vast resources of valuable minerals. Maybe a country simply has a lot a rain and can produce a wonderful variety of food products. In each case, such a situation gives rise to a certain competitive advantage - something that is greatly sought among the trading nations around the globe. In fact, nations are encouraged to find their competitive advantage and vigorously exploit it! So what do you do when you only have a small island, very few people and no natural resources? You look for an economic acti- vity where you can compete - financial services for example! You soon realize that there is a great demand for corporate and trust services as well as various banking services in an atmosphere of privacy and a low tax environment. Such a coun- try will soon see the economic advantage of setting itself up to exploit the demand for such services. And so it has been. Of course the "big" boys don't like it. They don't really mind if you try and sell butter cheaper - or make less expensive cars. But the minute you try to "compete" by offering lower tax rates, they get all up in arms! So what about a country like Hong Kong, which has always had comparatively low tax rates (15%-17%)? Well, that was no trouble as long as most people couldn't avail themselves of such rates. Now, of course, people CAN access low tax environments - and do so with increasing ease. The Internet is making is easier and easier for people to discover such advantages... and the smart people are doing it in droves! You will need to keep one step ahead of bureaucrats and tax authorities - for they are waking up to what is going on, and they obviously don't like it. Where will all this lead to? It's hard to predict the future in this regard, but it would be safe to say that various nations will turn up the pressure on what they see as tax havens - places where their citizens can "hide" money, and therefore avoid so-called tax obligations. It could be a gloomy scenario for the offshore industry, except for one thing. The demand for offshore services will grow exponentially, as various governments try to stop the flow of money offshore. This demand will generate "new" services that may be a lot harder to stop. For example: the Internet represents a "cyber" world. And there is nothing to stop a bank from becoming a true cyberbank - with no known place of abode (geographically speaking). Thinking even further ahead, it is possible that a bank could be located off-planet, literally a computer on a satellite. This may sound a little far-fetched right now. But is it? Such a bank would have no territorial location and would not be subject to any of Earth's laws. It would be hard to touch - unless of course someone tried to shoot it down! But the point I'm trying to make is: If offshore centers start to feel the "pressure" from bully-boy nation-states, you can be sure that alternatives will arise to meet the burgeoning demand for the services they currently provide. | | | ||||||||||||
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