OECD tax exchange
Christian Reeves

European OECD Tax Exchange Agreements

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As of November 2016, most offshore jurisdictions have signed on to the Automatic Exchange Agreements demanded by European governments and the Organisation for Economic Co-operation and Development (OECD). All but Panama has agreed to share information with European tax authorities.

On paper, the OECD defines itself as follows: “the mission of the Organisation for Economic Co-operation and Development (OECD) is to promote policies that will improve the economic and social well-being of people around the world.The OECD provides a forum in which governments can work together to share experiences and seek solutions to common problems.”

In practice, the OECD has simply followed behind the US IRS and our Foreign Tax Compliance Act (FATCA), demanding information on the offshore transactions of EU citizens. Both sets of laws require banks, either directly or through their local government agents, to report ownership, control, and banking activity. The focus of FATCA is account size and transactions while the OECD is tax data (gross sales, profits, taxes paid, employees and assets of each entity).

  • A history of the OECD’s information exchange program can be found by clicking here.

For a list of countries that have signed on to the agreement, click here. The list is a real eye opener. As I said, the only offshore jurisdiction that hasn’t signed on is Panama.

You’ll find that most offshore jurisdictions have agreed to begin sharing data by 2018. Some, such as Cayman and Seychelles will begin in 2017, while Cook Islands, Belize and Andorra will implement in 2018.

You’ll also find that the list of compliant countries includes all but one… the largest tax haven in the world for everyone but it’s citizens… the U.S. of A.. While Russia, Switzerland, the United Kingdom, Mexico, China, Canada, Singapore, Japan, etc., have all signed on, the United States is nowhere to be found.

The fact that the US has refused to join will create some interesting challenges for US banks operating in compliant countries. How our global banks will coordinate compliance in one country while hiding assets based in America, will open the door to all manner of disputes.

As we international entrepreneurs move into 2017, we do so with the knowledge that privacy in our financial transactions is a thing of the past.

But these new rules shouldn’t dissuade you from protecting your assets offshore. Whether you live in the United States or the European Union, the key to solid asset protection is building a structure that no civil creditor can knock down.

In most cases, offshore asset protection should be tax neutral. It should not increase or decrease taxes in your home country. An offshore asset protection structure should do exactly what it’s name implies… protect your assets.

The key to asset protection is putting up impenetrable defenses, not hiding what you have. Even if a creditor has a road map to your offshore structure, it should be impossible for them to breach the walls of your fortress and get to the gold therein.

In fact, hiding your assets, and not being tax compliant in your home country will put your savings at risk. If you’re caught cheating on your taxes, the penalties will be severe and the value of your trust will be destroyed.

Considering how much effort governments are putting into ferreting out tax cheats, hiding assets should be the last thing on the mind of anyone looking to protect assets. All this does is add risk and pits you against both your creditors and your government.

Hiding assets offshore possible back in the day. Those days are long gone for Americans and Europeans. Now, the industry is all about tax compliant planning.

If you’re reading this and have a non-compliant offshore structure, you should take action immediately. Europeans should shut down, get in compliance, and rebuild a properly reported offshore trust.

We U.S. citizens have significantly more risk than our European counterparts. The US government is aggressively pursuing non-compliant citizens, putting them in jail, and levying mind boggling fines.

If the IRS is not on to you yet, it’s not too late. You can join the Offshore Voluntary Disclosure Program, get into compliance, pay what you owe (if anything), and then rebuild offshore.

If you are living or working abroad, you might be able to get into compliance and pay zero in taxes and penalties. If you’re living in the US and have an unreported account, the penalties will be high, but you can minimize risk and fines by coming forward now.

I hope this post on the OECD tax reporting initiative is helpful and puts offshore asset protection in perspective. For more information on legal and tax compliance asset protection techniques, please contact me at info@premieroffshore.com or call us at (619) 483-1708. 

Christian Reeves

Offshore Asset Protection for Affiliate Marketers

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Affiliate marketers face unique asset protection, privacy, and tax planning challenges. This article will review your options and point out some of the pitfalls to watch out for. We’re specialists in offshore asset protection for affiliate marketers and can help you to grow your online business in an efficient and compliant manner.

At the end of the day, www.premieroffshore.com, and our lifestyle site www.escapeartist.com, are internet based businesses. I write SEO optimized posts like this one to drive traffic and bring in leads. We’re a remote business with our publishing group based in San Diego and fulfillment in Belize and Panama City.

As the editor and chief marketing guy, I spend my days on the road, tapping away on my laptop. Our in-house attorneys are chained to their desks, but I made sure the marketing team was portable.

We’ve been providing offshore asset protection to affiliate marketers via the web since 2003 and understand the unique needs of your business model. We’re the only firm that provides offshore structures and U.S. tax compliance… at least, the only one in the middle of the market. Our price points are a bit lower than Deloitte, PwC, and E & Y.

  • Our offshore protection structures are positioned in the middle of the market. Less than big name CPA firms and higher than offshore incorporation mills that provide no guidance or support.

This post will focus on asset protection for affiliate marketers. As I said above, we also provide tax planning for offshore businesses, as well as for those in the U.S. territory of Puerto Rico. For more on Puerto Rico, see: Puerto Rico is the Top Offshore Jurisdiction for Americans.

To summarize Puerto Rico, if you move your business to the island, and hire 5 employees, you’ll cut your U.S. tax rate to 4%. To compare that tax deal to moving offshore, see: Puerto Rico Tax Deal vs Foreign Earned Income Exclusion.

The remainder of this article will focus on offshore asset protection. Offshore asset protection for affiliate marketers is generally tax neutral – it should not increase nor decrease your U.S. taxes. It’s meant to keep your transactions private and your cash safe from future civil creditors.

You can combine offshore asset protection with an office or division offshore that helps to manage your worldwide tax obligations. But, your asset protection plan is independent of your international tax plan. Thus, you might start with an offshore asset protection plan for your affiliate marketing business and grow it into a business tax savings plan.

Issues in Asset Protection for Affiliate Marketers

When planning an offshore asset protection structure, affiliate marketers face a number of interesting challenges. For example, the need for privacy and the ability to diversify with  subsidiaries are more urgent than with other business models.

Affiliate marketers value their privacy. For this reason, we created the Panama max privacy structure. We use a Belize LLC as the founder of a Panama foundation and a Panama corporation under the foundation to run the business. We can add corporations from other jurisdictions, as active business subsidiaries of the foundation, where necessary.

For more on our max privacy structure, see: The Bearer Share Company Hack

The Panama foundation provides estate planning and asset protection for your business units… and acts as a holding company to bring them together under one umbrella.

Panama offers great asset protection and banking facilities. The problem is that they have a public registry of ownership. That means the founder of a foundation, along with the shareholders and directors of corporations, are public record. We work around this with a Belize LLC because Belize doesn’t maintain a registry and Panama allows the founder to be a person or a foreign company.

That’s all a fancy way of saying that the Belize LLC maximizes privacy by acting as the founder of your Panama Foundation. When someone searches the Panama registry, all they find is the name of your Belize company.

I believe you’ll find that the Panama foundation is the best choice when planning an asset protection structure for your affiliate marketing business. It’s primary competitor, the offshore trust, is a great tool, but not recommended for managing an active business.

An offshore asset protection trust is the solution for someone who wants to build a nest egg offshore out of the reach of future civil creditors. You can add money managers as trustees and maximize protection with a “protector” in case you (the settlor) come under duress.

That is to say, an international trust is perfect for someone who wants to put cash away for the future. A trust is not the structure to hold an active business where you want to maintain control and maximize privacy.

Many of our clients move a portion of their after tax net profits out of the Panama structure and into an offshore trust. You can combine both for the best of both worlds while diversifying your holdings.

Offshore Merchant Accounts

Specializing in offshore asset protection for affiliate marketers means working with many banks and acquirers around the world. We’re experienced in merchant account issues as described here: How to Get an Offshore Merchant Account.

For example, many of our clients run multiple MIDs and require subsidiaries from a variety of jurisdictions to hold those accounts.  This allows them to maximize privacy, diversify risk, and build systems that spread chargebacks among their portfolio.

To support this requirement from affiliate marketers, we’ve built a network of agents around the world. We can incorporate subsidiaries in a different countries quickly and at a reasonable cost.

We also understand that subsidiaries must be formed in countries which are acceptable to your processor. For this reason, we have U.K., Hong  Kong, E.U., Caribbean, and Panama solutions. We also advise on U.S. accounts for companies in Puerto Rico.

  • A comapny incorporated in the U.S. territory of Puerto Rico can open bank accounts at just about any U.S. bank.

Another option for a business with no office or employees in the United States, is to form a subsidiary in the U.S. That subsidiary will hold only bank and merchant accounts and pass profits to the parent company.

This solution is recommended for entities with no U.S. source income. You will likely need a U.S. person to open the account… it’s become difficult for foreign persons to open U.S. accounts… and nearly impossible for non-U.S. persons without U.S. credit scores to get a low cost merchant account.

Why Hire a U.S. Provider?

Internet marketers know how to outsource. How to leverage low cost labor around the world to get things done. Why should you pay U.S. prices for your international tax or offshore asset protection plan?

Simple: only a U.S. expert can build an offshore asset protection structure that’s U.S. compliant.

When you outsource  your offshore structure, you will get answers to your questions and solutions based solely on the laws of that country. For example, contact an offshore trust promoter in Cook Islands and they’ll answer inquires based on Cook Island law.

But, when you’re a U.S. citizen, your compliance risk and liability from lawsuits is in the United States. Thus, the focus should be on how the laws of your asset protection jurisdiction interact with those of your home country.

Since this is a post on asset protection for affiliate marketers, here’s a tech example…

You, the IT professional, can outsource website design because you’re an expert in website design. You know exactly what you want to accomplish and how to get there. You write the text and manage the process from start to finish.

What if you weren’t an expert in design or SEO issues? Should you hire someone to quarterback the project or should you outsource? Knowing what you know now, would you have gone it alone or hired someone to guide you in those early days?

You’d hire a quarterback because you don’t know what you don’t know. As an an expert, you understand how complex a major design or redesign can be. You know that a layperson will likely screw it up terribly, putting the entire project at risk.

This knowledge has come over years in the industry. Through trial and error, you know where the pitfalls are. You know how to drive traffic and optimize your sites. You know what works and what doesn’t.

I have a friend who’s new to the online world. He was tasked to redesign a 10 year old website with 15,000 pages and a solid Google reputation. The owners of the site didn’t want to spend any money, so he was on his own and outsourced design.

While updating the site, he thought it would be a good idea to restructure the URLs. To create a few different categories and make the permalinks more descriptive.  Yeh, he decided to change the URL structure and break the thousands of inbound links for an authoritative site… the links that gave the domain much of its “reputation.”

As an internet professional, you know what a bad idea it is to change the URL structure of an authoritative website with years of history. But my friend had no idea what he didn’t know. Had he hired a quarterback, the expert would have stopped him from falling in this obvious trap.

It’s the same when planning an offshore asset protection structure. You need someone to manage the process and keep you in compliance. Outsource and the promoter will tell you what you want to hear (sure, we can restructure your URLs). Hire an expert and they will tell you “no,” when you need to hear it!

For example, when you want to use a nominee singor on your offshore bank account, you need to hear no. When you, a U.S. resident with no employees offshore, want to setup a company to hold foreign profits and only pay U.S. tax when you bring the money into the U.S., you need to hear hell no!

As with internet marketing, there are many risks in going it alone. Unlike online risks, the penalties for getting out of compliance or using an offshore structure incorrectly can cost you hundreds of thousands of dollars in penalties or even land you in jail. The U.S. government has become extremely hostile to non-compliant offshore structures and you must have an expert in your corner to keep you from becoming a target.

The world of offshore is ever changing, complex, and fraught with risks you can’t see. We can guide you the maze and quarterback your offshore structure, all with a focus on your internet based business.

I hope you’ve found this article on asset protection for affiliate marketers to be helpful. For more information, please contact me at info@premieroffshore.com or call (619) 483-1708 for a confidential consultation.

software development
Christian Reeves

Research and Development and Intangible Property Tax Breaks in Puerto Rico

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Puerto Rico has the best tax deals available to Americans… period. No offshore jurisdiction can compete with the US territory of Puerto Rico when it comes to cutting your taxes.

This post will focus on Puerto Rico’s research and development and intangible property tax breaks. Act 73 is for those who develop licensed or patented software that may be reproduced on a commercial scale and those who license intangible property.

I’ve also written on the more traditional business tax breaks available under Act 20. Basically, if you set up a business in Puerto Rico with at least 5 employees, your corporate tax rate on Puerto Rico sourced income will be 4%. For more, see: Puerto Rico is the Top Offshore Business Jurisdiction for Americans in 2016.

I focus on the the software development and intangible property or intellectual property development components of Act 73. These are 2 of the 12 industries covered by the Act. For example, tax breaks are also available to large scale manufacturing, scientific experiments and laboratories, recycling, hydroponics, etc.

Software developed under Puerto Rico’s Act 73 must be for commercial distribution. You may license or sell it, but it must be widely available. Software developed under the Act should not be for your company’s internal use or custom work done for a particular client.

Act 73 applies to any and all forms of intangible property. Intangible property is defined as something which a person or corporation can have ownership of and can transfer ownership to another person or corporation, but which has no physical substance. For example brand identity, knowledge, and intellectual property are forms of intangible property . Copyrights, trademarks, and patents are also forms of intangible property.

It doesn’t matter how the intangible property came to be owned by the Puerto Rico company. You may have developed it on the island within the corporation, or you can buy it from a related or unrelated company.

If you do develop the intangible property in Puerto Rico, you may receive additional tax incentives. Also, developing the IP in Puerto Rico rather than the United States will avoid a taxable event and transfer pricing issue when you sell / transfer the property to the Puerto Rico company.

Tax Exemptions Under Puerto Rico’s Act 73

Once you have your IP offshore, or begin selling your software, here are the applicable tax benefits. Remember that these replace the US federal income tax rates of 35% + your state (0 to 12%). In many cases, you can exchange a 40% tax rate for 4% or less.

The base tax rate for an Act 73 business in Puerto Rico is 4%. This rate is guaranteed for 15 years from the date your company is approved.

You might be thinking, wow, a 4% corporate tax rate is just too high. “Pioneer” activities in Puerto Rico are taxed at only 1%. Pioneer businesses are typically those who create or develop intangible property on the island.

If you’re still thinking this is too high, I say come on, give me a break… and it can still go lower. If you setup your business in an approved low income area, your corporate rate will be between 0.5% and 0%. Combine this with the tax credits below and you could have a net positive tax rate.

If you’re not a pioneer, you can get to a 3% tax rate. Any business where at least 50% of the shareholders are residents of Puerto Rico, the rate is lowered from 4% to 3%. The same goes for any small to medium sized software or IP development business operated from the island (where average gross income is $10 million or less during the previous three years).

Still not convinced? You will also find a 100% tax exemption on dividend distributions and a 2% or 12% withholding tax on royalty payments to foreign entities for intangible property used in the exempt business. The lower rate includes a 12% matching tax credit for royalties paid to foreign entities, so your rate may vary depending in your situation.

When you sell the business, you’ll pay a 4% fixed income tax rate on the gain. This tax on capital gains trumps any other Puerto Rico income tax code section. The 4% rate is guaranteed under Act 73 for 15 years, so you should have an exit strategy in place prior to this term expiring.

Other tax breaks include:

  • 90% tax exemption from personal property taxes.
  • 90% tax exemption from real property taxes.
  • 90% tax exemption on municipal license taxes.
  • 100% tax exemption on municipal construction taxes.
  • 100% tax exemption on excise taxes.

Remember that this article is focused on IP and software development businesses. I do not discuss accelerated depreciation, sales and use, and other tax benefits.

Puerto Rico’s Act 73 Tax Credits

The Act provides various tax credits, including:

  • 25% tax credit on purchases of products manufactured in Puerto Rico;
  • 35% tax credit on purchases of products manufactured in Puerto Rico made from recycled materials;
  • Tax credit for job creation during the first year of operations that ranges from $1,000 per job created in an industrial area of intermediate development (as determined by the Office of Industrial Tax Exemption) to $2,500 for jobs created in an industrial area of low development. In the case of businesses established in the municipalities of Vieques and Culebra, this tax credit is $5,000 per job;
  • 50% tax credit on eligible research and development activity costs; and
  • 12% tax credit for royalties paid to foreign entities with respect to intangible property used in the exempt business.

When comparing Act 73 to Act 20, note that there is not a minimum number of employees attached to Act 73. Act 20 requires at least 5 employees. Both Acts 73 and 20 can be combined with Act 22 for a personal tax exemption.

Act 22 gives a Puerto Rico resident a 0% tax rate on capital gains and dividends. If you’re living in the United States, you will pay US tax on distributions from your Puerto Rico corporation. You are not required to take any distributions, but when you do, they will be taxed in the United States.

I hope you’ve found this article on Puerto Rico’s Act 73 research and development and intangible property tax breaks helpful. Click here for a list of my other articles on Puerto Rico’s tax deal.

For more information, and a confidential consultation on moving your business to Puerto Rico, you can reach me at info@premieroffshore.com or (619) 483-1708.  

Foreign Earned Income Exclusion for 2017
Christian Reeves

Foreign Earned Income Exclusion for 2017

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The Foreign Earned Income Exclusion for 2017 has finally been released and we expats get an increase of $800 this year. The U.S. government has increased the Foreign Earned Income Exclusion for 2017 to $102,100, up from $101,300 in 2016.  

You can attribute this big time increase of the Foreign Earned Income Exclusion for 2017 to the “robust” U.S. economy. That’s because the FEIE is indexed annually for inflation. The official inflation rate for 2016 was 1.4% and it’s expected to between 1.5% to 1.6% for 2017.

Note that this article is about the 2017 FEIE. For the 2018 Exclusion, see: Foreign Earned Income Exclusion for 2018

The Foreign Earned Income Exclusion for 2017 is the amount of salary or business income you can exclude from your United States taxes while living abroad. If you qualify for the FEIE for  2017, and you earn $102,100 or less in wages, you will pay zero Federal income taxes.

To qualify for the FEIE, you must be out of the United States for 330 days during any 12 month period, or a legal resident of a foreign country for a full calendar year. The 330 day test is simple math… be out of the U.S. and you’re golden. It doesn’t matter where you are in the world, so long as you’re not in the U.S.

For more on the 330 day test, see: Changes to the FEIE Physical Presence Test Travel Days

To apply the FEIE for 2017 over two calendar years, see: How to Prorate the Foreign Earned Income Exclusion

The residency test is more complex and based on your intentions. You must move to a foreign country for the “foreseeable future.” This new country should be your home and your home base. When you travel, it’s where you return too. It’s where you lay down roots. It’s where you file taxes and where you’re a legal resident (with a residency permit).

  • You should be filing taxes in your new home. It doesn’t matter if you’re paying taxes… just that you are following their laws as a legal resident. If your country of residence doesn’t tax your income earned abroad or in an offshore corporation, all the better.

In most cases, you will use the 330 day test in your first year abroad. That will give you time to secure residency, find your home base, and do all the things necessary to break ties with the U.S.  Beginning January 1 of year two, you will file for the Foreign Earned Income Exclusion using the residency test.

The reason you want to use the residency test when eligible is that it will allow you to spend more time in the United States. Under the 330 day test, you can spend all of 36 days a year in the land of the free. If you qualify for the residency test under the Foreign Earned Income Exclusion for 2017, you can spend 4 or 5 months a year in America.

Someone with no home base, and no residency visa, will never qualify under the residency test. A perpetual traveler will need to use the 330 day test. Likewise, someone on temporary assignment for a year or two, who intends to return to the U.S. when their job runs out, will need to use the 330 day test.

Just remember than any income earned in the USA is taxable here. The FEIE doesn’t apply to U.S. source income. If a U.S. citizen works for 10 days in the U.S., the income from those days is U.S. source and Uncle Sam wants his cut.

The FEIE for 2017 applies to married persons individually. A Husband and Wife working in their own corporation, or drawing salaries from a foreign company, can earn $204,200 combined this year and pay zero Federal income tax.

If you earn more than $102,100, you’ll pay U.S. income taxes on the excess. For example, if you earn $202,100, in salary, you will pay U.S. Federal income tax on $100,000 at 28% to 33%.

Note that your expat tax bracket begins at 18%. This is because the full $202,100 counts towards the bracket. Thus, you are paying a rate on your last $100,000 as if you had earned $202,100 in wages, not just $100,000.

If you pay tax in the country where you work, your U.S. tax on this $100,000 over and above the Foreign Earned Income Exclusion for 2017 will be reduced. Every dollar you pay in foreign income tax should reduce your U.S. rate by one dollar.

  • A dollar for dollar credit is the theory behind the foreign tax credit. You will see some variance on your return when you account for deductions, credits, etc.

Another tool for high earners who are self employed is to hold earnings over the Foreign Earned Income Exclusion for 2017 amount in their corporation. Pay yourself a salary of $102,100 and keep the rest in the corporation as retained earnings. For more on this, see: How to Manage Retained Earnings in an Offshore Corporation.

Be aware that the Foreign Earned Income Exclusion doesn’t apply to income that’s not  “earned.” So, the FEIE doesn’t cover passive income like rents, royalties, dividends, or capital gains. Income which is earned is money made from paid work / labor.

For more on tax planning for foreign real estate, see: US Tax Breaks for Offshore Real Estate

Most clients who contact us about the FEIE are business owners or self employed. They want to form an offshore corporation to retain earnings, maximize the value of the FEIE, and eliminate Self Employment tax.

Note that the Foreign Earned Income Exclusion does not apply to Self Employment tax, only income tax. So, a self employed person living abroad and qualifying for the Exclusion will still pay 15% in SE tax. That means about $15,000 on your salary of $102,100 for FICA, Medicare, Obamacare, etc.

If you don’t want to contribute to Social Security, you can opt out of Self Employment tax by forming an offshore corporation. Incorporate in a country that won’t tax your income, get your clients to pay that company, draw a salary from your foreign corporation reported on U.S. Form 2555, and you’ve eliminated U.S. social taxes.

For more on the tax benefits of living abroad, see: Tax Benefits of Going Offshore

For more on setting up a business offshore, see: Benefits of an Offshore Company

If you’re reading this article on the Foreign Earned Income Exclusion for 2017 and planning to set up a large business offshore, you might consider Puerto Rico. If $102,100 is a small portion of your net profits, think Puerto Rico. If your take home is closer to $1 million than $100,000, think Puerto Rico. If you have at least 5 employees, Puerto Rico might be for you.

The Puerto Rico tax deal, referred to as Act 20, is the reverse of the Foreign Earned Income Exclusion. With Puerto Rico, you pay U.S. tax rates on your first $100,000. Then you pay 4% profits over this amount and distribute those profits to yourself as a tax free dividend.

The Puerto Rico tax deal requires you live on the island for 183 days or more, significantly less than the 330 days required by the FEIE. If your net business income is well over the FEIE of $102,100, consider Puerto Rico.

The catch in Puerto Rico is that you must hire 5 employees on the island. You and your spouse can be 2 of those 5, and then you need 3 more. When setting up offshore, there’s no minimum number of employees required.

For a comparison of the Puerto Rico deal with the FEIE, see: Puerto Rico Tax Deal vs Foreign Earned Income Exclusion

For more on who qualifies as a Puerto Rico employee, see: Who is a Resident of Puerto Rico for US Tax Purposes

To read more about Puerto Rico and the Foreign Earned Income Exclusion, see: How to Maximize the Tax Benefits of Puerto Rico

For more on setting up a one man or one woman business offshore, see: Move Your Internet Business to Cayman Islands Tax Free

The bottom line is that the FEIE is great for those earning $100,000 from a business (or $200,000 of both spouses are working). If you are earning well over this threshold, and you can benefit from 5 employees, take a look at Puerto Rico.

I hope you’ve found this article on the Foreign Earned Income Exclusion for 2017 to be helpful. For more information on taking your business offshore, to Puerto Rico, or for a referral to a U.S. tax preparer, please contact me at info@premieroffshore.com or call (619) 483-1708.

offshore asset protection trust
Christian Reeves

Don’t Believe the Media Hype Around Offshore Asset Protection Trusts

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Ever since the Panama Papers, bashing the offshore asset protection industry has been chic. Every publisher on the planet has put out articles on how the rich abuse the system, hide their assets in offshore asset protection trusts, and don’t pay their fair share of taxes. The problem is that very few writers truly understand the industry and the complex web of worldwide tax laws in play. They tend to focus on the laws of jurisdictions such as the Cook Islands and ignore how those laws interact with those of the client’s home country.

This results in one sided and naive articles by good writers who can’t get beyond the hype surrounding their subject matter. They see only the tip of the iceberg and miss the mountain lurking below the surface.

These articles create great risk for U.S. citizens who read them as “how to” guides rather than the tales of injustice and inequity they’re meant to be. They do harm to U.S. citizens who contact an offshore provider to “do as they read” and get crushed by the system.

I know this to be true because I get calls everyday from people who want to incorporate offshore. They want tax savings like Apple and Google or asset protection as described in The New York Times. They don’t want to do anything illegal, they just want to use these amazing trusts and corporations they read about.

In most cases, I tell them tax savings is impossible because their business is too small (unless they move out of the United States and qualify for the Foreign Earned Income Exclusion) and that it’s too late to protect their assets. That the horses have bolted, so there’s no need to lock the barn door.   

Had they called an offshore provider rather than a U.S. firm, the answer they would have received would’ve been very different. They would’ve likely been told that their business won’t be taxed in Panama or that no one has ever breached a Cook Island offshore asset protection trust. Both of these may be true, but they ignore the realities of how an offshore structure will interact with U.S. law.

My purpose here is to separate fact from fiction and explain some of the limitations of an offshore asset protection trust. My comments are in response to an October 15, 2016 post in Business Insider on offshore asset protection trusts. The title of the article is A sociologist trained to become a tax-avoidance expert — here’s what she learned about how the ultra wealthy keep their money by Brooke Harrington.

Let me start by saying that I’m not saying Ms. Harrington’s article is factually incorrect. Her post is well researched and expertly written from an offshore perspective. In fact, much of it would make great marketing collateral for a Cook Islands Trust provider (an idea she probably finds repugnant).

However, because her article fails to take into account how the laws of the Cook Island interact with those of the United States, it gives the impression that a U.S. person can move their assets offshore with impunity. The fact that this will create confusion in a small subset of her readers is an unintended consequence of a lay person writing on offshore asset protection and publishing to a global audience.

For example, an American going through a divorce might read her article, call up a Cook Islands agent, be told what they want to hear, and move their assets out of the reach of their spouse. This will create a world of pain in the United States, no matter how the trust is viewed under Cook Islands law.

The author is not giving legal advice nor advocating for offshore asset protection trusts. I assume her purpose is quite the opposite – to expose inequity and argue against the availability of these structures. Nor is she writing only for Americans, though one of her three examples is a U.S. case.

However, by publishing on major platforms like Business Insider and The Atlantic, her words will reach those who can act upon them. People who will believe the hype to their detriment.

Here’s a little background: Brooke Harrington is an associate professor of economic sociology at the Copenhagen Business School. The article referenced here is soon to be a book published by Harvard University Press about elite occupational groups within finance and their impact on international law and stratification.  

She’s spent 8 years researching the international wealth-management profession and was so committed that she trained to become a wealth manager. She wrote, “I spent weeks in hotel conference rooms in Switzerland and Liechtenstein learning about trust and corporate law, financial investment, and accounting. Ultimately, this earned me the “Trust and Estate Planner” qualification (TEP): an internationally recognized credential in wealth management, much like the CPA for accountants.”

  • A CPA requires a 4 year college degree, though most in the United States go 6 to earn a master’s degree. A CPA also requires passing a difficult exam and 500 hours of documented work experience (usually for free in service of a CPA firm).

Even with all of that training, none of which was in the United States, she misses the elephant in the room: the fact that the laws of the settlor’s or defendant’s home country will often control the tax and asset protection benefits of their offshore structure.

If someone with this many hours of training can’t see the forest for the trees, what chance do less committed lay writers have? This is why so many get it wrong.

Here are a few of the sections of the article that might mislead a U.S. citizen:

Quote: “Looking at a costly divorce? No problem—just hire a wealth manager to put your assets in an offshore trust. Then the assets are no longer in your name, and can’t be attached in a judgment. Even if a foreign court sought to break your trust, if you have a clever enough wealth manager, you can be made effectively judgment-proof. Consider the case of the Russian billionaire Dmitry Rybolovlev, who has just settled what has been termed “the most expensive divorce in history.”

Although a Swiss court initially awarded half of Rybolovlev’s roughly $9 billion fortune to his ex-wife, Elena, an appeals court later ruled that most of those assets are untouchable in the divorce settlement because they are held in trust or are otherwise inscrutable to the law. (The amount of the agreed-upon settlement has not been disclosed.)”

Answer: Americans, don’t get it twisted. You’re NOT Russian oligarchs free to do as you like. Putin doesn’t have your back (unless your name is Trump or Snowden).

You’re a U.S. citizen and subject to our laws first and foremost, no matter what your offshore estate planner tells you.  If you set up an offshore trust to cut out your current spouse, you’re more likely to end up behind bars than on a beach in the Cook Islands. Here’s why:

Anytime you convey an asset in order to delay a creditor, you’re engaging in fraudulent conveyance. If you’re aware that your assets are at risk and should be used to satisfy a legal obligation and you move that asset out of reach, you have NOT committed a crime. Exceptions would be if there is actual fraud or crimes related to hiding assets from a bankruptcy court.

However, moving community or joint property out of the United States without your spouse’s consent, or to prevent a court from administering a division of assets, can be a crime. You may be charged with theft, embezzlement, etc.

Rather than going through all the trouble of charging and convicting you of a crime, a judge can simply hold you in contempt until you return the assets.

In most divorce cases, the judge issues a “standing order” instructing each party not to do certain things, such as take each other’s money. If you violate that order by sending community / joint property offshore, you can be held in contempt of court, fined, and jailed.

And don’t think that the “impossibility defense” will save you from a contempt charge. While impossibility is a defense to civil claims, self-created impossibility is not a defense to fraudulent conveyance. Nor will a judge accept this defense in a divorce case. After a few weeks or months of cooling off in the local jail, you’ll probably see your way clear to instructing your offshore trustee to bring the cash back to the U.S.

Note that there are legitimate uses of offshore asset protection trusts in divorce cases. For example, to hold separate property that you came into the marriage with and both parties agree will remain separate. If you’re already married, you might use a transmutation agreement to separate your assets and then fund an offshore trust.

Quote: “No litigant on earth has been able to break a Cook Islands trust, including the U.S. government, which has repeatedly been unable to collect on multi-million-dollar judgments against fraudsters convicted in federal court. These include infomercial king Kevin Trudeau, the author of a series of books on things “they” don’t want you to know, as well as an Oklahoma property developer who defaulted on his loans from Fannie Mae.

Since 2007, the two have owed Uncle Sam $37.5 million and $8 million respectively, and they have employed some clever wealth-management strategies to avoid paying those judgments. With their fortunes secure in Cook Islands trusts—on paper, at least—there is no way for the U.S. government to force payment unless it wants to send a legal team on the 15-hour journey to Rarotonga (capital of the Cook Islands), where the case would be argued under local laws.

Needless to say, those laws are not very favorable to foreigners seeking to access the assets contained in local trusts.”

Answer: The concept that “no litigant on earth has been able to break a Cook Islands trust,” is very dangerous. Going into battle with the U.S. government with that mindset will be disastrous. It may be true that your assets are safe in the Cook Islands, but your most important asset will likely be sitting in jail.

When I (a U.S. practitioner) write about the strength of an offshore asset protection trust, I say that the Cook Island Trust gives you maximum protection against future civil creditors. It’s not intended to protect you from the IRS, SEC, or other government creditors. Nor is it meant to protect against current or reasonably anticipated creditors.

Using the trust to protect assets from current or reasonably anticipated civil creditors creates the fraudulent transfer issue mentioned above. The quickest way to break an offshore trust is to hold the settlor in contempt until the money is returned to the U.S. The court doesn’t need to break the trust when it can break the defendant.

So long as you create and fund the offshore trust well before the cause of action or debt arises, you will avoid the fraudulent conveyance issues. That is to say, a fraudulent transfer is one that is made after the harm has occurred. If you’re proactive, you can avoid the issue and your trust will hold up against civil creditors.

Going to battle with the United States government is a different matter. Just about any case can be escalated to a criminal charge, which makes transferring assets offshore or using an offshore trust very high risk. Also, a judge is more likely to hit you with contempt of court for refusing to pay the U.S. government than the average civil creditor.

As noted in the article, Kevin Trudeau has about $37 million offshore and untouched by the U.S. government. The same goes for Mark Rich with $100 million in a Cook Island Trust and Allen Stanford with a “sizable” offshore asset protection trust on the island. Mr. Trudeau is serving 10 years, Mr. Stanford 110 years, and Mr. Rich was pardoned by Bill Clinton. All of them chose the Cook Islands to protect their assets.

Let’s focus on Ms. Harrington’s example of Kevin Trudeau. Mr. Trudeau was sentenced for criminal contempt for violation of multiple court orders and failure to pay a $37 million fine. The 10 years he got is extremely unusual for a contempt of court charge. Had he closed the trust and paid the bill he might have done a year or two, but certainly not 10.

Keep in mind that one of the primary reasons Mr. Trudeau is doing time is his Cook Island trust. He chose to do the time rather than pay the fine. I would never hold him out as the poster boy for the benefits of a Cook Islands asset protection trust!

You might be thinking that you’d trade $37 million for 10 years in a low security prison. Well, it’s unlikely Mr. Trudeau will ever see his money.

For example, all the revenues from his books and business are being taken by the court. As of October 2015, the trustee had collected $8 million in royalties from the sale of Mr. Trudeau’s books while he was incarcerated. It was used to give a partial refund to more than 820,000 people who bought his book, The Weight Loss Cure “They” Don’t Want You to Know About.

Assuming good behavior, he will do about 85% of the time, or 8.5 years. When he gets out, he’s looking at years of probation. He will not be allowed to travel internationally during this time and any money he makes will be paid to the U.S trustee overseeing his finances.  

Let’s say he’s off paper in 2023. Now the U.S. government has a few more tricks up their sleeve. They may refuse him a passport or file additional contempt charges for refusing to pay his debt. Prosecutors can also make his life hell while on probation, causing him to violate and be returned to jail.

  • A U.S. passport is a privilege and not a right. In 2016, the IRS and other government agencies have used passport revocations and refusals to renew as a weapon against tax debtors. If Mr. Trudeau can’t travel abroad, he won’t be able to spend his cash.
  • For an article on the topic, see: Warning: The IRS Can Now Revoke Your Passport

So, it’s true that a Cook Islands Trust will protect your assets from the U.S. government. These trusts have never been broken and the United States seems unwilling to litigate on the Island. However, many Americans have been broken by U.S. judges over the years.

Unless you’ve made a sizable donation to the Clinton Foundation (Mark Rich), or are willing to do 10 years for your principals, I don’t recommend going to battle with the U.S. government with an offshore asset protection trust. While the trust will remain intact, the government will make an example of you as they did and will continue to do with Mr. Trudeau.

When the options are pay up or go to jail, most pay. For this reason, offshore asset protection trusts are the best protection available against future civil creditors. Don’t let the hype confuse you into thinking they’re a magic bullet protecting you from the IRS, FTC, SEC, or any other three letter agency.

I’ll leave you with this: You must hire an attorney in your country to form your offshore trust. The key to a successful asset protection structure is combining the laws of your home country with those of a more favorable and defendant friendly offshore jurisdiction. Only a U.S. attorney can advise a U.S. citizen on how to work within the system and maximize the value of an offshore trust.

I hope you’ve found this article on the hype vs. the reality of offshore asset protection trusts to be helpful. Please contact me at info@premieroffshore.com or (619) 483-1708 for a confidential consultation on this and other international asset protection and trust topics.

fraudulent transfers
Christian Reeves

The Law of Fraudulent Transfer in Offshore Trusts

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The law of fraudulent transfer can trace it’s roots back to 1571 England  and the Statute of Elizabeth. This rule allowed courts to “undo” transfers of assets which were considered to be “fraudulent transfers.” Since its enactment, it has served as the basis for the fraudulent transfer laws in much of the civilized world.

The problem with the Statute of Elizabeth, and fraudulent transfer laws in general, is that they often do not include  a limitation period. Courts have interpreted fraudulent transfer laws very broadly and for the benefit of creditors, not for the protection of defendants.

Many courts have found a fraudulent transfer whenever a creditor is deprived of assets to pay his judgement that would have otherwise been available. Keep in mind that the mindset of UK and US courts is to make injured parties whole and not to protect the property or earnings of defendants.

Note: It’s important to distinguish between a fraudulent transfer and fraud. All too many writers confuse these two terms and fall into the trap of thinking that making a fraudulent transfer is the same as committing fraud. The law defines “fraud” as knowingly misrepresenting a material fact to induce someone to act or fail to act to his detriment – a crime. Completely different is a fraudulent transfer, which is defined as making a transfer of an asset with the intent to hinder, delay, or defeat the claim of a current or reasonably anticipated creditor – not a crime.

When we select a jurisdiction to form an offshore asset protection trust, we look for one that has a statute covering fraudulent transfers. Specifically, we look for countries with fraudulent transfer statutes with the shortest limitation period. If the country’s statute also includes specific standards of proof in order to establish that a particular transfer was fraudulent, all the better.

The most extensive and defendant friendly of the fraudulent transfer statutes is the offshore asset protection trust codes found in Section 13B of the Cook Islands law. The International Trusts Act of 1984 (as amended), is the original and still the strongest of the offshore trust laws.

The Cook Islands offshore trust statute requires each and every creditor to prove “beyond a reasonable doubt,” that the assets were transferred to the trust for the sole purpose of preventing that specific creditor from collecting. Thus, each creditor must prove the transfer was a fraudulent transfer as to him, and each such case must be brought in the Cook Islands.

Let’s break that down:

First, each creditor must hire an attorney in the Cook Islands and challenge the trust. They can’t combine their claims or hire the same attorney. Because the Island doesn’t allow for contingency cases, each and every creditor will need to spend big to even have their claim heard.

Second, beyond a reasonable doubt, is a high burden of proof. It require that no other logical explanation can be derived from the facts except that the transfer was fraudulent, thereby overcoming the presumption that the transfer was legitimate until proven otherwise. In the United States, this is our standard of proof for criminal convictions, no civil claims.

Third, if the defendant’s non-trust assets at the time the trust was created exceeded the amount in dispute, the plaintiff may not proceed against the trust. That is to say, Cook Islands will only allow the case to be heard if the defendant was insolvent at the time the trust was funded.

Fourth, §13(B)(4) of the Cook Islands trust law states that a transfer to the trust can never be fraudulent if the cause of action (harm to the plaintiff) occurred after the trust was funded. If you create a Cook Islands trust today and injure someone with your car tomorrow, they’ll never have a claim in the Cook Islands against your assets.

Fifth, if the plaintiff gets over all of these hurdles, the limitations period for fraudulent transfers in Cook Islands is two years. After the statute runs, transfers to the trust cannot be attacked on fraudulent transfer grounds. Because of the time it takes to litigate a case in the United States, and because the plaintiff must file in Cook Islands within two years of the trust being funded, it’s rare for a creditor to gain standing in the Cook Islands court.

The first and most important analysis before you create an offshore trust is to consider your exposure under the fraudulent transfer statute. And this analysis should be undertaken by an attorney in your home country, not in the Cook Islands.

This is because the fraudulent transfer law of your home country must be compared and coordinated with the law of your asset protection jurisdiction. Remember that your assets may be out of reach, but you are still under the authority of your country of citizenship.

Thus, if you’re a United States citizen, you must hire a US attorney to create your offshore trust. Likewise, if you’re a citizen of the United Kingdom, you should have a UK expert assist you.

I will end by noting that an offshore trust is typically funded with after tax money (personal savings). It’s also possible to move your United States IRA, 401K or other retirement account to the Cook Islands. We can form a Cook Islands LLC and secure many of the same benefits described above for your tax preferred retirement account.

For more on offshore IRA LLCs in the Cook Islands see my article, Protect Your IRA by Converting it into an Offshore Trust

I hope you have found this information on the law of fraudulent transfers in offshore trusts to be helpful. Please contact me at info@premieroffshore.com or call (619) 483-1708 for a confidential consultation.

IRS can take your passport
Christian Reeves

Expats, the IRS is Coming for your Passports

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Back in December I told you the IRS has the power to revoke your United States passport for past due debts. Now I’m telling you that the IRS has begun its attack on American expats… that the battle for your passport on… that the IRS has set the field and the first shots are about to be fired.

Here’s my original article: Warning: The IRS Can Now Revoke Your Passport (posted December 9, 2015)

To read the bill that takes away your freedom of movement, see: H.R. 22 – Fixing America’s Surface Transportation Act, the “FAST Act (signed by Obama on December 5, 2015)

As you read my comments below, remember that a United States passport is a privilege, not a right. Your government can take it away from you for any reason it sees fit.

The IRS has begun working with US Embassies and Consulates around the world to deny and revoke passports of Americans abroad who have not filed or owe the IRS.  If you are living outside of the United States, the IRS is coming for your passport.

Per this post from the The United States Embassy in Brazil, as of October 1, 2016, anyone attempting to renew their passport through the Embassy will be required to provide a Social Security number. That number will be used to review your IRS records before approving a passport renewal.

This means that, anyone who owes more than $50,000 to the IRS will be denied a passport. If you’re caught by local authorities without a passport, or overstaying your visa, you will be removed from the country and returned to the United States to face the collector.

It also means that anyone who has not filed their tax returns will likely have their passport renewal denied. Here’s how they will take your passport for not filing:

The law says your passport can be revoked or denied if you owe more than $50,000. When the IRS finds out that you are abroad and have not filed, they will prepare a Substitute for Return for you. They’ll estimate your income and assets and all manner of penalties, such as FBAR and offshore financial statement, and generally guesstimate a tax bill for you.

The resulting “substitute” balance due will certainly exceed $50,000. Thus, the Service will withhold or revoke your US passport for failure to file after inventing that phantom tax bill. You will be left with one option – return to the United States and negotiate a settlement.

It should be clear to everyone that the US IRS is waging a war on expats. The government wants to limit your freedom of movement and your right to live, work, invest, and hold money where you see fit.

Assuming you’re not the type to bow down, bend over, and be herded back to the United States like a lamb, what can you do to protect your right of self determination? What can you do if your United States Passport is revoked by the IRS?

You must have a passport to travel from place to place and live in any country outside of the United States. Also, a valid passport is often the only acceptable form of identification. Without it, you won’t be allowed to open bank accounts, transact business or execute wire transfers.

The best way to protect yourself from your own government is to buy a second passport. Many small nations sell citizenship and second passports. If you have a second passport, you have a safety net regardless of what happens with your US passport.

Here are a few of the best second passport options for Americans. For a more complete list, see: 10 Best Second Passports and Citizenship by Investment Programs For 2016

As you can see, a second passport is expensive. The next best option is to become a permanent resident of your country of residence. For example, if you’re living in Panama, you can become a permanent resident by investing $20,000 or setting up a business in the country.

Becoming a permanent resident will allow you to remain in the country no matter what happens with your US passport. But, a few words of warning:

  • You won’t be able to travel outside of your country of residence without a passport.
  • You won’t be able to renew your residency (if applicable) without a valid passport.
  • You must complete the residency process before your US passport is revoked or expires.

Buying a second passport can be completed in about 90 days once your documents are submitted. Becoming a permanent resident is usually completed in stages, often requiring a 2 year period as a temporary resident.

I also note that both of these processes will require a clean report from the FBI. Click here for more on how to request this report. Typical processing time is 60 days.   

Considering how aggressive the IRS has become in the last year, and the time it takes to process residency or a second passport, I suggest anyone concerned with the IRS, or the state of our government, should take action immediately. Once your US passport is gone, it’s too late to protect yourself or your family.

I hope you’ve found this article on the IRS coming for your passport to be helpful. For more on how to buy a second passport, or obtain residency in Panama or Mexico, please contact me at info@premieroffshore.com. All consultations are confidential and free.

Private Tax Debt Collectors
Christian Reeves

Private Tax Debt Collectors Hired to Track Down Expats

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Back in 2015, the US government mandated that the IRS begin passing cold collection cases off to debt collectors. Last week, those contractors were hired and tax information sent out.If you owe money to the IRS, your private tax data is now in the hands of a third party collection agents.

You can now expect harassing calls, emails, and visits from collection agents after October 15, 2016. This is the next tax deadline and it’s common for the Service to launch new programs around this time.

Your collection case will be sent out to a private debt collector if:

  1. The IRS is unable to collect or work your case because of a lack of resources or because they can’t locate you or your assets.
  1. More than ⅓ of the statute of limitations has passed and no IRS employee has been assigned to your case. The collection statute is 10 years, so this means that about 3.5 years have passed without your case being worked.
  1. Your tax matter has been assigned for collections, but more than a year has passed without any interaction. This means you are ignoring their letters and they have not bothered to visit you at home or work.

This development is especially troubling to the expat. The IRS is outsourcing collections to agents who might be willing to make the effort to find you and your assets, where an IRS agent is not. Also, it eliminates the protections afforded by standard IRS operating procedure.

Namely that the IRS will contact you by mail or in person, never by phone. If you’re living abroad, and your assets are protected, there was little chance you’d be harassed. Those days are gone because independent collection agents are allowed to use any and all tools at their disposal.

The reason the IRS doesn’t contact taxpayers by phone is simple: it opens up the collection process to scammers. The IRS could give a damn about bothering you at dinner… they’ve been known to show up at people’s work just to embarrass them. Agents don’t call because it creates more headaches and risks… the costs greatly outweigh the benefits.

Private debt collectors are not required to follow this precedent. They can call you at all hours of the day and night and harass the hell out of you. And you can expect the scammers to be following closely behind.

For years the IRS has warned of debt collection scams. Just last week (October 6, 2016), the US shutdown a call center in India that managed to scam taxpayers out of $47 million.

The week before, a student was conned into putting $1,762 on iTunes cards to pay IRS. The “collection agent” kept calling and calling until the student gave up and gave in. For more on the story, see ABC News.

You’ll find these phone scams all over the IRS and FTC sites. Allowing private debt collectors to skirt the procedures in place will only embolden the scammers.

Considering the above, and the new passport rules, expats with tax debts or unfiled returns are big time targets of the IRS. If you are at risk, you need to take action immediately. You should also spend the time to understand your rights (see below).

  • New this year is the IRS’s ability to revoke or block the renewal of your United States passport.

If you decide to cave to the pressure from these private debt collectors, note that they cannot accept payments. Any money you pay must always go directly to the IRS. Anyone asking you send money to them to be applied to your IRS account is a scammer.

I’ll conclude by noting that the Fair Debt Collection Practices Act applies to these private debt collectors hired by the IRS. You have the same rights and protections against these collectors as you do against someone harassing you for any other type of personal debt.

For more on these rights, you might start with the Federal Trade Commission page on debt collection. For a list of illegal debt collection practices, checkout Nolo on Debt.

I hope you’ve found this post on IRS debt collectors to be helpful. For more on how to protect your assets abroad, please contact me at info@premieroffshore.com for a confidential consultation.

retained earnings
Christian Reeves

Watch Where You Invest Those Retained Earnings – IRS Tracking Luxury Home Purchases from Offshore Companies

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According to the N.Y. Times, The IRS has begun tracking homes bought through offshore companies and shell corporations in the United States. If you’ve setup an offshore structure, and used your retained earnings to buy real estate in the United States, you’re probably a target of the IRS.

Even if your offshore company is tax compliant, you still may be in trouble with the tax man for using those retained earnings for your personal benefit. You may be living in the property at below market rent or taking the rents as personal income.

If you’ve managed to avoid the worst of the pitfalls, investing retained earnings in the United States might have converted them to taxable distributions to the parent company. For more information, see: How to Manage Retained Earnings in an Offshore Corporation

The bottom line is that offshore retained earnings are best held offshore. Unless you have a tax plan and written opinion from a reputable firm, leave the money alone and allow it to build up inside your operating company.

And now, here’s the rest of the story:

As I said above, the IRS is targeting luxury home sales involving offshore companies. Because buying US real estate is a common, if risky, use of retained earnings, this investigation is likely to net many offshore entrepreneurs.

The first stage of this investigation is now complete. It was focused on Miami and Manhattan, where over 25% of the all-cash luxury home purchases made using offshore companies or shell corporations were flagged as suspicious.

Today, officials said they would expand the program to areas across the country. The IRS will target luxury real estate purchases made with cash in all five boroughs of New York City, counties north of Miami, Los Angeles County, San Diego County, the three counties around San Francisco, and the county that includes San Antonio.

The IRS says that the examination, known as a geographic targeting order, is part of a broad effort by the federal government to crack down on “money laundering and secretive offshore companies.” As we know, “money laundering” is basically code for “tax cheats.” For every one drug kingpin caught in their net, they’ll land 1,000 tax cases.

Cases will be selected based on the purchase price of the property. Only all cash sales will be targeted in this round of audits. The dollar values involved are as follows:

  • $500,000 in and around San Antonio;
  • $1 million in Florida;
  • $2 million in California;
  • $3 million in Manhattan; and
  • $1.5 million in the other boroughs of New York City.

You might be thinking, that the IRS doesn’t have data on every real estate purchase in the United States. How the heck are they going to audit every single transaction over these amounts.

Never fear, the IRS thought of that. All they needed to do is issue an order to every title insurance company in the United States. Basically, they’ve drafted title insurance agents into the IRS army (unpaid, of course), to search through their records and select those who should be investigated.

  • Title insurance companies are involved in just about every residential and commercial real estate transaction in the United States.

And these insurance agents aren’t just providing information on the home in question. They’re identifying the escrow agent, the US and offshore banks involved, all paperwork from the offshore company, etc.

Once the IRS has the bank account information, they’ll summon your account records. This will enable them to chase down all inbound and outbound wires.

Here’s the bottom line: investing retained earnings into the United States opens up a pandora’s box of trouble. I’ve been telling clients this for years and now it’s come to fruition.

If you have an active business offshore, keep your retained earnings offshore. Don’t make you and your cash a target for the IRS. Even if you’re 120% tax compliant, avoid the audit, avoid the battle, and protect your hard work from the Service.

I hope you’ve found this article on the IRS’s targeting of offshore retained earnings to be helpful. If you have questions on structuring a business offshore, you can reach me at info@premieroffshore.com for a confidential consultation.

IRA when you give up US citizenship
Christian Reeves

What Happens to Your IRA when you give up US Citizenship / Expatriate?

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Thousands of Americans will turn in their blue passports in the next few months. Some because of our crazy political climate, some to stop paying taxes into a broken system, and some because of FATCA and the international banking laws which make it impossible to live or do business abroad. This post will consider what happens to your IRA when you give up your US citizenship or expatriate from the United States.

Whatever your reason for giving up your US citizenship, you need to carefully plan the expatriation process. It’s be fraught with risks, costs, and problems for high net worth individuals.

First, let me define who is a “high net worth expatriate.” The IRS only cares about losing high earners and payors. They could give a damn about the rest of us.

When I consider what happens to your IRA when you give up US citizenship, I am referring only to this group high net worth expatriates.

According to the IRS, a high net worth expatriate is someone whose:

  • Average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than $151,000 for 2012, $155,000 for 2013, $157,000 for 2014, and $160,000 for 2015. As you can see, this amount goes up each year and is tied to inflation’
  • Net worth is $2 million or more on the date of your expatriation or termination of residency, or
  • Fails to certify on Form 8854 that you have complied with all U.S. federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency.

If you meet any of these criteria, you’re high net worth person (high value taxpayer) for US expatriation purposes, otherwise referred to as a “covered person.”

So, the question more properly framed is, what happens to your IRA when you give up your US citizenship or expatriate and you are a covered person?

  • High net worth covered persons pay tax as if their IRA was fully distributed to them on the day they expatriate.
  • The early distribution penalty does not apply.

The only published information from the IRS is Notice 2009-85. The discussion of specified tax deferred accounts Section 6 of this notice.

“The mark-to-market regime does not apply to specified tax deferred accounts. Instead, section 877A(e)(1)(A) provides that if a covered expatriate holds any interest in a specified tax deferred account (defined below) on the day before the expatriation date, such covered expatriate is treated as having received a distribution of his or her entire interest in such account on the day before the expatriation date. Within 60 days of receipt of a properly completed Form W-8CE, the custodian of a specified tax deferred account must advise the covered expatriate of the amount of the covered expatriate’s entire interest in his or her account on the day before his or her expatriation date.”

Note that the covered person is treated “as having” received a distribution. This is not the same as having your IRA account cancelled or closed. In fact, you have the option of continuing your IRA after giving up your US citizenship.

If you were to close your account and take a distribution, you’d be liable for the early distribution penalty. If you close your IRA as part of giving up US citizenship before reaching 59 1/2, you will pay a 10 percent early withdrawal penalty in addition to income tax on the amount withdrawn.

If you decide to keep the IRA open after expatriating, you’ll pay US tax when you take distributions from the account, presumably at age 70 ½. This tax will be calculated only on appreciation in the account from the date of expatriation.

That is to say, a covered person will pay US tax on all the gains in her account on the day she gives up her US citizenship. Then she’ll will pay US tax on the gains earned in that account after expatriating when she take the required distributions.

The IRA remains intact. All you did is “prepay” your US taxes on the account.

For example, you have $100,000 in your IRA on January 1, 2017 when you give up your US citizenship. You pay tax on this $100,000 on January 1, 2017 . You decide to keep the account open after expatriation and begin taking distributions 5 years later, in 2022. As of January 2022, your account is valued at $130,000. You will pay tax on the gain of $30,000 as you take these distributions.

Considering you will remain linked to the US tax system after expatiating through your IRA, you would have to be facing a very large early distribution penalty for it to make sense to keep an IRA open.

If you’re a 45 year old doctor who rolled a two million dollar defined benefit or profit sharing plan into an IRA, then you might keep the account going. If you have $150,000 in your IRA, pay the 10% penalty and be done with it.

I hope you have found this article on what happens to your IRA when you give up US citizenship to be helpful. The bottom line is that 95% of us should close our accounts and be done with the IRA. Only those facing large early distribution penalties should consider keeping their account open.

For more information on how to give up your US citizenship, and how to expatriate from the United States, please contact me at info@premieroffshore.com. 

Keep in mind that the first step in giving up your US citizenship is to get a second passport. Until you have a second passport in-hand, you can’t burn your blue passport. For ideas on where to buy a passport, see my article: 10 Best Second Passports.

Pre-Immigration Tax Planning
Christian Reeves

Pre-Immigration US Tax Planning for Future US Residents & Citizens

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If you’re moving the the United States, get ready for our crazy tax system. Most importantly, if you will become a US resident, be prepared for US tax on your worldwide income. You need to do your pre-immigration US tax planning before you arrive to minimize these taxes.

Let me begin by defining what I mean by a US “resident.” Then I’ll review your pre-immigration tax planning options and what you need to do NOW before landing in the United States.

The United States taxes its citizens and it’s green card holders on their worldwide income. It doesn’t matter where you live or where your business is located. So long as you hold a blue passport or a green card, you will pay US tax any income you earn.

Likewise, the US taxes its residents on their worldwide income. A US resident is anyone who spends 183 days or more in the US in a calendar year. If you spend more than 183 days in one year, and then fewer days the next year, you might be a US resident for both years because a weighted average is used to determine residency.

  • I won’t bore you with the details of how to calculate the average. Suffice it to say, if you spend significant time in the United States, Uncle Sam wants his cut.

A US tax resident is ANYONE who spends 183 days a year in the country. Even if you are here on a tourist visa, or illegally, you are a tax resident and expected to pay US tax on your worldwide income. Your legal or immigration status is separate from your tax status.

US Pre-Immigration Tax Planning Techniques

If you plan to become a US resident, green card holder or citizen, you need pre-immigration tax planning before you move to the America. Some of these strategies require you to plan years in advance. So, if you are working towards residency in the United States, stop and think about taxes NOW.

Minimizing US Tax on the Sale of a Foreign Business

When you sell a foreign business after you become a US resident, you pay US tax on the gain from that sale. This means you’ll pay US tax on all of the appreciation and value that has accrued in your business over the years.

For example, let’s say you started a business in Hong Kong 10 years ago. You invested $100,000 and now the business is worth $1 million. You move to the US and sell this Hong Kong company the following month. The IRS expects you to pay US capital gains tax on $900,000.

Obviously, the simple way to avoid this tax is to sell your business before you move to the United States. I suggest you sell the business and then wait a month or two before traveling to the United States to make sure there are no issues.

But, what if you’re not ready to sell today? What if you want to move to the United States for a year or two and then sell? Serious planning and US filings are required to minimize your US tax obligations.

You can basically sell the business to yourself by making certain elections in the United States for your Hong Kong business. By converting the business from a corporation to a partnership or disregarded entity, you are selling it to yourself for US tax purposes. Do this before moving to the US, and you will have no US taxes due on the phantom sale.

Then, when you sell the company again in one or two years, you will only pay US tax on the appreciation in value from the day you sold it to yourself. This is called Stepping Up Basis. Here’s an example:

You plan to move to the United States on January 15, 2017. So, you file forms with the US IRS to treat your Hong Kong company as a partnership on December 15, 2016.  This triggers a sale of the assets to you, but no tax is due in the US because you are not a US resident for tax purposes. The value of the business on December 15, 2016 is $900,000.

Then, on December 15, 2018, you sell the business for $1 million dollars to a third party. Because of the pre-immigration tax planning you did along the way, you will only pay US tax on the $100,000 of appreciation that accrued from December 15, 2016 to December 15, 2018.

Another business income tax planning tool is to recognize as much income as possible before you move to the United States. You pay yourself as much in salary and bonuses as possible to deplete the value of the Hong Kong company before you move to the United States.

Note that salary from a foreign corporation will be taxed at about 35% Federal plus your State (maybe 12%). So, taking as much in salary before moving to the US can save you big time. Even if it requires borrowing money from banks or other sources, accelerating your income can be beneficial.

Offshore Trusts in Pre-Immigration Tax Planning

When you move to the United States, you need to worry about business tax, personal income tax (salary and capital gains) and death taxes. High net-worth residents pay a tax on the value of their worldwide assets when they pass away.

  • United States death tax applies to residents, green card holders and citizens with assets of more than $5.45 in 2016 and the tax rate is 35% to 40%.

You can minimize or eliminate the US estate tax by giving away your assets before you move to the United States. Most transfers after you become a resident will be subject to US gift tax, which is 40% plus your state.

This form of pre-immigration tax planning can also reduce your US personal and business income taxes. If you give your assets to family who will not be residents of the United States, America can’t tax those assets when sold or as business income is generated.

Most clients want to maintain control over their assets while they are alive. They don’t want to pay US income or estate taxes, but they do want to manage the assets or business for the benefit of their heirs.

This is where offshore trusts come in to pre-immigration tax planning.

When you setup an offshore trust to manage your assets, they’re removed from your US estate and the death tax doesn’t apply. Also, gains or income from these assets can be removed from your US income tax if you plan ahead.

If you set up and fund an offshore trust at least 5 years before becoming a US resident, the income generated in that trust will not be taxable to you in the United States.

Thus, if you are thinking about becoming a US resident, or moving to the United States is a possibility (even a remote possibility), you would do well to create an offshore trust and engage in some pre-immigration tax planning now.

If you can’t meet the 5 year threshold, there are several benefits to creating an offshore trust before moving to the United States. For example, an irrevocable offshore trust can reduce transfer tax, estate / death tax, and protect your assets from creditors. Considering that the United States is the most litigious nation on earth, asset protection is an important part of pre-immigration planning.

I hope that you have found this information on pre-immigration tax planning to be helpful. For more information, and to consult with a US attorney experienced in these matters, please contact me at info@premieroffshore.com. 

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لماذا يشاهد الناس الإباحية الناعمة؟

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هل شاهدت فيديو اباحي من قبل؟ ربما لم تتعرف عليه على أنه إباحي ، لكن معظم الناس يرونه غير لائق وبغيض. في الواقع ، هناك نوعان من الإباحية: أحدهما مواد إباحية صريحة والآخر إباحي ناعم. يمكن أن تشمل الإباحية الناعمة الاستمناء وأفلام البالغين ومقاطع الفيديو الجنسية وهي متوفرة عبر الإنترنت.

xnxx ، أو أفلام الكبار ، أو الأفلام الإباحية التي تعرض مواضيع جنسية صريحة لكي يثيرها المشاهد ويرجى. عادةً ما تتضمن الأفلام الإباحية محتوى مثيرًا جنسيًا مثل المداعبة والاستمناء والجنس. يمكن أن تتكون الإباحية من عدة أنواع. غالبًا ما يشار إلى المواد الإباحية على أنها “فيلم إباحي” والذي يتم تصويره في الغالب في مكان عام ويتم تحريره لإظهار الأفعال الجنسية التي يغطيها القانون مثل الألعاب الجنسية والأزياء والعناصر الأخرى الموجهة للبالغين. غالبًا ما يتم إنشاء المواد الإباحية الناعمة من أفلام منزلية تتضمن مشاهد جنسية بين البالغين والأطفال أو المراهقين.

قد تحتوي هذه xnxx الناعمة أيضًا على بعض الموسيقى أو الكلمات المنطوقة الناعمة التي تعزز المتعة التي تشعر بها أثناء الفعل الجنسي. يتم تصوير معظم الأفلام الإباحية الصعبة في مكان خاص مع شخصين فقط متورطين في الفعل. يتم تصوير الأفلام الإباحية الناعمة سرًا في وسائل الراحة المنزلية. يتمثل الاختلاف الرئيسي بين الإباحية الصعبة والإباحية الناعمة في أن الإباحية القاسية تتضمن أفعالًا جنسية تتضمن الجماع بينما تتضمن الإباحية الناعمة إيماءات جنسية وتعبيرات لفظية بدلاً من ذلك.

يتم تصوير معظم مقاطع الفيديو الإباحية xnxx والأبيض والأسود ؛ ومع ذلك ، يتوفر بعضها بالألوان. غالبًا ما يعتمد اختيار الألوان على ما يريد المخرج أو المنتجون تصويره. غالبًا ما يتم الترويج للأفلام الإباحية التي يتم تصويرها بالألوان وتسويقها أكثر من الأفلام الإباحية الصعبة. تلبي بعض الاستوديوهات والشركات بشكل خاص احتياجات الأشخاص الذين يفضلون مشاهدة مقاطع الفيديو للبالغين بالألوان.

هناك العديد من المواقع الإلكترونية المخصصة لاستضافة xnxx وتأتي بتنسيقات مختلفة. للتأكد من أنه يمكنك عرض أفضلها ، قم بتنزيلها من مصادر موثوقة. إذا كنت تقوم بتنزيلها من مواقع غير قانونية ، فهناك فرص كبيرة لاحتوائها على برامج فيروسات أو برامج تجسس. أيضًا ، إذا كانت مقاطع الفيديو ذات جودة رديئة ، فلن يتم تشغيلها بشكل صحيح على جهاز الكمبيوتر الخاص بك. قد يقوم البعض بتجميد جهاز الكمبيوتر الخاص بك!

للتأكد من أنه يمكنك الاستمتاع بتجربة مشاهدة أفضل ، قم بتنزيل xnxx الناعم من المواقع الإباحية الجيدة. ابحث عن مواقع الفيديو التي لديها تقييمات جيدة للعملاء وقاعدة عملاء كبيرة. تجنب دفع أي رسوم عضوية للوصول إلى الأفلام الإباحية. تتيح لك أفضل المواقع الوصول إليها مجانًا. سيضمن هذا أنك لست مضطرًا إلى إنفاق الأموال للاستمتاع بالإباحية الناعمة.

هناك طريقة أخرى للوصول إلى  https://xnxx18.info المجاني وهي استخدام البرامج المجانية. يتيح لك هذا البرنامج عرض مقطع فيديو معين دون الحاجة إلى تنزيله. البرنامج أيضا لديه القدرة على نسخ مقطع الفيديو إلى ملف فيديو. لذلك يمكنك نسخ الفيديو الإباحية على قرص ومشاهدته وقتما تشاء دون أي قيود. لا تحتاج أيضًا إلى الدفع مقابل البرنامج للوصول إلى مقاطع الفيديو الإباحية الناعمة هذه.

في الواقع ، يستخدم العديد من الأشخاص الآن المواد الإباحية على الإنترنت لتلبية احتياجاتهم. يجدونها أكثر إثارة من الإباحية العادية لأنك لست مضطرًا لأن تكون في الأماكن العامة تشاهد xnxx. يمكنك ببساطة قطع الاتصال بالإنترنت عندما تريد ممارسة العادة السرية. هذا يعني أنه يمكنك ممارسة العادة السرية بمفردك في المنزل دون أن يعلم أحد بذلك!

ميزة أخرى لمقاطع الفيديو الإباحية هي أنه يمكنك مشاركة مقاطع إباحية مع شريكك. مرة أخرى ، لست بحاجة إلى أن يمروا بالحرج من رؤيتهم. كل ما يحتاجون إليه هو مقطع الفيديو وتشغيله!

بالطبع ، السبب الرئيسي وراء مشاهدة الأشخاص لمقاطع الفيديو الإباحية هو تلبية احتياجاتهم. هناك الملايين من مقاطع الفيديو الإباحية المتاحة على الإنترنت اليوم. بعض مقاطع الفيديو الإباحية هذه تنتجها أفلام شهيرة. يحب العديد من الأشخاص زيارة مواقع الويب الخاصة بالبالغين فقط لتلبية احتياجاتهم. ينفق بعض هؤلاء الأشخاص الكثير من المال لمشاهدة مقاطع الفيديو الإباحية الناعمة هذه. غالبًا ما يدفعون مقابل كل مقطع فيديو أو حتى بالدقيقة.

يمكنك توفير الكثير من المال من خلال مشاهدة xnxx الناعمة عبر الإنترنت. ليس عليك أن تدفع ثمن الفيلم. لا يتعين عليك دفع رسوم العضوية. وأفضل ما في الأمر أنه يمكنك اختيار مقطع الفيديو الذي تريده بالضبط. عندما يتعلق الأمر برضاك الجنسي ، فإن الإباحية الناعمة هي الحل.

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munaqashat al’iibahiat alearabia

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‘awal earabiin ealaa al’iitlaq yushahid fylmaan ‘ibahyaan yutarjam ‘iilaa “al’aflam al’iibahiat la tuhalu ‘illa bi’iidhn alhakm”

hdha fi eam 632 m. faqat baed wafat alnabii muhamad (sla allah ealayh wasalm) yusbih aya shakl min ‘ashkal almawadi al’iibahiat ghyr maqbul fi al’iislami. tushir sijillat alhadith ‘iilaa ‘ana edm tasamahih aldiynii hu aldhy ‘adaa ‘iilaa tahrim almawadi al’iibahiat fi al’iislami. al’iibahiat , bikul ma fiha min ‘aghrad khabithat , laysat ‘asl alshari fi al’islam wala yataghadaa eanha aldiyn.

hnak wafrat min almawadi ealaa Xnxxsex.net taearad makhatir al’iibahiat , bd’ana min alkarahiat aldiyniat al’iislamiat ‘iilaa altahayuz althuqafi. lkna alshay’ alwahid aldhy yatafiq ealayh aljamie hu ‘ana al’iibahiat ghyr masmuh biha fi aldiyn al’iislami. faqat eindama tusaytir al’iislamufubia ealaa alqadiat , yudrik alealam algharbia alliybiralia faj’atan ‘ana hadhih mushkilatan bialfael. hadha hu baldbt sbb ‘iitlaq qanawat ‘iislamiat mueayanat ealaa al’iintarnit. la tasmah hadhih alqanawat bi’ayi shakl min ‘ashkal aleuriyi , hayth ‘ana almawada al’iibahiat mamnueat sraht fi al’iislami. kama la yusmh bimumarasat qadr dayiyl min aljins li’anah yantahik mabda “alrukushat”.

aiktasabat aldawlat al’iislamiat fi aleiraq wasuria (daesh) aydana sumeatan kawnuha sarimatan eindama yataealaq al’amr bialsuluk al’akhlaqi. laqad ‘atlaquu ‘iisdaratihim alkhasat min XNXX HD sex videos. ealaa almar’ ‘an yadhak eindama yaraa 2.1 milyun mushahadat lfydyw yuzhir rjlaan yatajawal mae aimra’at ealaa zahrih wasaqiha ealaa alsryr. hdha alfidyu lays msyyana lil’ashkhas dhwyu aleaqliat aldiyniat fahasb , bal aydana li’ayi shakhs ladayh waey ‘akhlaqiun layiq.

alan , qad yatasa’al almar’ , limadha aldawlat al’iislamiat fi aleiraq wasuria sarimatan lilghayat eindama yataealaq al’amr biara’ al’iibahiati? rubama hadha hu aljawabu. fikr fi kayfiat tawzie jamieat alduwal alearabiat libaramijiha altilfizyuniati. alnisa’ fi aldawrii mutalibin biairtida’ alniqab ‘athna’ mushahadatihin altilfaz. wamin almuthir lilaihtimam ‘ana jamieat alduwal alearabiat tabuthu almawada al’iibahiat faqat eindama tahtawi ealaa sur li’iisa’at mueamalat al’atfal ‘aw taedhibihim.

rubama taraa jamieat alduwal alearabiat fayidat taswir nafsiha ealaa ‘anaha taqdimiat wadiniawiat eindama yataealaq al’amr bialqim al’akhlaqiati. rubama ‘adrakuu ‘ana dwlana ‘ukhraa mithl alsewdyt satusab bialsadmat min muhtawaa alqnat alty qararuu bithha.

rubama hnak alkthyr min alqadaya al’akhlaqiat alty yjb muealajataha eindama yataealaq al’amr bitatbiq qawanin alshryet fi alealam al’iislami. rubama fi almarat alqadimat alty tujad fiha mushkilat tataealaq bialmuqamarat wayatabadar ‘iilaa aldhahn , yjb tadhkir aldawlat al’iislamiat fi aleiraq wasuria bihazr almawadi al’iibahiat al’iislamiat , ‘aw rubama yanbaghi ealayhim ‘akhadh ‘iisharatan min jamieat alduwal alearabiat walmutalibat bitatbiq alshryet ealayha. jmye alqanawat altilfizyuniat fi jmye ‘anha’ alealm?

ybdw ‘ana aldawlat al’iislamiat fi aleiraq wasuria atabaet almithal aldhy rasmih hizb allah wa’umirt mahattatih altilfizyuniat bieadam bathi alqanawat alty trwwj liltarfih walnashat aljinsii kharij nitaq alziwaj. wahadha yashmal tilfizyun hizb allh. kama tadamanat qunatayn taeridan almuqamarat wa’iielanat alkuhul wamuhtawaaan lilbalghin.

hadhih ‘aydaan mamnueatan bmwjb alshryet al’iislamiti

ldhlk , haziat aldawlat al’iislamiat fi aleiraq wasuria bishaebiat bayn mezm alealam alearabii bimawaqifiha almutashadidat min jmye ‘ashkal al’iielam waltirfihi. kama yushir ‘iilaa aitijah jadid lilhukumat al’iislamiat alty tafrid raqabatan ealaa jmye ‘ashkal altaebir alty tuetabar ghyr muhtaramat lidaynihim wamujtamaeihim

mae mithl hadhih almashakil alriqabiat alty tuajih hizb allah wasuria , min almamul ‘an tahdhu dual earabiatan ‘ukhraa hudhuha qrybaan. ‘iiran , almashhurat bimawqifiha almuthir liljadal min alturfih algharbii , qad takhudh zimam almubadarat li’anaha tusaytir ealaa qanawat tilfizyuniat mutaeadidatin. kama dhakarna sabqana , tatatalab alshryet al’iislamiat ‘an yakun almar’ fi halat qudhrat , wabialttali , yumkin li’iiran bshwlt tamrir qanun yahzur aya shakl min ‘ashkal almawadi al’iibahiat swa’ kan dhlk fi shakl tilfizyun ealiin aldiqat ‘aw ‘aflam ‘aw maqturat ‘aw maqturat siriyat lil’aleab ‘aw muntajat akhraa.

qad yashhad mustaqbal al’iibahiat Porn alshrq al’awsat muhawalat almazid min alduwal litatbiq qawanin ‘iislamiat sarimat dida alqanawat al’iibahiat alearabiati. ymkn ‘an yahduth hdha bialtazamun mae juhud alduwal alearabiat lihajb almawaqie alty tazhar mawada fadihat fi alshrq alawst.

hdha bsbb almakhawif min ‘an yusbih almazid min alnnas fi alshrq al’awsat mudminayn ealaa almawadi al’iibahiat wayabda’uwn fi taswir maqatie alfidyu al’iibahiat alkhasat bihim limusharakatiha mae al’asdiqa’ wa’afrad al’usrat wabaqiat alealam. yjb ealaa almar’ ‘an yatasa’al ‘iilaa mataa sayasmah alealam lihadhih almawaqie ‘an tazala maftuhatan watueaziz alqadharat ealaa hisab almujtamae kakl. hunak shay’ wahid muakad , ‘iidha bada’at ‘aqsam alshurtat waljumarik walhijrat fi ‘iighlaq almawaqie alty trwwj lilmwad al’iibahiat fi alshrq al’awsat , fa’iin al’intrnt sayufqid ‘akthar ‘aedayih qimat.

asset protection puerto rico
Christian Reeves

Asset Protection for a Puerto Rico Act 20 Business

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Once you have your Act 20 business in Puerto Rico up and running, you need to think about protecting its retained earnings or distributed profits. Asset protection for a Puerto Act 20 business  becomes urgent because of the amount of capital held in the company tax deferred.

There are two levels of asset protection for Puerto Rico Act 20 companies. The first is retained earnings within the Puerto Rico LLC or corporation and the second is asset protection of dividends taken out under Act 22.

When you operate an Act 20 business based in Puerto Rico from your home in the United States, you get tax deferral at 4%. That is to say, if the business owner is living in the US, you can hold  Puerto Rico sourced profits in the corporation tax deferred.

You will pay 4% tax on the net profits earned from work done in Puerto Rico. This cash must stay within the Puerto Rico corporate structure to continue to be tax deferred year after year. When you distribute those profits as a dividends to the US based owner, you will pay US tax on the qualified dividend at 20% to 23.5% + your state.

If you’re operating a business in Puerto Rico under Act 20, and living in Puerto Rico while qualifying for Act 22, then you can withdraw the corporate profits from the corporation each year. This is because residents of Puerto Rico pay zero tax on dividends from an Act 20 Puerto Rican business.

When it comes to protecting the assets of your company, remember that Puerto Rico is a US jurisdiction. Any US judgement will be enforceable in Puerto Rico just as it is in any other State. As a result, you must take steps to protect your cash without changing its status as tax deferred “offshore” profits.

The best asset protection for Puerto Rico Act 20 businesses is to move your cash out of Puerto Rico and into a safe and secure bank. We have relationships with a number of banks in Switzerland, Germany and Austria that will open accounts for your Act 20 company and allow you to hold retained earnings offshore and out of reach of civil creditors.

The next level of asset protection for a Puerto Rico Act 20 company is incorporating offshore subsidiaries. This is done to put a layer of insulation between the Puerto Rico company and the assets held offshore. We can form a corporation in Panama, Cook Islands, Cayman Islands, or any other solid asset protection jurisdiction to manage your corporate capital.

In order to maintain the tax benefits of tax deferral, these offshore companies must be wholly owned subsidiaries of the Puerto Rico Act 20 company. For example, we form a Panama Corporation owned by the Puerto Rico company. This gets us access to all of the banks and asset protection benefits of Panama and allows us to maintain our tax deferral status.

For this reason, we can’t use other more advanced techniques. It would not be possible for the owner of the Act 20 business to create a Cook Island Trust and fund the trust with retained earnings. Once those profits moved from the Puerto Rico company to the Cook Island Trust, they would become taxable in the United States as a distribution.

This limitation applies only to retained earnings. Residents of Puerto Rico operating under Act 22 may use any means necessary to protect their personal after tax assets from future civil creditors. Remember that, unlike a business based offshore, once you have paid your 4% corporate tax and withdrawn the dividends tax free, this is “after tax” money. You can invest and do with it whatever you like, just as you can with money taken from a US business after paying 40% in taxes.

If you’re new to the Puerto Rico tax holiday, and would like to compare it to traditional offshore tax plans, see Puerto Rico Tax Deal vs Foreign Earned Income Exclusion and Move Your Internet Business to Cayman Islands Tax Free

One of the best asset protection systems is to have capital paid directly to a Cook Island Trust. This will maximize the asset protection afforded your dividend distribution and keep it out of the reach of any civil creditor.

We can make arrangements for the dividends to pass directly to the Trust and bypassing any risk of a civil creditor reaching them. We can also setup a subsidiary of the Puerto Rico company in the Cook Islands to facilitate this transfer and the related cash management.

Another offshore asset protection strategy for Puerto Rico Act 20 business will allow you to carry forward the tax benefits of Puerto Rico once you move away from the island and no longer qualify for Act 22.

Let’s say you’ve been operating your Act 20 business for 5 years and have been living in Puerto Rico all of this time. You’ve taken out $10 million in tax free dividends, with the only tax paid being 4% to the government of Puerto Rico.

You’ve had enough of island life, your business has run its course, and are want to return to the United States. Once you make the move, all capital gains, dividends and passive income earned on that $10 million will become taxable by the IRS and your State.

One option is to invest this money into an offshore single pay premium life insurance policy. Money held in the policy will be protected from future civil creditors as well as the US taxing authorities.

This is because capital gains earned within the US compliant offshore life insurance policy are tax deferred. You only pay US tax on the gains if you close out the policy or otherwise remove the cash. Of course, you are free to borrow against the life policy with no tax cost.

If you hold the policy until your death, then the total value will transfer to your heirs tax free (or with a step-up in basis). If you put in $10 million, and it’s grown to $20 million, you’re heirs get $20 million tax free… and the only tax you ever paid on any of that cash is the 4% to Puerto Rico. Quite an amazing tax play.

I hope you’ve found this article on asset protection for a Puerto Rico Act 20 business helpful. Please contact me at info@premieroffshore.com or call (619) 483-1708 for more information on setting up your business in Puerto Rico or on protecting your retained earnings within that structure.

E-2 Treaty Investor Visa
Christian Reeves

US E-2 Treaty Investor Visa Tax Strategy

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Moving to the US on with the E-2 Treaty Investor Visa comes with a very big hidden cost. You are by definition a US tax resident and required to pay US tax on your worldwide income AND report your foreign assets to the US government each year. Here’s how to reduce or eliminate that tax cost for the E-2 Treaty Investor Visa.

First, a few words on the E-2 treaty investor visa. This US residency program allows you to live in the United States so long as you are operating a business that employs a few American citizens. If the business shuts down, you will be asked to leave.

The E-2 treaty investor visa requires two things: 1) you must be from a treaty country, and 2) you must make an investment in the US by starting a business here. For a list of treaty countries, see the US Department of State website. I think you will be surprised with who’s in and who’s out.

The E-2 treaty investor visa is not a path to a green card nor US citizenship. It’s a residency visa that allows you and your family to live in the US while you are working here and employing a few people. Most investors start a business with about $200,000 and hire around 5 employees including the owner (you, the E-2 treaty investor).

The E-2 treaty investor visa doesn’t have a minimum investment amount nor a minimum number of employees. In my experience, businesses that are well funded through break-even with $200,000, and which will add 4 jobs to the economy (5 including the owner) are likely to be approved.

A person in the US on an E-2 treaty investor visa is expected to be running the business on a day to day basis. This is not a program for passive investors. It’s for those who want to start a small business in the US and work in that business each and every day.

  • Passive investors should go with the EB-5 Investor Visa. Here’s a tax strategy article for that program: Coming to America Tax Free with the EB-5 Visa and Puerto Rico. The EB-5 visa gives you a green card and US citizenship within 5 years but requires 10 employees and an investment of $500,000 to $1 million.

The E-2 treaty investor visa is a “temporary” residency visa that needs to be renewed every few years. Basically your case officer will check to see that the business is operating and the you are employing the agreed number of persons.

Because of its temporary status, you should have a plan to return to your home country once the business has run its course. As a practical matter, these companies can operate for decades. So, as long as the business is profitable, or you can keep it going by adding more cash, you can reside in the US. But, during the application process, we need to show a plan to return home.

E-2 Treaty Investor Visa Tax Issues

Because you are operating the business from the United States to qualify for the E-2 visa, all income earned in that corporation is US source income taxed at about 35% Federal plus your State (0% to 12%). This is to be expected when operating from the US.

What’s often not expected is US tax on your worldwide income.

Here’s an example of the E-2 visa tax trap: Let’s say you bought a house in Colombia in 1995 for $100,000. You move to the US in January of 2016 on the E-2 treaty investor visa and sell the home for $1 million in March of 2016 (yes, Colombia has an E-2 visa treaty).

You pay 10% in capital gains tax to Colombia on the sale, which is that country’s standard tax rate. In addition, you report the entire sale on your US tax return for 2016. The US capital gains rate is about 23.5% and you get a tax credit for the 10% paid to Colombia using the Foreign Tax Credit.

As a result, you owe the US Federal government 13.5% x $900,000 gain or $121,500 on the sale of your home in Colombia. If you’re living in a high tax State like New York or California, you’ll pay an additional 10.5% in capital gains. A very expensive tactical error which could have been avoided by selling the home before becoming a US tax resident.

Note: Had the capital gains tax rate in Colombia been 24% rather than 10%, you would owe nothing to the US Federal government and only paid State tax on the gain. That is to say, if the taxes paid in your home country are higher than the US rate, the Foreign Tax Credit will step in and prevent double taxation. ‘

The same tax expense will apply as long as you are in the US on the E-2 treaty investor visa program. All capital gains, interest income, income from businesses operated outside of the US, and income from any source, will be taxed in the US less any foreign taxes paid.

E-2 Treaty Investor Visa Tax Strategy

Careful tax planning is required before the E-2 visa applicant moves to the United States. Once you’re a tax resident, many planning opportunities are closed. For a high net worth individual, the tax costs of moving to the US can far outweigh the costs of starting the business and complying with the requirements of the E-2 visa.

For example, our Colombian could have sold his home before moving to the US and saved a lot of money and reporting hastle. Other possibilities are that he could have gifted his home to a family member or his heirs, sold it to an offshore trust, or otherwise disposed of it before coming to America.

And the same goes for brokerage accounts and other passive investments. There are a variety of offshore trusts, life insurance structures, and tax strategies that will allow you to manage assets for the benefit of your heirs and avoid US capital gains on any sales.

Also, special consideration should be paid to the US death tax. In certain circumstances, an E-2 visa holder is a US resident for income tax purposes but not for estate tax purposes. If someone was to die in that situation, they would be taxed in the US on all of their US assets and allowed only a $60,000 exclusion. US citizens get a $5.2 million estate tax exclusion.

US trusts and other planning tools should be considered to ensure the E-2 visa holder gets the full $5.2 million exclusion. None of us like to talk about death, but it’s an important conversation to have prior to moving into the United States.

As for an active businesses, different rules apply depending on whether the company is controlled by the US resident or whether it’s a joint venture with a nonresident partner. “Control” means ownership or control of more than 50% of the business.

If you, the E-2 visa applicant, sell or transfer half of their foreign business (not the E-2 business) to a family member who will operate it while you are in the US, you may realize significant tax savings in the US. Note that I am referring to an active partner and not a nominee director.

There is one way to enter the US on an E-2 treaty investor visa and pay zero tax to the US government. If you setup your business in the US territory of Puerto Rico, you will pay only 4% in corporate tax on the profits earned from that endeavor.

Next, if you are a resident of Puerto Rico, and spend 183 days a year on the island, you will pay zero capital gains taxes and zero tax on dividends from your Puerto Rico company.

Combine these two tax strategies together and you get a 4% tax rate on business profits and zero tax on passive income, dividends and capital gains. Compared to the 45% rate some Americans in high tax states pay, this is an amazing offer.

And, as a US territory, an E-2 visa from Puerto Rico is identical to an E-2 visa from New York or California (except for the tax rate of course). You’ll have full access to the United States and the right to come and go as you please. Travel between Puerto Rico and the United States is a domestic flight and there’s no immigration checkpoint.

The tax holiday in Puerto Rico for businesses is Act 20. The holiday for personal income and capital gains is Act 22. For more on this, see: How to Maximize the Tax Benefits of Puerto Rico

Note that my articles on Act 20 and 22 are focused on US citizens moving their businesses to Puerto Rico. We can also combine Act 20, 22, and the E-2 treaty investor visa to get you residency in the US without the tax bill.

I hope you have found this article on US E-2 Treaty Investor Visa Tax Strategy helpful. Please contact me at info@premieroffshore.com or call (619) 483-1708 for more information. I will be happy to assist you to build a business in the US or Puerto Rico and qualify for residency.

investing offshore
Christian Reeves

Lessons from Madoff: Investing Offshore & High Risk Transactions

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Investing offshore and asset protection have become a central theme of the Madoff case in 2016. The US trustee wants to clawback as many of the payments made by Madoff to his clients prior to the fund imploding. Those who got out early want to keep their gains. Only sophisticated parties investing offshore have been safe so far.

See the link at the bottom of this article for an update posted Nov. 23, 2016.

Here’s a bit of background on Madoff and the issues raised by those investing offshore in to his funds.

When you invest in to the US from an offshore company, you might be protected from government clawbacks. This is especially important when you make a high risk investment and that “opportunity” goes south. By investing offshore you can protect your returns from government seizure.

The case being decided this week involves the trustee attempting to take about $21.5 million from the billionaire brothers Charles and David Koch. They invested in Madoff’s US fund through an offshore feeder they controlled. In addition, the trustee has filed 86 cases and is attempting to collect $2 billion from offshore accounts.

To date, the trustee, Irving Picard, has collected $11 billion dollars from companies and investors in the United States but none from offshore. Profits earned by those investing offshore and through international structures have been out of the reach of the US government.

And, this being America, you can be sure that the lawyers are making a killing. Mr. Picard billed more than $10 million per month for a 4 month period in 2015. He’s billed about $700 million through June 2015… obviously working very hard in the public interest.

Once the trustee collects all he can, and takes his cut, he will distribute the remainder to every investor in the Madoff fraud. Each will get a pro rata share of the recovered money. Obviously, this will be pennies on the dollar for those who came into the ponzi scheme late.

And US judges have ruled in several cases, including this one, that money transferred overseas by Madoff to his investors is out of the reach of the US trustee liquidating Madoff’s company and personal asset.

The basic idea of the extraterritoriality defense is that US courts cannot impose their rules and laws on defendants in foreign countries (In re Bernard L. Madoff Investment Sec., LLC, No. 1:12-ms-00115-JSR, Dkt. No. 551 (S.D.N.Y. July 7, 2014)). This principle applies to offshore structures owned by US persons and offshore funds domiciled offshore and operated from the United States.

That’s the basic rule. How it gets manipulated in large litigation is another matter. You’ll find that the rules of law are often manipulated by lawyers to maximize their profits.

US trustees are financially incentivised to bill as many hours as possible to sue anyone and everyone they can find…. When a case like Madoff comes along, it’s a feeding frenzy.

Keep in mind that Madoff’s ponzi scheme was was the largest ever uncovered. There were an estimated $18 billion in customer losses and over 60,000 persons or entities have filed documents to collect from the trustee. Because of the amount of cash at their disposal, the litigators have filed cases in Austria, Italy, Bermuda, BVI, Cayman Islands, UK, Gibraltar, Ireland, Switzerland and Luxemborg.

  • Notice that countries with strong asset protection laws, such as Nevis, Panama, Cook Islands and Belize are not on this list. Filing claims there would be a waste of time, even with unlimited resources at your disposal.

That’s not the norm. In most cases, trustees have some financial constraint. They can’t spend $50 million to collect $5 million. In smaller cases, having invested from abroad means the US lawyers won’t even attempt to collect from you… they don’t have the budget to file claims in foreign jurisdictions.  

The takeaway from this article is that offshore structures provide the savvy investor a level of protection not available to the average person. Where the US trustee has collected billions from US companies, funds, and individuals who took out profits from the Madoff scam, he has yet to reach the $21 million earned by Koch or the nearly $2 billion paid out to other similarly situated foreign and professional investors.

Please don’t read this article as a “how to guide” to build an offshore scam! The extraterritoriality defense for offshore investments applies only to innocent parties.

Picard isn’t accusing Koch and the other defendants in his many cases of being a part of the fraud. Koch took their profits 2 years before anyone knew Madoff was a giant ponzi scheme and had nothing to do with the crime.

Madoff’s offshore network was quickly dismantled by the US government. Once you’re accused of a crime, the extraterritoriality defense no longer applies. It’s only available to innocent bystanders (be they offshore companies or persons) and not the perpetrators of the fraud.

In the case of the Koch brothers, they invested in Madoff’s fund through an offshore feeder they owned. While Madoff’s Cayman feeder funds have been broken up for years now, Koch’s structure has held back the trustee.

UPDATE November 23, 2016: The US appeals court has ruled in favor of the Koch brothers, ending the case and preventing the US trustee from collecting nearly $2 billion from offshore companies and funds. For more, see the NY Times article, Kochs and Other Madoff Investors Are Winners in Fight Over Profits Held Abroad

I hope you’ve found this article on the lessons to be learned from Madoff and going offshore with high risk investments to be helpful. Please contact me at info@premieroffshore.com or (619) 483-1708 for information on setting up a business or fund offshore.

taking your business offshore
Christian Reeves

Step by Step Guide to Taking Your Business Offshore

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If you are going to take your business offshore in 2016, your offshore structure must have substance. No more shelf companies, no more nominee directors, no more trying to fake out the IRS. Taking your business offshore today demands a real office, employees, and work being done offshore.

Here is a step by step guide to taking your business offshore. I’ve assisted hundreds move their businesses abroad over the years and we’ll be happy to work with you to take your business offshore is a tax compliant and efficient manner.

Step 1: Develop a tax and business plan

We always say taxes shouldn’t drive the business… don’t let the tail wag the dog. But, most clients take their business offshore because they want to lower costs – both tax and overhead. If you didn’t want to cut costs and improve the bottom line, you would stay where you are in the United States.

When considering your overhead, focus on employees. Most countries will have lower wages than the US. The issue will be finding quality English speaking workers. How difficult that will be will depend on the level of work you require.

If you’re running a call center, then finding workers will be easy. If you are moving a software development business abroad, or require skilled engineers, finding the right people will be a challenge.

Then there are two types of tax plans. One for small businesses focused on the Foreign Earned Income Exclusion and a second for larger businesses that uses a transfer pricing model.

The Foreign Earned Income Exclusion plan is relatively simple: live outside of the US for 330 out of 365 days, or become a resident of another country, and you get up to $101,300 in salary from your offshore business tax free. If a husband and wife both operate the business, then you get up to $200,000 free of Federal Income Taxes.

Taking a large business offshore is a complex matter. Companies with net profits of $1 million and up need a more robust tax plan. This is especially true if you will have offices in the US and offshore.

These companies go offshore using a transfer pricing model that assigns income to the foreign subsidiary based on the amount of value added by that division. Likewise, the US group is taxed on value they create.

Let’s say you’re selling a widget for $100 that costs you $10 to make. Of this $90 profit, half can be reasonably attributed to the work done offshore and half to the US team. Thus, $45 of the profit is “transferred” the the low tax jurisdiction and half remains in the US.

If you would like me to create a custom tax plan for your business, please contact me at info@premieroffshore.com or call (619) 483-1708. I will be happy to work with you to build a comprehensive and compliant tax strategy.

Step 2: Select your country of operation

Now that you have a tax plan, select the best jurisdiction to implement that plan. Your country of choice should have a compatible tax scheme that doesn’t tax foreign sourced profits. When done right, you can operate tax free in many jurisdictions.

As I said above, your country of operation must have low cost and qualified labor, especially if you will use the transfer pricing model and not the FEIE model. If you will be the only employee in the FEIE, then this doesn’t matter – live wherever you like that won’t tax your profits.

Balanced against tax and overhead is the quality of life. We chose to build our business in Panama for the reasons described above. However, Panama City is horribly humid and congested. If big city life is not for you, then look elsewhere.

For example, Cayman Islands is a beautiful place to live. However, labor is very expensive, as is housing and everything else. Cayman is great for a one man online business but horrible for a call center looking to hire 50 workers.

Spend some time making a list of possible jurisdictions, noting the positives and negatives of each. Everyone’s priorities will be different, so this is on you. Also, keep in mind that I’m talking about minimizing tax in you country of operation and incorporation here in Step 2.

Step 3: Form a corporation in your country of operation

Now that you have prioritized and found where you will take your business offshore, it’s time to form a corporation. Do not use an LLC or other structure – you need a corporation so that you can retain earnings offshore.

This corporation will also handle your payroll, office rent, and local expenses.

Step 4: Form a corporation in a second tax free jurisdiction

You want to setup a second corporation in a second country. This entity will bill clients and may help minimize your taxes in your country of operation. Depending on your nation’s tax system, they may only tax profits you bring in the country. So, if your corporation breaks-even at the end of the year, you will pay no taxes there.

This second offshore corporation in a tax free jurisdiction is a key component to minimizing your worldwide taxes. It won’t make a difference for the US, but it should reduce or eliminate taxes in your country of operation.

Step 5: Move your intellectual property offshore and into a separate structure

If you have intellectual property, move that offshore as soon as possible. Doing this will provide asset protection and significant tax benefits, especially for non-US sales.

The catch is that IP built in the US must be sold to the offshore company at fair market value. This means you must value the IP and pay taxes in the US on the sale.

So, if you are in the beginning stages of taking your business offshore, setup an IP holding company and build the IP outside of the US. This eliminates the transfer tax issue.

For some of the considerations that go into transferring IP offshore, you might read this post about the IRS investigating Facebook’s Irish IP transfers.

Step 6: Setup banking and credit cards

You’ll need multiple bank accounts, including one in your country of operation for local expenses, one in your billing country, and possibly in the United States.

I also strongly recommend you get more than one e-commerce or merchant account. Once you move your business offshore, your life’s blood will be payment processing and the procedures offshore are very different than in the US. Spend time to build redundancies into these systems.

For a detailed post on offshore credit card processing, see How to Get an Offshore Merchant Account.

Step 7: In-house bookkeeping and accounting

When Americans take their businesses offshore, they often ignore bookkeeping and accounting. They figure they aren’t in the US any longer, so time to relax.

Unfortunately, the US IRS has every right to audit your offshore business. Likewise, when you file your foreign corporation return(s) on Form 5471, you must apply US accounting standards.

For this reason, I suggest that you have an in-house bookkeeper so that you stay on the straight and narrow. Maybe he or she is a full time employee, or maybe someone who comes in once a week to do the books. Either way, this is a key position to get right from day one.

Step 8: Find local professionals

When you take your business offshore, finding honest local professionals is key. Hook up with the wrong people and they’ll hit you with “gringo pricing” and take advantage of you at every turn. Get this right and you will have a supportive and efficient relationship for years to come.

I would have put this as step 2, but I wanted you to think through the above items first and then look for outside support. Take my advice and learn from my mistakes – don’t try to go it alone in an offshore jurisdiction.  

Step 9: Find US tax compliance

Now that your business is offshore, make sure you keep up with your US tax filing obligations. You’ll need to report your foreign corporations and international bank accounts to the IRS each and every year.

The most critical offshore tax form is the Report of Foreign Bank and Financial Accounts, Form FinCEN 114, referred to as the FBAR. Anyone who has more than $10,000 offshore will need to file this form.

The penalty for failing to file the FBAR is $25,000 or the greatest of 50% of the balance in the account at the time of the violation or $100,000. Criminal penalties for willful failure to file an FBAR can also apply in certain situations.

In addition to filing the FBAR, you must report the account on your personal return, Form 1040, Schedule B.

Other international tax filing obligations include:

  • Form 5471 – Information Return of U.S. Persons with Respect to Certain Foreign Corporations.
  • A foreign corporation or limited liability company should review the default classifications in Form 8832, Entity Classification Election and decide whether to make an election to be treated as a corporation, partnership, or disregarded entity.
  • Form 8858 – Information Return of U.S. Persons with Respect to Foreign Disregarded Entities.
  • Form 3520 – Annual Return to Report Transactions With Foreign Trusts.
  • Form 3520-A – Annual Information Return of Foreign Trust.
  • Form 5472 – Information Return of a 25% Foreign-Owned U.S. Corporation.
  • Form 926 – Return by a U.S. Transferor of Property to a Foreign Corporation.
  • Form 8938 – Statement of Foreign Financial Assets was introduced in 2011 and must be filed by anyone with significant assets outside of the United States.

Failure to file these forms can open you to all kinds of penalties and risks, so do it right and don’t fall behind. The penalties for failure to file an offshore form are much higher than for failing to file a typical domestic form late.

Of course, I hope you will select Premier Offshore to handle your US compliance needs. But, no matter who you choose, be sure it’s done right.

I hope you’ve found this article on taking your business offshore to be helpful. Please contact me at info@premieroffshore.com or call (619) 483-1708 if you would like assistance in planning and implementing your international business strategy.

risks to your IRA
Christian Reeves

Top 5 Risks to Your IRA

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Most Americans think that their IRA is safe… and they would be wrong. Our IRAs and retirement accounts face risks from all sides. Here are the top 5 risks to your IRA and what you can do to protect your savings.

1. IRS Levy of your IRA or other retirement account.

The Federal government and the Internal Revenue Service can size your IRA for any tax debt. If you owe the great collector, or the computer says you do, then your retirement account is at risk.

Note that the IRS doesn’t need to go to court or otherwise prove you owe back taxes. In fact, none of the debtor protection laws apply the the Service. Quite frankly, then can do whatever they like… or whatever the computer tells them to do.

This is true even if you didn’t file a tax return. Let’s say you’re living in Panama and earning $30,000 a year. This is well below the Foreign Earned Income Exclusion, so you figure you won’t bother file your US returns. You won’t owe any money, so why go through the hassle and expense?

Here’s one of the reasons why: The IRS will get information from your foreign banks and brokerages. They will also receive information from US firms (Form 1099). The computer will interpret 100% of this as income and prepare a Substitute For Return on your behalf.

The SFR won’t consider the FEIE nor any other deductions or adjustments. Once in the system, a tax debt will be created. The IRS will send out a few letters by standard mail, which you probably won’t receive, and then the debt becomes final.

The fun starts when a collection agent is assigned to your case. He will seize any cash he can find in US banks. When that fails, he’ll go after any offshore bank that has a branch in the US.

When those lines come up dry, he’ll issue a levy against your retirement account. He can take 100% of your retirement savings up to the amount of the tax debt. He need not leave you a penny to pay your bills or support yourself.

And it gets worse. When the IRS takes your IRA, it’s a taxable distribution to you. Yes, you get to pay tax on the money the IRS seizes as if you voluntarily took it out. At least the IRS waives the 10% early withdrawal penalty on levys.

Fyi… if you voluntarily withdraw money from your IRA to pay the IRS, the 10% penalty will apply (in addition to it being a taxable distribution). If your IRA is stuck in the US and at risk, you may be better off telling the government to levy the account rather than you taking a distribution.

2. Missed Child Support Payments

If you owe back child support, Child Services can seize your IRA using a Qualified Domestic Relations Order. This is a court order that requires the plan administrator (US custodian) to transfer funds to your ex / baby mama / baby daddy.

You might also like to know that the IRS and child support agencies can revoke your US passport. A passport is not a right, it’s a privilege bestowed on us Americans from on high. For more on this, see Warning: The IRS Can Now Revoke Your Passport.

3. Obama

Obama laid the groundwork for the takeover of your retirement accounts by creating a test program that required IRAs be invested in US treasuries. myRA, launched in 2012 and was “upgraded” in 2016. It’s a retirement plan for new savers that allows them to invest in safe treasuries… because they are obviously not capable of choosing their own investments.

Take a read through the government website. You’ll find all kinds of references to safety, security and protecting the American worker.

Expect these talking points to come into focus in the next two years in an all out push to move your IRA to treasuries.

Note that this is not a partisan issue. I believe that both Republicans and Democrats will be forced to convert our IRAs to treasuries in the near future. Soon enough, it will be Trump or Hillary telling us how the government needs to protect its citizens by taking over management of our retirement accounts.

4. Civil Creditors

If you get sued, your IRA is at risk. The US bankruptcy statute allows you to protect about $1.1 million of retirement assets from creditors. But, that requires you to qualify for and go through bankruptcy. As a part of this process, your creditors will be able to breach multiple domestic asset protection structures and get paid… maybe not from your IRA, but they will collect.

Any time a US judge is making decisions about your finances, expect her to side with the plaintiff. The US system is focused on making the injured party whole. Very little is done to protect your rights (the defendant’s rights).

Proper planning will move your IRA out of the reach of creditors without requiring you go through bankruptcy.

5. Currency and Stock Market Risks

China and every other country is dumping US treasuries and selling off US stocks fast. China’s stash of American stocks sank by $126 billion, or 38 percent, from the end of July through March of this year. China also sold off about 20% of their US treasuries.

Combine this with the fact that gold is on a tear, and the writing’s on the wall for the US dollar. Whether you think we are in for a correction or a catastrophe, it’s time to diversify your retirement savings.

What can you do to protect your retirement account from a government looking to shore up its treasuries, IRS seizure and civil creditors, and diversify out of the dollar?

Take your IRA offshore before it’s too late.

I suggest that the first step in implementing the myRa plan on a larger scale is to block future IRA transfers offshore. The US is likely to eliminate the loophole that allows you to take control of your retirement account and move it out of their grasp in the next year.

Most experts agree that those who are already offshore when the hammer comes down will be safe. It would be nearly impossible to reach offshore IRAs that are invested in immovable assets like real estate and hardwoods (one of the most popular investments offshore today).

However, it will be very easy for the government to close the door. One rule change by the IRS and no more offshore IRA LLC transfers. And, once that door shuts, I guarantee it won’t be opened again.

If you’d like more information on protecting your retirement account, please see my Offshore IRA LLC page.  We will be happy to assist you in structuring your retirement account offshore and opening bank and brokerage accounts for that structure.

If you believe your IRA is at significant risk from civil creditors, you might also take a read through Protect Your IRA by Converting it into an Offshore Trust. This is a specialized asset protection structure we have developed for high risk clients.

I hope you have found this post on the top 5 risks to your IRA to be helpful. Please drop me a line to info@premieroffshore.com or call (619) 483-1708 for a confidential consultation on taking your retirement account offshore.

Puerto Rico Act 20
Christian Reeves

What is Puerto Rico Sourced Income for an Act 20 Business

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Here’s how to maximize the value of your Puerto Rico Act 20 business using the income sourcing rules. Maximizing Puerto Rico sourced income in an Act 20 business, and thus minimizing US sourced income, is the key to unlocking the 4% tax rate offered in Puerto Rico.

The rule is simple: only Puerto Rico sourced income can be attributed to the Act 20 business and qualifies for the 4% tax rate. Likewise, income sourced to the United States is taxable in the United States at standard rates, even if you run it through a Puerto Rico Act 20 company.

If you’re new to Puerto Rico Act 20, the basics are this: set up a business on the island that employees at least 5 people and pay only 4% in tax on your corporate profits. The balance can be held tax deferred if you live in the US or taken out as a tax free dividend if you live in Puerto Rico.

EDITORS NOTE: On July 11, 2017, the government of Puerto Rico did away with the requirement to hire 5 employees to qualify for Act 20. You can now set up an Act 20 company with only 1 employee (you, the business owner). For more information, see: Puerto Rico Eliminates 5 Employee Requirement

To compare Puerto Rico to typical offshore tax plans, see: Puerto Rico Tax Deal vs Foreign Earned Income Exclusion

For such a simple statement, the Puerto Rico income sourcing rule sure causes a lot of questions. Especially for those who want to live in the United States and operate a business based in Puerto Rico. The same goes for US companies that open divisions in Puerto Rico to get that 4% corporate tax rate on a portion of their profits.

If you move you and your business to Puerto Rico, and break all ties with the United States, all business income will be Puerto Rico sourced income. This is because all of the work to generate sales made after the move will have occurred in Puerto Rico.

Another reason all income in an Act 20 business will be Puerto Rico sourced income is the type of activities that qualify for Act 20. A qualifying business will offer services from Puerto Rico to businesses and persons outside of Puerto Rico. Only service based income will qualify for Act 20.

Service based income is profit from work done in Puerto Rico. Compensation for labor is always taxed where the work is performed. It doesn’t matter where the customer is located… only where you and your employees are when doing the work.

Note that wholesale distribution of products can qualify for Act 20. This is because you are performing the service of sourcing, manufacturing, and/or importing goods that will be sold outside of Puerto Rico.

This only applies to wholesale operations based in Puerto Rico selling to a distributor in the United States. Retail sales, such as selling online to buyers in the US, is not Act 20 income and will be fully taxed in both the United States and in Puerto Rico.

Of course, there are many types of income that could be earned in Puerto Rico. But, only service based income will qualify for Act 20 tax benefits.

Here is a list of the various types of income and where they are sourced.

Item of Income Where Income is Sourced
Salaries, wages, and other compensation for labor or personal services Where labor or services are performed. This is the heart of Puerto Rico’s Act 20 for businesses.
Pensions Contributions: Where services were performed that earned the pension
Investment earnings: Where pension trust is located
Interest Puerto Rico if you are a legal resident of the island under Act 22
Dividends Where corporation or LLC is incorporated. Dividends from an Act 20 corporation will be tax free in Puerto Rico to a resident of the territory who qualifies under Act 22.
Dividends from US states are taxable where the company is formed.
Rents Location of property
Royalties on patents, copyrights, trademarks, etc.: Where property is used. If used by the Puerto Rico company, then taxed in Puerto Rico. Special benefits can apply to intellectual property created in in Puerto Rico.
Sale of business inventory—purchased Where sold. If you sell a physical good (inventory) in to the United States, you have US sourced income. For this reason, all Puerto Rico Act 20 businesses must offer a SERVICE and not sell inventory.
Sale of business inventory—produced Allocation if produced and sold in different locations
Sale of real estate Taxed where the property is located
Sale of personal property Seller’s tax home. Personal property includes such things as cars, trucks, money, stocks, bonds, furniture, clothing, bank accounts, money market funds, certificates of deposit, jewels, art, antiques, pensions, insurance, etc.

Above, I gave you the example of the perfect client – someone who moves herself and her business to Puerto Rico, breaking all ties with the United States. Such a person will maximize Puerto Rico sourced income and thus minimize her total taxes.

For more on this topic, see: How to Maximize the Tax Benefits of Puerto Rico

If you want to live in the United States and operate through a Puerto Rico company, determining Puerto Rico sourced income becomes much more difficult and contentious.

The rule is simple enough: Any value added in Puerto Rico is Puerto Rico sourced income and any value added in the United States is US sourced income. So, if you’re selling an online service for $50, and $25 of the value of that service comes from your 5 employees in Puerto Rico, then half your net profits can be attributed to Puerto Rico.

When you’re attributing income between the US with its 35% Federal + state taxes and Puerto Rico at 4%, you will want to maximize the perceived value of the work done in Puerto Rico.

For small businesses, you can look at the amount of hours spent in Puerto Rico vs the US. You can also estimate the value of work done in Puerto Rico by how much you would be willing to pay an independent and unrelated firm to provide those services to your US company.

When income sourcing between Puerto Rico and the US is a major issue ($1 million or more), then you need to hire a professional. Many large accounting firms have groups specialized in producing transfer pricing studies between the territory and the US. They will create a pricing model that will stand up to IRS scrutiny and remove any risk should you be audited.

The cost for a transfer pricing study will vary widely the the firm selected and the type of business you are operating.  I’ve seen quotes of $6,000 to $65,000 by big name firms in California and New York, as smaller providers in Puerto Rico.

I hope this information on what is Puerto Rico sourced income for an Act 20 business has been helpful. For more information, please contact me at info@premieroffshore.com or call (619) 483-1708. I will be happy to help you structure your business in Puerto Rico.

panama residency
Christian Reeves

How to get Residency in Panama Using Your IRA

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Here’s how to get residency in Panama using your IRA or other US retirement account. If you want to get residency in Panama through investment, you can use your retirement account in one and only one opportunity.

First, let me mention the rules in play when you make an investment and get residency in Panama using your retirement account. These rules significantly restrict your options to get residency, but there is one path open you you.

Note that, even when you take your IRA or other retirement account offshore, you must follow all US IRA rules. If you get caught cheating, your entire IRA may be considered distributed, taxes due on the total amount (not just the amount used improperly), plus a 10% penalty for early withdrawal and other charges.

The most important IRA rule is that you can’t receive a personal benefit from investing your IRA. So, you can’t simply invest $x in Panama and get residency in return. The residency permit must be done as a side deal not directly related to the investment made by your IRA.

Second, you can’t borrow from your retirement account. As the owner of an IRA, you are prohibited from borrowing against the account for more than 60 days. Therefore, you can’t borrow from your IRA to invest in Panama. The investment must be made by your IRA and the asset must be titled in the name of your IRA or your IRA LLC.

Third, let’s consider the residency programs in Panama. For a complete list, see my article Top 6 Panama Residency Programs.

The options that require an investment are the Person of Means visa, the Friendly Nations Visa, and the Reforestation Visa.

Because a person with a US retirement account is likely a US citizen, and thus from a “friendly” nation, we will ignore the Reforestation Visa option. That visa is intended for people not from friendly nations. This is because the friendly nations investment program requires an investment of $20,000 and the reforestation visa requires an investment of $80,000. For a list of “friendlies”, see: Best Panama Residency by Investment Program.

So, we’re left with the Friendly Nations visa and the Person of Means investment offerings.

In order to qualify for residency in Panama using the Person of Means visa, you must a) deposit $300,000 in a bank account in Panama, 2) buy a home for at least $300,000, or 3) invest a minimum of $100,000 in a two-year certificate of deposit in a bank located in Panama and buy a home in Panama. The combined total of your CD and real estate should be at least $300,000.

The Person of Means visa requires that the bank deposit, CD, and/or real estate be in your name. You can’t use a corporation or trust. Because the investment in Panama for the Person of Means visa must be titled in your name, this program is not compatible with the US IRA rules.

Your IRA LLC, or assets purchased with your retirement account, must be titled in this manner:

US Custodian, Inc. FBO Your Name IRA # 55-55555555

Remember that, even after you take your IRA offshore through an IRA LLC, you will have a US custodian involved. You will be in control of the account and the custodian will be responsible for annual filings in the United States.

FBO = For the Benefit Of

And here lies the conflict – any investment made by your IRA must be titled in the name of your account. If you’re using an offshore IRA LLC, the investment can be titled in the name of your LLC. Under no circumstances may an IRA investment be titled in your name.

If you were to use IRA money to buy a home, CD, or deposit into a bank account in Panama, and that account is in your name (not in the name of your IRA), this would be a distribution subject to US taxes and penalties.

Now we’re left with the Friendly Nations visa. If you want to invest in Panama using your IRA or other retirement account and get residency in return, this is the only option available.

And the only investment compatible with both the IRA rules and the Friendly Nations Visa is teak. If you invest $20,000 in teak, you will get residency in Panama for free (included in the investment amount.

When you invest in teak to get residency in Panama through your IRA, you need to break-out the investment and the costs associated with residency. To avoid self dealing, you invest about $16,000 in teak through your IRA and pay other fees of about $4,000 from your personal savings (not your IRA account).

You will get teak of the same value had you invested $20,000 and avoid the IRA self dealing rules. And you and your family may all apply under the Friendly Nations visa with an investment in teak.

Note that this Panama residency option also avoids the issue of titling. You can hold the investment in teak in the name of your retirement account or in the name of your IRA LLC and process the Friendly Nations visa under your name.

If you would like to get residency in Panama using your IRA or other US retirement account, the Friendly Nations visa is your friend. For more information, please contact me at info@premieroffshore.com or call (619) 483-1708. We will be happy to work with you to get residency using your IRA.