Four Steps to Building an Offshore Bank
Christian Reeves

Four Steps to Build an Offshore Bank

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When building an offshore bank, there are four steps you must work through. Here’s what you need to plan for and understand when building an offshore bank. These are the four steps to taking an international bank from permit to operational.

First, keep in mind that this article is focused on offshore banks. That is, an international bank formed in a low or zero tax country. One that will do business with people and companies outside of its country of licensure.

Second, these four steps to building an offshore bank are general guidelines. Every jurisdiction has a different set of laws and many use different terminology for these categories. For a complete guide to forming an offshore bank, see my 300-page book, Offshore Bank License Guide, 2017 (Amazon Kindle edition)

The top jurisdictions for an offshore bank are Puerto Rico, Caymans, Belize, Dominica, St. Lucia, Panama, and Switzerland. Puerto Rico issues about 25 licenses a year, while Cayman and the rest issue 1 to 2, depending on the year. Belize hasn’t issued a new license in about 7 years. Puerto Rico’s International Financial Entity license is dominating the industry in 2018.

Because of the popularity of cryptocurrency and ICOs, the value of banks in Switzerland and elsewhere have increased dramatically in the last year. For example, I’m aware of an offshore crypto friendly bank with European and US correspondent accounts that are on the market at $100 million in Bitcoin.  

With that said, here are the four steps to building an offshore bank:

  1. Permit to Organize / Incorporate,
  2. Compliance, AML, IT, Employees, Office, etc.,
  3. Correspondent Bank Account, and
  4. Operating License

The first step in building an offshore bank is your permit to incorporate or permit to organize. We also refer to this as your preliminary license. With this permit, the government is basically saying they will allow you to build and open a bank in their country.

In order to obtain a permit to organize, you must submit a very detailed business plan and financials to your government regulator. You must also file information on each officer, director, and the person involved in the business (including police reports, references and personal, financial data). All of this will be used to judge the group’s banking expertise and ability to run a clean and professional international bank.

This first step is often the most urgent for a startup. Once a government gives you the green light, you can go out and raise money, build out the business, and do those things necessary to launch the bank. It’s during this stage that most offshore banks need the most help to navigate the complex application process.

Once you have your permit to organize, you have the government’s permission to incorporate an international bank. It’s after the permit is issued that you will spend money on building out an office, hiring employees, drafting your detailed operating manuals, building a compliance program, and purchasing hardware and software.

Certain jurisdictions have an employment requirement and some do not. For example, Puerto Rico requires a minimum of 5 employees on the island (the largest IFE has 450 employees). Dominica doesn’t have a fixed number, but you should have account opening and compliance based on the island.

In some countries, you’ll need a secure office environment for your servers and client files. The government will come in to check your facilities before issuing a permit to operate. The same goes for computers and software… the government will come in and test these before allowing you to go live.

The third step in forming an offshore bank is negotiating a correspondent account, is the step that most ignore in the beginning. However, securing a correspondent partner is by far the most difficult task after the permit to organize is issued.

You should be prepared to spend some serious money on consultants and lawyers. You probably spen1 $100,000 to $250,000 to get a permit to organize. Most spend $50,000 to $100,000 on lawyers to negotiate a correspondent account.

Plus, you’ll need capital to fund this account. While you can get a permit to organize in Dominica with $1 million in capital, you’ll need much more than this to secure a quality correspondent partner. Most have $3 to $7 million in funds on top of their corporate capital by the time they go in search of a correspondent bank.

And this is why the government first issues a permit to organize. Then you build out your systems, hire your people, and negotiate your correspondent account. If you need to raise money, you can do so after receiving your permit to organize.

  • Note that you generally don’t need to put up any capital until you’re ready to launch and are applying for your permit to operate.

However, you won’t get your permit to operate unless and until you have a correspondent banking partner. You must have a correspondent bank in place before any government will allow you to go live.

Once you have all of your systems, documents, and people in place, and a signed agreement with a correspondent partner, you can request an operating permit from your regulator.

During this process, government regulators will audit your books, test your security, and meet with your people. They’ll check everything to ensure you’re running a quality bank. One that won’t bring trouble or risk to the island.

Because most of the work with the government was done during the permit to organize stage, the permit to operate should be easy. If you’ve spent money and hired the right people, then this will be a standard audit…. A mechanical process. Regulators will come in and be impressed with your professionalism.

If you’re trying to start an offshore bank on a shoestring budget, the permit to operate will be a challenge. If you don’t have a top-notch compliance person on staff, the government will look at you very closely. If you haven’t purchased a well-known core banking platform, tests will be more in depth.

I hope you’ve found this article on the four steps to build an offshore bank to be helpful. For more information, please contact us at info@premieroffshore.com or call us at (619) 483-1708. We’ll be happy to assist you throughout the offshore bank licensing and operating process.

How to trade cryptocurrency and manage investments for others without a license
Christian Reeves

How to trade cryptocurrency and manage investments for others without a license

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I get a number of emails from readers each week asking how they can manage money for friends and family offshore. They want to trade cryptocurrency and make investments for others without going to the expense of setting up a licensed and regulated exchange. So, here’s how to trade cryptocurrency and manage investments for others without a license.

When you want to trade crypto or other assets for anyone other than yourself, you need an account that allows you to hold other people’s money. Banks are very cautious when it comes to those trading on behalf of others or managing investments without a license.

First, banks don’t want to be fined for facilitating money laundering. Banks paid hundreds of millions in the last few years for “allowing” their customers to avoid taxes and launder illicit gains. The bank might not have had any idea what was going on, but their due diligence procedures weren’t stringent enough to catch the wrongdoers, so they were fined big time.

Second, banks and governments don’t want anyone without a license managing other people’s money. Brokerage and investment management licenses and regulation is big business. If you don’t want to pay, you won’t be allowed to play.

Third, banks must follow strict Know Your Client (KYC) rules. When you open an account, the bank checks you out and thereby knows you, their customer. If you then receive friends and family or customer money in your bank account, the bank doesn’t “know” the true beneficial owner of the money. The actual owner is one level removed from the person the bank “knows.”

Setting up an offshore corporation and hoping for the best is not a good idea in today’s world. Banks are watching for the source of funds on most wires. They will check outflows and for anyone using their account to manage OPM. If you try to hide, you’ll be caught and kicked to the curb.

Against that backdrop, here’s how to trade cryptocurrency and manage investments for others without a license.

When you don’t want to set up a regulated exchange, which can cost $35,000 to $250,000, depending on the country, you can use offshore LLCs and a trading corporation to accomplish your goals.

You, the trader form an investment corporation and a management LLC. Then, each and every client forms an offshore LLC. Yes, every single client, friend, or family, must have their own offshore corporation. Only a husband and wife can have a joint LLC.

Next, all of these structures open offshore accounts at the same international bank. In this way, the bank has done its due diligence on you and your customers. Everyone has been reviewed and approved by the bank and transfers will be permitted between the group of companies.

Once everyone has been approved, the client LLCs can issue a Power of Attorney to your management LLC. With this Power of Attorney on file with the bank, you will be allowed to manage the investments of these clients and transfer funds into your investment corporation.

This multi LLC offshore investment management structure ticks all the right boxes. It allows you to manage client funds and for the bank to do its KYC on everyone involved. Because all the accounts are at the same bank, transfer costs are minimized and the source of funds won’t be questioned.

A separate LLC system to trade cryptocurrency and manage investments for others without a license works well with large investors. Because of the setup costs, it’s not efficient for smaller clients or selling investments to the general public.

This practical limitation is positive for banks. They don’t want someone operating an unregulated offshore hedge fund selling to mom and pop investors. This will only bring trouble and litigation to the bank. They like larger accounts, larger deals, and sophisticated investors.

This system also allows sophisticated investors to put more advanced structures in place. For example, they might want to trade within an international trust for estate and asset protection reasons. High net worth investors might want to hold the LLC inside an offshore life insurance company to eliminate US tax on the capital gains.

You can also use this structures to create private entities in countries with public registries. For example, let’s say you want to invest in Panama. That country has a public registry of corporate shareholders and directors and a list of beneficial owners of foundations (their version of a trust).

To keep your name out of the registry, you can set up an offshore LLC in a country like Nevis or Belize that doesn’t have a public registry. Then, this LLC can be the founder of a foundation or the officer and director of a Panama corporation. In this way, the beneficial owner (you) won’t be listed in the registry.

When someone searches the Panama database, all they’ll see is the name of your Belize LLC. When they go to Belize for more information, they’ll hit a brick wall.

Whether this offshore LLC structure is cost-effective will depend on how many clients/friends and family you plan to manage. In most cases, the base corporation might cost $3,500 and each LLC $2,000 to $2,900 to set up (not including bank fees).

The largest structure I’ve seen like this was 3,400 LLCs and two management corporations in Switzerland. Why, you ask, would someone spend that kind of money on LLCs? Because they don’t want to go through all the compliance and regulation that comes with a fully licensed exchange.

Had they decided to operate as an investment manager in Switzerland, they would have had to hire someone with the necessary Swiss licenses and go through a very arduous registration process. The multi LLC model eliminated both of these requirements.

Plus, once you have a license, you have quarterly filing, KYC and AML compliance, and all manner of regulations to contend with. When you use separate offshore LLCs, it’s a private transaction between you and your friend/client.

Finally, this system allows some clients to move their retirement accounts offshore. They could form an offshore IRA LLC and transfer some or all of their vested retirement savings into that entity. Then, that LLC could issue a POA to you, the trader.

As you can see, this multi offshore LLC approach to trading cryptocurrency and managing OPM for others without a license can be a very powerful tool.

I hope you’ve found this article on how to trade cryptocurrency and investments for others without a license to be helpful. For more information on setting up a regulated or unregulated crypto trading business, please contact me at info@premieroffshore.com or call us at (619) 483-1708. We’ll be happy to assist you with an offshore structure and banking.

President Trump’s Tax Plan and Expats
Christian Reeves

President Trump’s Tax Plan and Expats

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You’ll find a lot of partisan bickering on the web about President Trump’s tax plan. Here’s my effort to give you the facts and just the facts (a la Joe Friday of Dragnet) on how President Trump’s tax plan affects expats and Americans living abroad.

Keep in mind that this article is focused on US citizens living and working abroad. US persons who qualify for the Foreign Earned Income Exclusion in 2018. I’ll leave State tax issues and changes to the code that don’t affect expats to others.

You’ll find that Trump’s tax plan made some cuts around the margins, but didn’t include expats in the corporate tax changes. Sure, we get the 2 to 4% reduction all Americans get, but we’re not affected by changes that will save multinationals billions.

Historically, US corporations have been taxed on their worldwide income. Double tax was eliminated with the Foreign Tax Credit and they could retain earnings offshore tax-deferred. But, when earnings were repatriated, they’d be taxed at ordinary rates.

President Trump changed all of this for big corporations. He moved corporations from a worldwide tax system to a residency-based tax system (also referred to as a territorial tax system). Businesses will pay US tax on their US sourced income and zero US tax on their foreign sourced profits. Trump also closed billion-dollar loopholes like the ability to move US source income offshore with payments for intellectual property.

We had hoped that American expats would get the same benefits. That individuals would move from a worldwide tax system to a residency based system. That we would pay US tax on US income and no tax on foreign sourced gains.

This didn’t happen. American citizens living abroad are still taxed on our worldwide income. I guess we expats weren’t a large enough voting block or that we didn’t donate as much to the campaigns as the multinational corporations.

As a result, we still must look to the Foreign Earned Income Exclusion and the Foreign Tax Credit to keep Uncle Sam away from our ordinary income (wages or business income). The FEIE for 2018 increased to $104,100, up from from $102,100 in 2017. The FEIE amount for 2016 was $101,300, 2015 was $100,800, and 2014 was $99,200.

This increase is based on the annual inflation adjustment for 2017 which applies to more than 50 provisions in the US tax code. For all the details see IRS Rev. Proc. 2017-58. It does not come from Trump’s tax plan.

One aspect of Trump’s move to a residency based system affecting the FEIE is a focus on residency. That is to say, the IRS seems to be moving away from the 330-day test and towards the residency test.

The IRS has figured out that auditing expats who are using the 330-day test to qualify for the Foreign Earned Income Exclusion is very profitable. Thus, they’re putting a lot of resources into targeting this group.

As a result, I’m telling my clients to convert to the residency test and conform with how the IRS now views corporations. Become a resident of a low tax country, making that your home base, and stop using the 330-day test to qualify for the Exclusion.

From the IRS’s perspective, you can be a resident of any country you like and qualify for the Exclusion. So long as it’s your home base, where you plan to live for the foreseeable future, and you where have a residency visa, you’ll qualify for the FEIE using the residency test.

The last of those criteria, getting a residency visa, is usually the most challenging. In my experience, the easiest country to get legal residency in is Panama. Simply invest $20,000 in Panama’s Friendly Nations Reforestation Visa and you’re in.

Where most countries require you to buy real estate or invest a large amount of money to start a business, Panama allows you to invest a relatively low amount in their green initiative and receive residency. For more, see Best Panama Residency by Investment Program.

Most expats shield the majority of their ordinary income from the IRS using the FEIE or the Foreign Tax Credit. Thus, the fact that Trump lowered personal tax rates by 2% to 4% makes little difference. You don’t pay US tax on your ordinary income anyway. And, if you do, you should be operating your business through an offshore corporation.  

What does affect most expats is US tax on capital gains. This rate remains unchanged at 20% (assuming the Obamacare tax is repealed). As a result, US citizens pay US tax on all capital gains, no matter where they live and no matter where the property or asset is located. If a US citizen living in Belize sells real estate in Belize, he or she will owe 20% on long-term capital gains tax to Uncle Sam.

What will help expats is that the standard deduction doubled under Trump’s tax plan. A single filer’s deduction increases from $6,350 to $12,000. The deduction for Married and Joint Filers increases from $12,700 to $24,000.

The vast majority of US expats will save big on their US taxes because of this change. We expats rarely have a mortgage on our international properties. Therefore, we don’t deduct mortgage interest on Schedule A and thus don’t itemize. An increase in the standard deduction will go directly to our bottom line in a dollar for dollar decrease in US tax on our capital gains.

This tax break is balanced against the loss of the personal exemption.  You can no longer deduct $4,150 for each dependent. As a result, expats with large families will see an increase in tax, even considering the increase in the standard deduction.

A change that affects new expats is the loss of the moving expense deduction. When you move abroad for work, you can generally deduct all moving expenses. For most expats, this amounts to thousands of dollars in the year they leave the United States.

I hope you’ve found this article helpful. The most important takeaway for most expats using the Foreign Earned Income Exclusion is that you should spend 2018 working toward the residency test. Whether you chose Panama, Belize, Nicaragua, or elsewhere, you need to get started as soon as possible.

Why you should issue an ICO in Cayman Islands
Christian Reeves

Why you should issue an ICO in Cayman Islands

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The top two jurisdictions for ICOs in 2018 are the Cayman Islands and Switzerland. Most companies focusing on the EU and UK markets issue from in Switzerland and those from Asia and the Americans will be in Cayman. Here’s why you should issue an ICO in the Cayman Islands.

I chose Cayman to write about because it’s the jurisdiction of the largest ICO in history. As reported in Business Insider on December 20, 2017, Block.one, a software startup registered in the Cayman Islands had sold $700 from tokens, called EOS, in an initial coin offering. The Block.one ICO is still the largest ICO ever.

I also recommend Cayman because of the connections to China. When a large Chinese company, such as Alibaba, issues an IPO in the United States, they do it through a Cayman Islands subsidiary. It’s natural for these companies to issue through Cayman.

Let me start by noting that all ICOs from the Cayman Islands will be regulated. As such, they must comply with international laws.

  • That this article is focused on ICOs. Cayman is also the preeminent jurisdiction for cryptocurrency funds, that’s a story for another day.

For example, if you want to sell into the United States market, you must follow all SEC rules. For most, this means offering only to accredited investors and enforcing a lockup period. For others, this will mean registering in the US, much like an IPO. The Cayman Islands will expel any company that doesn’t follow international laws.

In this article, I am focused on ICOs where the buyers receive a share of the profits of the business. A form of business funding that the SEC and others consider the equivalent of selling shares.

An ICO is an alternative method of fundraising for a project on the blockchain or startup business. Tokens, which give the buyer some share of the business, or the profits of the business, is exchanged for fiat currency.

In contrast, a use token gives the buyer a right to a product or to use the service. For example, if Uber had sold tokens to raise money, those tokens would give buyers a certain number of rides on the service.

A use token is not a regulated investment while an ICO is akin to selling shares of stock and treated as an IPO in most countries. Most ICOs have been pushed offshore while the sale of use tokens can be done from the United States.

ICOs have flourished in Cayman, even though the government has yet to issue regulations or guidance. In contrast, it seems that Switzerland will issue regulations in the near future.

In my opinion, Cayman is one of the two a hotspots for quality ICOs because of its long history as a leading international finance center. The government and regulators are seen as top notch… business friendly with an eye to compliance and global acceptance. Regulators are sure to support this business-friendly climate while safeguarding the reputation of the jurisdiction by meeting international KYC, AML and compliance standards.

When planning an ICO in the Cayman Islands, your council must consider the following statutes:

  • The Money Services Law
  • The Securities Investment Business Law
  • The Proceeds of Crime Law, Anti-Money Laundering Regulations and existing guidance notes
  • The Mutual Funds Law (applicable to cryptocurrency funds)
  • FATCA and the Common Reporting Standards
  • Beneficial Ownership Regime
  • Electronic Transactions Law

The focus of Cayman regulators will be in KYC and AML compliance, as well as watching out for Securities issues (for example offering tokens in the US to non-accredited investors). The bottom line is that regulators are looking for anything that could give the island a black eye on the world stage.

For these reasons, Cayman is competing with Switzerland for the top crypto ICO jurisdiction. Note that I’m talking about where the ICO is issued and not where the business is operated from. Very few, if any, ICOs operate from Cayman. The only exceptions might be those in the tax-free zone. For more on tech startups operating from Cayman, see: Move Your Internet Business to Cayman Islands Tax Free.

Even Cayman cryptocurrency funds are being run from outside. The best tax system for Cayman crypto funds is to operate as an Act 273 International Financial Entity in Puerto Rico. But, because of the startup costs, this is limited to larger funds. Setup might cost $150,000 and capital required is $550,000.

Most of our clients in Cayman use a two company structure. One in their low tax and low-cost country of operations (such as Panama or Mexico) and one in their country if issuance (Cayman Islands). Those in Mexico typically add a company in a low tax country like Panama to manage their Mexican tax issues.  

ICO issuers often exclude buyers from their country of operation. For example, a business issuing from Cayman and operating from Panama might not sell tokens to citizens or residents of Panama. When operating from Mexico, they might only offer tokens to accredited investors (any person with annual investments in securities of $458,000 USD or with an annual income of $152,000 USD). For more on Mexico, see: Fintech and Cryptocurrency Law in Mexico.

URGENT NOTE: Before you consider an ICO in the Cayman Islands, please read through this post: The Offshore ICO Scam and Cayman Islands Corporations.

I hope you’ve found this article on why you should issue an ICO from the Cayman Islands to be helpful. For more information on issuing anICO from Cayman or Switzerland, please contact me at info@premieroffshore.com or call us at (619) 483-1708. We’ll be happy to assist you to build your structure, draft your offer documents, and issue the ICO from a top jurisdiction,

Where can I travel without a passport?
Christian Reeves

Where can I travel without a passport?

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The US IRS will begin certifying tax debts on January 22, 2018. If you have a “seriously delinquent” tax debt, your passport can be revoked. Likewise, the government can refuse to renew your passport if you owe more than $50,000. Here’s where you can travel without a passport after it’s been revoked by the IRS.

I’ve been writing about this since December 2015, and it’s finally come to pass. The IRS will begin targeting American expats who haven’t paid their taxes in the next few days. Once your passport is gone, your travel options will be greatly reduced.

Before I get to where you can travel without a passport, let’s consider the situation for a minute.

I suggest that this bill targets Americans living abroad because, unless you have a second passport in hand, the loss of your US passport will force you back to the United States to deal with the IRS. For most Americans living in the US, the loss of their “travel privileges” is of little concern.  The ones who will be hit the hardest will be Americans living, working, and doing business abroad.

This is especially true for expats who don’t have permanent residency in a foreign country. If you’re traveling as a tourist, you’ll be forced back to the United States in a few days or months. If you’re a temporary resident, you’ll be required to return and account to the IRS when your temporary status expires. You won’t be able to apply for permanent residency status if your US passport has been revoked.

If you have a permanent residency visa, you should be able to remain in your country of residency. You won’t be able to travel or leave your country of residence without a valid passport. However, the IRS can’t easily force you home unless you lose your permanent visa status.

If you think you’ll have a tax issue in the future, or can keep the IRS at bay with an Offer in Compromise, you might apply for residency in a country like Panama. All you need to qualify is an investment of in this country’s friendly nations reforestation visa program. While there are many countries where you can get residency, Panama is the lowest cost quality jurisdiction for those from a friendly nation.

Of course, the question of where you can travel without a passport becomes mute if you purchase a second passport. So long as you have a valid travel document from a country like St. Lucia, the IRS can’t force you back by revoking your US passport.

But, once your US passport has been revoked, and you’re back in the United States, where you can travel without a passport? The following is based on a decade of experience. This article is not a statement of the law, but rather how things work at the border.

First, you won’t be able to fly to any country without a passport. No airline will risk allowing you to fly if you don’t have a passport. Remember that the airline is responsible for returning you to your home country if you’re denied entry.

So, that means you have only two options of where to travel without a passport. You can drive to Canada or Mexico. Because Canada can be quite picky about whom they let in, the safest port of entry is Mexico.

If you travel within the Border Zone (usually up to 20 kilometers south of the US – Mexico Border) or the Free Trade Zone (including the Baja California Peninsula and the Sonora Free Trade Zone) no passport will be required by Mexico. However, if you wish to pass these zones, you’ll need a passport and, if you’re driving a US car, your auto will need a permit.

The maximum period of time you’re supposed to stay in Mexico without a formal visa is six months. However, when you arrive by land, there’s no entry stamp and no way for the government to know how long you’ve been in the country. In my experience, so long as you don’t cause any trouble, the Mexican government won’t bother you.

In order to return to the United States, you’ll need a valid US ID and your birth certificate. While many websites say you need a US passport, including official government sites, I’ve asked immigration officers and they say you can pass with a birth certificate and photo ID. The last time I inquired was 2 days ago, so this is recent information.

By the way, I’m assuming that the US IRS will revoke all travel documents if you owe more than $50,000. This means the loss of your US passport, your US passport card, and your SENTRI card. US passport cards and SENTRI cards are only valid at land crossings (Mexico and Canada).

I haven’t seen any statements by the IRS or immigration on passport and SENTRI cards. It’s possible they would remain in effect if you lost your passport.

With that said, I don’t see any practical reason a US person couldn’t drive from San Diego to Tijuana and live in Baja indefinitely without a passport. Your chances of having a problem with Mexican authorities is low and you should be able to return to the US occasionally without a passport.

Where you’ll have issues is opening a local bank account and getting an apartment lease. It would be best if you can get these done before losing your US passport.

With all of that said, the best place you can travel without a passport is Northern Mexico. Again, this is 20 kilometers south of the US – Mexico Border and Baja California. All of my experience has been in Baja, from Mexicali to Tijuana and Playas to Ensenada. In 10 years of travel in Northern Mexico, I’ve never once been asked for a passport.

I hope you’ve found this article on where you can travel without a passport to be helpful. For information on setting up an offshore structure while you still have your passport, or with Panama residency or purchasing a second passport, please contact us at info@premieroffshore.com or call us at (619) 483-1708.

Take your IRA offshore and invest in cryptocurrency
Christian Reeves

Take your IRA offshore and invest in cryptocurrency

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I expect cryptocurrency to remain a hot IRA investment in 2018. Almost every call we get these days is about investing in cryptocurrency offshore. Clients want to manage their crypto offshore in private and avoid the IRS audits we all know are coming. So, here’s how to take your IRA offshore and invest in cryptocurrency.

When I talk about cryptocurrency, I don’t mean only bitcoin and ethereum. What’s hot are all the altcoins and forks. Altcoins like AAC, ACT, Bitcoin Cash, Monero, Ardor, sia coin, and others. And, we see about 20 forks coming in 2018. A few exchanges, such as OurDax.com, guarantee that they’ll pass along all of these forks to their users.

The best way to avoid IRS audits of your crypto account, and the coming war in the United States, is to setup your account offshore. The way to gain access to the best trading platforms is through an offshore company. The best way to gain access to altcoins and forks is to take your IRA offshore and invest in cryptocurrency. The way to participate in top ICOs is to invest through an offshore structure.

So, here’s how to take your IRA offshore.

The first step is to move your account(s) to a custodian that allows for international investments. This is usually a US custodian that supports offshore LLCs like Midland IRA or Entrust. The most popular custodian for crypto investors is Midland, but there are several which offer this service. Neither of these companies is associated with Premier.

The reason I say you’ll probably need to move to a new custodian is that none of the big firms support offshore investments. The big guys, like Fidelity and Merrill Lynch, make their money by selling you their investments. When you go offshore, the custodian no longer is in control and doesn’t earn a commission on your trades.

And not all self-directed custodians allow for international investments. Firms like IRA Services in California allow US LLCs but not offshore LLCs. In order to move your retirement account out of the United States, you need a US custodian that is experienced in offshore structures.

Once your account is with the right custodian, we can form your offshore IRA LLC. We will work with you to select the best jurisdiction, form the company, draft the operating agreement and other documents, and open your bank and/or crypto accounts.

In most cases, we’ll open both a bank account and a crypto account. You will sell your US investments and transfer cash offshore. It’s rare that a US custodian allows for like-kind exchanges. Though, we have seen some with self-directed accounts move offshore by transferring crypto, thereby avoiding tax on the sale.

Once your IRA LLC is set up and funded, you can trade cryptocurrency in private. You’ll also have access to a number of smaller altcoins that are not available in the United States.

The same goes for ICOs. The US SEC has pushed most ICOs out of the country. Only the very largest and best-funded companies can issue a US compliant ICO. This means that US ICOs will be from companies that have already gone through many rounds of funding, with venture capitalists taking big bites of the pie.

If you want to invest in a true startup, then you need to do so offshore. If you want to invest as a VC, and get in on the ground floor, you need to invest offshore using an IRA LLC.

And, of course, you’re not limited to investing in cryptocurrency. You can buy gold, hold multiple currencies, invest in foreign real estate, and just about anything else you wish. You must follow all US IRA rules, but you’re in control and you select the investments that fit your risk tolerance.

Note that you can’t buy a house and live in it with retirement money. You can invest in rental properties, with the rental profits and gains flowing back into your retirement account. For more on this, see: Can I buy foreign real estate with my IRA?

One popular hedge offshore is to purchase physical gold in your IRA. You can buy gold through a bank, such as Caye Bank in Belize, and hold it as a hedge against crypto and fiat currencies.

And some banks, such as Caye, allow you to borrow against your physical gold. We have clients purchasing gold and borrowing against it to trade crypto. For more on the rules around buying gold with your retirement account, see: IRA Gold Rules.

But, watch out for IRA lending rules and UBIT. When you borrow in an IRA, you must use a non-recourse loan. Also, Unrelated Business Income Tax can apply if you don’t have a UBIT blocker corporation in place.  For these reasons, I recommend that only the most sophisticated IRA investors use leverage in their account.

The bottom line is that taking your IRA offshore will give you access to the best altcoins, ICOs, forks (IFOs), exchanges, and high yield investments. Add to this the max privacy and asset protection you get, and you see why offshore IRA LLCs are so hot in 2018.

I hope you’ve found this article on why you should take your IRA offshore to invest in cryptocurrency to be helpful. For more information, please contact us at info@premieroffshore.com or call us at (619) 483-1708 for a confidential consultation.

mexico banking license
Christian Reeves

Capital Requirements for a Banking License in Mexico

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When applying for a new banking license, you must have a certain amount of capital. This article is on the capital requirements to apply for a banking license in Mexico. Note that this is the amount of cash you need to have to apply for the license. To operate the bank, you must maintain an 8.5% reserve and a 2.5% reserve in Mexico.

The amount of capital required for a banking license varies greatly from country to country. The lowest capital amount for a respected jurisdiction is the US territory of Puerto Rico. An international banking license in Puerto Rico required $550,000 in capital. $250,000 in paid-in capital and $300.000 in a CD held in a local bank.

In the Caribbean, most jurisdictions require $1 million to $5 million in capital. This is one of the reasons Puerto Rico issued 24 licenses last year and Caribbean financial centers issued 1 or 2 depending on the country.

For more information, you can read my 300 page Offshore Bank License Guide on Amazon Kindle.

Without any more adieu, here are the capital requirements for a banking license in Mexico.

A. A required minimum capital of $27.5 million USD for banks that carry out the following activities:

  • Take deposits
  • Take loans
  • Issue debt
  • Issue subordinated debt
  • Make deposits in foreign financial institutions
  • Grant loans and debt purchase transactions
  • Act as guarantor
  • Issue third party letters of credit
  • Carry out transactions involving securities
  • Issue convertible debt
  • Carry out commercial transactions
  • Trade gold, silver and foreign currency
  • Offer security deposit boxes
  • Issue letters of credit
  • Act as trustee
  • Offer escrow accounts
  • Act as agent for bondholders
  • Act as payment agent for security issuers
  • Offer bookkeeping services
  • Act as estate trustee
  • Act as agent in a bankruptcy procedure
  • Offer appraisals
  • Purchase and sale of real estate for the bank´s use
  • Leasing transactions
  • Derivatives transactions
  • Factoring transactions
  • Offer payment mechanisms

B. A required minimum capital of $16.5 million USD for banks that carry out the following activities:

  • Take deposits
  • Take loans
  • Issue debt
  • Issue subordinated debt
  • Make deposits in foreign financial institutions
  • Grant loans and debt purchase transactions
  • Act as guarantor
  • Issue third party letters of credit
  • Carry out commercial transactions
  • Purchase and sale of real estate for the bank´s use
  • Leasing transactions
  • Derivatives transactions

C. A required minimum capital of $11 million USD for banks in the following categories:

I. Banks that carry out transactions only with Institutional Investors (as defined below), Qualified Investors (as defined below) or legal entities:

  • Take deposits
  • Take loans
  • Issue subordinated debt
  • Offer escrow accounts

II. Banks that carry out the following activities:

  • Make deposits in foreign financial institutions
  • Carry out transactions involving securities
  • Issue convertible debt
  • Carry out commercial transactions
  • Trade gold, silver and foreign currency
  • Act as trustee
  • Act as agent for bondholders
  • Act as payment agent for security issuers
  • Offer bookkeeping services
  • Act as estate trustee
  • Act as agent in a bankruptcy procedure
  • Offer appraisals
  • Purchase and sale of real estate for the bank´s use
  • Offer payment mechanisms for the bank´s use

III. Banks that carry out any of the following transactions with authorized payment mechanisms:

1. Transactions involving:

  • Deposits
  • Loans
  • Deposits in foreign financial institutions
  • Grant loans and debt purchase transactions with other financial institutions
  • Transactions involving government or bank bonds
  • Transactions with foreign currency:
  • Commercial transactions
  • Trade gold, silver and foreign currency.

D. A required minimum capital of $27.5 million USD for banks that carry out a mix of the transactions listed above that does not fit in any of the aforementioned categories.

Definitions

Institutional Investor: Insurance companies, investment funds or pension funds.

Qualified Investor: Any person with annual investments in securities of $458,000 USD or with an annual income of $152,000 USD.

Conclusion

I hope you’ve found this article helpful. For more information on setting up an international bank, please contact me at info@premieroffshore.com or call us at (619) 483-1708.

You can also read my 300-page book on the topic on Amazon Kindle. Click here to go to Amazon’s site.

Cryptocurrency Mexico
Christian Reeves

Fintech and Cryptocurrency Law in Mexico

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As other countries wait for government officials to dictate what happens with cryptocurrency and Fintech Companies, Mexico just took a big step forward. After making several adjustments to the proposed bill, Mexican senators finally approved with 102 votes in favor and none against a law that regulates financial technology companies in Mexico. Delegates still need to vote to approve the measure, but this is a major step forward.  

Mexico has a lot to gain with the approval of the Fintech and Cryptocurrency Law and the mainstream adoption of bitcoin. About 44% of the Mexican population doesn’t have a bank account due to the mistrust that exists between citizens and financial institutions. That’s 29 million Mexicans that don’t have a bank account and live on cash.

The transparency that comes with cryptocurrency transactions might fix this problem. If the bill becomes law, and it’s not there yet, it will create a Fintech solution for the unbankable. Let’s take a moment to take a look at some of the most interesting key aspects of Mexico’s Fintech Law.

One of the main points of the Fintech Law is to increase the level of financial inclusion throughout the country, promote competition and provide legal certainty to participants in the sector, contributing to the improvement of the national financial system. There are over 158 Fintech companies in Mexico that will benefit from having an established framework from which to operate.

This is especially true for cryptocurrency exchanges. They require specific laws and quality regulation. In order to maintain banking and other relationships, cryptocurrency exchanges need to be in a regulated environment where their business partners know what to expect and that the exchange is operating within a specific legal framework.

When cryptocurrency exchanges began offshore a few years back, most were looking for countries with no regulation. Exchanges thought they could operate outside of the KYC, AML and compliance systems.

These exchanges quickly found it was impossible to get correspondent banking relationships. Also, it was difficult to transfer crypto from an unregulated exchange to a regulated exchange in a quality jurisdiction such as the United States.

As a result, international cryptocurrency exchanges began seeking countries with specific cryptocurrency laws and regulations. When operating from within these boundaries, the exchange has access to banks and other providers. Outside of the system, clients have no way to convert their bitcoin to FIAT money.

Today, these countries are Mexico in the Latin American region and Switzerland in the European region.

Article 36 of the Fintech and Cryptocurrency Law details the requirements that will be needed for a cryptocurrency exchange to be granted authorization to operate. The exchange will have to set a minimum capital to perform their activities in agreement with the provisions issued by the Comisión Nacional Bancaria y de Valores (CNBV).  The minimum capital may vary depending on the type of activities they perform and the financial risk they face can be read in the Fintech Law bill that was approved by Senate. The amount of capital has not yet been determined.

In order for a Fintech or Cryptocurrency Exchange to start operating, they must be authorized by the CNBV, be a Limited Liability Company, and have a domicile in Mexico. They must also have a corporate governance structure, operating systems, keep their accounting logs up to date, have a strong security system, as well as offices and operating and compliance manuals.

The bill permits banks and cryptocurrency exchanges to share their applications or technological interfaces, called API (Application Programming Interface), without violating the financial secrecy that is key for its function.

CNBV must receive authorization from the Bank of Mexico to approve a Fintech company, to give legality to its operations. A Fintech company in Mexico must inform their clients about the volatility and unpredictability of virtual assets, the risks of fraud, and that transactions may be reversed by governing bodies.

The Fintech Companies must inform their clients of the risk involved receive a signed contract from their clients indicating they understand. The law specifies that the government will not be responsible for any sort of financial reimbursement to users in the event of fraud, so businesses will be required to communicate this on their website and disclose this before entering into a contract with them.

A Financial Technology Council will be created that consists of 12 members, which will include representatives of the CNBV, the tax authority, and Banxico. Their goal will be to encourage the exchange of opinions and solve any problems that occur with the Fintech and Cryptocurrency Exchange Companies. They will meet at least once a year.

Article 44 of the Fintech Law, which refers to the limits that the authorities should set for this type of platform, states that limits in which these companies may operate will differ based on the type of client, type of project, type of transaction and when established by the CNBV or the Bank of Mexico will have to take into consideration at least the regulation of other figures of the financial system subject to compliance with established principles in this Law and the protection of the interests of investors.

So, like Switzerland, Mexico is building an efficient cryptocurrency law that will protect investors and allow the business to grow. The negative with Mexico is their corporate tax rate of 30%. With changes to the US system, Mexico now has one of the highest tax rates in the region.

In order to reduce tax in Mexico, you might set up an offshore division and minimize income into the country. However, international transfer pricing and audit rules are very strict in Mexico, so be careful where you incorporate.

For example, it’s nearly impossible to get a deduction approved for a payment to a tax haven such as Panama. While the US treats all counties the same, Mexico is known to disallow expenses to tax havens.

Possibly the best option for a large exchange is a license in Mexico and your primary operations in the US territory of Puerto Rico. The Mexican office would handle marketing and support, and operations would be done from Puerto Rico.

Income sourced to Puerto Rico will be taxed at 4%. If the owners of the exchange are foreign persons (not US persons), dividends paid from Puerto Rico will be tax free. If the owners are US citizens and residents of Puerto Rico, dividends will be tax free under Act 22.

For more on Puerto Rico for cryptocurrency, see: Tax efficient structure for US cryptocurrency exchange.

For more on Puerto Rico’s many tax incentives, see: A Detailed Analysis of Puerto Rico’s Tax Incentive Programs.

I hope you’ve found this article on fintech and cryptocurrency law in Mexico to be helpful. For more information on setting up an exchange, please contact me at info@premieroffshore.com or call us at (619) 483-1708.