Articles - Page 14 of 21 - Premier Offshore Company Services

Foreign Assets and FBAR Reporting

10/29/2014/in /by Christian Reeves

Ever increasing U.S. reporting obligations on Americans living, working, and/or investing abroad, make it difficult to keep up. This is a review of your foreign assets and FBAR reporting requirements. Foreign assets are reported on IRS Form 8938 and the FBAR is sent to the Treasury on FinCEN Form 114 (Report of Foreign Bank and Financial Accounts).

These two forms are quite similar, and many are confused about when and why to file each. I note that you must file if you meet the reporting threshold. Basically, the IRS wants you to send in the same information twice… so they know exactly where your assets are and how they are invested.

Who Must File Foreign Assets and FBAR

The Statement of Specified Foreign Assets must be filed by U.S. citizens, resident aliens, and some non-residents if your reportable foreign assets are at least $50,000 on the last day of the year, or $75,000 at any time during the tax year. Note that higher levels apply to married couples.

The FBAR is required from any U.S. person, including citizens, resident aliens, trusts, estates and U.S. structures that have foreign bank account(s) with at least $10,000 at any time during the year. So, if you have a foreign account with $11,000 for just one day, and the rest of the year your balance is $5,000, you still must report. Also, if you have 11 accounts, each with $1,000, you have $11,000 offshore and thus must report all of these accounts on your FBAR.

Foreign assets you own are reportable on Form 8938. This is to say, if you would need to report income or gains from these assets on your U.S. return, you must report their existence on Form 8938.

As for the FBAR, an interest in a financial account means you have signature authority over the account or you are the beneficial owner of the account. If you have a right to tell the bank what to do with the funds, how to invest the cash, or instruct them to send a wire, you are the signor and need to report.

You’re the beneficial owner if you’re the owner of record or holder of legal title. For example, if you have $100,000 deposited in to an account, and then assign a nominee account manager, you are the beneficial owner of the account because the funds belong to you. The signor and nominee in this case is acting on your behalf.

What is Reported as Foreign Assets and on the FBAR

When you are reporting foreign assets or the FBAR, you must report the maximum value. For the FBAR, you report the highest value in the account during the year. If you are holding funds in a currency other than USD, you should use an average FX rate, or convert on the day the account balance is at its high water mark.

This means that the amounts reported on your FBAR might be artificially inflated by transfers, one time deposits, etc. For example, you have $100,000 in account A, and transfer that to account B, and then to account C, all within the same year. Your FBAR will show three accounts, each with $100,000. The government won’t know whether you have $300,000 or $100,000 offshore but it allows them to maximize failure to report penalties.

On the Foreign Asset report, you’re to list the maximum value of each foreign asset, which includes bank and brokerage accounts, and certain other assets. You should report the fair market value in USD for each account and asset reported.

* Foreign Account: Is any bank or brokerage account at a financial institution outside of the United States (see below). For the FBAR, if the bank has a branch in the U.S., but your account is held at a foreign branch, it must be reported. If you have an account at Citibank, Panama, you have a foreign account and need to file the FBAR.

The foreign asset report is due with your U.S. tax return, including extensions. So, Form 8938 is usually due on April 15 or October 15. The FBAR is due by June 30 and no extensions are available. If you file your return on April 15, you should submit your FBAR at that time. If you get an extension for our 1040, your FBAR is still due by June 30.

The FBAR should be filed online through the FinCens BSA E-Filing System. Please see my article on how to file this form electronically.

Foreign Reporting Penalties

The penalties for failing to file the foreign assets and FBAR forms are severe… and can include criminal charges. There are many Americans sitting in jail for not telling their Uncle where their assets are. Some also

UK to follow IRS Levy Rules

10/27/2014/in /by Christian Reeves

The U.K. tax authority to allow IRS Levy type actions. If you owe the HMRC, they now have the authority to seize your bank account and raid your assets, just like an IRS levy.

Now, it’s no surprise that the U.K. is following in the footsteps of the mighty IRS levy. It’s just interesting that it took them this long to do so.

I also find it interesting how strong the reaction against what we Americans think of as “normal” has been in England. For example, the primary body of accountants said that the HMRC had a record of making mistakes and should not be allowed to levy without court approval.

In its statement, the HMRC said that these regulations bring it in line with other tax authorities which already have the power to take money debts directly from an individual’s account, just like France and the U.S. Of course, advocacy groups respond saying the U.S. should not be regarded as a role model of what is right and just … just the opposite in fact.

Once interesting caveat of these new “draconian” laws that match the IRS levy system, is that the UK will leave 5,000 pounds in the person’s account so they can afford to pay for basic necessities. If the account holds 15,000, and the debt is 20,000, the U.K. gets to take 10,000.

The IRS levy system has no such requirement. So long as the U.S. IRS can find your account, they can empty it up to the amount of the alleged debt, including interest and penalties.

According to the U.K. Low Incomes Tax Reform Group, these new laws will allow the tax authority to run roughshod over low income persons who prioritize necessary payments over taxes.

“To allow the HMRC to raid their bank accounts without safeguards or recourse to the courts would be to flout the rule of law in a manner unworthy of a public service body. It is not the same as seizing physical goods, it is depriving the debtor of the very means to live. Given the way the HMRC continually fails to deal with taxpayers properly or fairly is hugely worrying. To introduce such draconian measures without proper safeguards could well lead to an abuse of power.”

This is exactly what we Americans have been dealing with for decades … a government agency who offers horrendous customer service, fails to deal with individuals fairly, and can levy your personal and business bank accounts at will … often as the first line of attack and then they negotiate a payment plan. The IRS shoots first and asks questions later.

If the U.K. wants to see what happens when you give one government agency unlimited power to attack its citizenry, just look over the pond at the IRS levy system.

Chile’s Tax & Economic Climate

10/24/2014/in Latin America/by Christian Reeves

The republic of Chile is one of the most business friendly nations on earth… as tax and business efficient as it is long. Chile’s focus on high-tech start-ups has brought a wealth of talent and business to this nation that is vying to be the Singapore of Latin America.

Chile is one of the longest countries on earth, spanning the southern portion of South America. It borders Argentina (primarily), as well as Peru and Bolivia. Its capital city Santiago boasts an ever growing population of 6 million and Chile has a total population of nearly 18 million… which is several times larger than my Panama at around 3 or 4 million depending on who you ask.

Chile is one of South America’s most stable and prosperous nations, leading Latin America in a number of important categories: human development, business and economic competitiveness, income per capita, economic freedom and a low perception of corruption. All of these combine to make Chile a dynamic and business friendly nation.

The two criteria I’d like to focus on are competitiveness and income per capita. As to income, it is just over $20,000 on average and nearly double many nearby nations. While this means labor is not as cheap as it is in, say, Panama, it also means that the work force is better educated, better trained, and more efficient.

Chile is especially competitive in technology start-ups and export. Exports to Asia and the U.S. account for 60% of the nation’s economy and Chile is pushing hard to become the center for tech start-ups in Latin America. For more information on this, please see my previous post on Chilecon Valley.

As a result, the once challenged Republic has become one of the most dynamic nations in the region. They’re now listed as a “high-income economy” and a “developed country” by the World Bank (as of July 2013, so a recent development). It is also the nation with the highest degree of economic freedom in South America, and 7^th world wide.

As I look around the globe, I believe Chile to be one of the best places to form a new internet based business, or any business focused on high quality labor… rather than call centers and repetitive tasks.

And Chile’s economy has prospered, even during the recent downturn. Real GDP growth has been 4% to 5.7% over the last decade and the national debt is only 3.9% of GDP. It seems like many of Chile’s northern neighbors could learn a thing or two about how to run a country.

Driving this growth is a business friendly tax system which is compatible with the U.S. code and the Foreign Earned Income Exclusion. Basically, you can set up a business and operate tax free for 3 to 6 years before needing to deal with the local tax authorities.

First, Chile taxes local source income at 30%, where local means products and services sold in Chile. If you sell to customers outside of Chile (in the U.S., for example), this is foreign sourced income to Chile and not taxable in certain cases.

* For U.S. tax purposes, it doesn’t matter where your customers are located (in the U.S., for example), only where you and your business are based.

Next, wages you take out of a Chilean corporation are taxed at 0% to 40%, with the higher rate applying to a salary of $12,500 per month. Though, you are allowed to be a resident of Chile and draw a salary from a foreign corporation, which would not be taxed by Chile.

So, if your income and sales are made through a Belize offshore corporation, you draw a salary of $99,200 per person from that company, and qualify for the U.S. Foreign Earned Income Exclusion, you won’t pay any tax in Chile or the United States. You’re allowed by both the U.S. and Chile to retain earnings in excess of this amount in the offshore corporation and will only be taxed when you take a distribution.

I have assumed you are familiar with the FEIE. If this is new to you, or you are wondering what I am on about, please take a few minutes to read one of my more detailed posts on the topic.

As I said above, foreigners in Chile are taxed on international income after they have been tax residents for 3 or 6 years (the standard period of 3 years can be extended to 6 by filing a few forms.). During this time, the FEIE model works no matter how much you earn in salary, capital gains, or from any other source outside of Chile.

Once your 3 or 6 year honeymoon period is over, then you will pay tax in Chile if your foreign salary (from a Belize company) is over $153,000. So, the U.S. FEIE gives you $99,200 in 2014 and the equivalent Chilean tax tool gets you $153,000, tax free. This is why I say the tax code in Chile is designed to work seamlessly with the U.S. system.

Here are a few more tax benefits of living, working and doing business in Chile. For some of you, they may greatly outweigh the FEIE.

– Gaines from the sale of shares in a Chilean company held for more than 1 year are tax free.

– Gains from publicly traded companies are tax free.

– The sale of real estate is tax free (no capital gains, but VAT will apply).

– Reimbursements from housing, travel and all other expenses paid by your employer are tax free. Allocations from you employer are taxable as local salary, so some planning is advised.

If you are operating a business through a Chilean corporation, and have local profits, your corporate tax rate is 20%. Distributions to you are taxed at 35%, but you get a credit for the 20% tax paid by the entity… which should net to about a 15% personal income rate on corporate distributions. In the U.S., this would be 30% at the corporate level and then 40% + your state’s tax at the personal level.

Those of you who follow my columns know that Premier is based in Panama City and San Diego. If I were starting over, or about to launch a new division (which we are doing right now), I’d give serious consideration to doing that in Chile.

The climate of Chile is quite similar to California, if not the mirror opposite in terms of season. With everything from a dominant Pacific coast to some of the world’s driest desserts, Chile has just about all of the ecological diversity as did California 75 years ago. Chile’s summer is from December to February, autumn is March to May, winter, June to August and spring, September to November. Temperatures in the valley surrounding Santiago can get up there, but nothing compared to California’s Central Valley or El Centro areas (temperatures in parts of CA can be 115°F several times a year, and I’ve had the joy of 120°F on occasion).

When thinking about where to place a business, you need English speaking talent and telecommunications infrastructure. Chile has the most advanced telecom system in South America with an advanced microwave radio relay facility and its own satellite system that includes 3 earth stations. That is all to say that Chile’s telecom system doesn’t rely on the U.S. (NSA).

As of 2012, there were 3.3 million land lines and 24 million cellular phones, with all of the latest and best technologies available in Chile. According to the International Telecommunications Union, 62% of the population uses the internet, making Chile the country with the highest internet percentage in South America.

So, from my previous article, we know that Chile has the people and government sponsored programs to support your business. They also have an efficient tax system and the telecom infrastructure you require. Add to this the fact that Chile is focused on freedom and privacy, and I’m sold. Chile is not a banking center like Panama, and thus not as beholding to the U.S. and its push to control the world’s financial transactions.

* For more information on nations dependent on U.S banking and the dollar, see my posts on France and Russia’s attempt to replace the U.S. dollar and America’s $9 billion attack on BNP Paribas and FACTA.

If your business model requires the lowest cost labor available, such as a call center, then Chile might not be for you. If you need higher caliber tech oriented employees, strong IT and telecom systems, and a larger market than is available in Panama, you should consider a look at Chilecon Valley. If you’re looking to diversify out of the U.S., Panama and Chile are both strong contenders… but Chile is several more steps removed from Uncle Sam in terms of financial and personal freedom when compared to Panama.

I hope you have found this series on Chile interesting. For additional information on moving your business out of the United States, please give me a call or send an email to info@premieroffshore.com. We will be happy to work with you to structure your affairs in an efficient and U.S. tax compliant manner. All consultations are confidential.

IRA Gold Rules

10/23/2014/in /by Christian Reeves

Yes, you can take your IRA offshore and buy IRA gold… so long as you follow the rules and buy the right kind of gold. If you will invest in IRA gold, this brief post is a must read.

Here are the basics of buying IRA Gold:

First, if you wish to hold IRA gold outside of the United States, you should form an Offshore LLC, invest your retirement account in to that structure, and then make your investments. This give you control of your retirement account(s) and you are the only signor on that foreign bank/investment account.

Next, you must follow all of the same rules as an onshore IRA manager. Luckily, the rules for IRA gold are quite simple.

Your offshore IRA may invest in physical gold. This means, you can buy gold bullion, nuggets, or any other type of precious metal allocation you like. IRA GOLD DOES NOT INCLUDE COLLECTIBLE GOLD COINS!

If you buy IRA gold, you must buy physical gold that is valued on its gold content. You may not buy coins that have value over and above their gold content. IRA gold does not include collectibles.

The only gold coins that I am aware of which you can purchase in an IRA are American Golden Eagles. These are priced at around $140 for their gold content and have no value as a collectible.

Of course, my recommendation is to hold physical gold, not coins, in an offshore vault in Panama or Switzerland. I also suggest you avoid paper gold, which provides very little protection (hedge) against catastrophic events.

I hope this post on IRA Gold is helpful. We do not sell gold, but will be happy to direct you to offshore experts. For more information, please send me an email to info@premieroffshore.com.

Should I buy the Alibaba IPO?

10/22/2014/in /by Christian Reeves

The largest IPO in the history of the market is coming. Alibaba, a Chinese company, is set to go public on the U.S. exchange. The transaction will break all volume and valuation records. Alibaba is a combination of Google, eBay and Amazon, and dominates the Chinese market.

The question is, should you jump on the bandwagon and buy the Alibaba IPO? I say no way. Here’s why… all without citing one number, statistic, or ratio.

I believe you should buy what you know. I also suggest you buy only where and when you have an advantage. I bet that most of my readers have no advantage in the Alibaba IPO. Therefore, none of you should buy the Alibaba IPO.

First, let’s talk about buying what you know. Do you have any special or unique knowledge about Alibaba? Do you have a better understanding of their products, financials and future than the other buyers, sellers, or those going short? I suspect not. When an IPO is as hyped as Alibaba, no average investor has a chance of standing out from the crowd.

More interesting is to buy only when you have an advantage. I assume you’re not a founder of Alibaba. Therefore, the only advantage you might have is being issued some of the original IPO stock.

If your broker gives you an opportunity to buy Alibaba at its issue price, by all means, jump on it! Based on similar IPOs, such as Google, you’ll receive a 10% premium/returns. (Oops, sorry about that. A percentage snuck in to this post).

But, will you get any of the original issuance? Probably not. Big time IPOs are taken up by the brokerage firms. They allow only their best (read, highest commission paying) clients to buy the stock and then flip it to the rest of us. Unless you’ve been paying in to your brokerage firm’s coffers for years, you aren’t going to see a single share of original issue IPO stock from Alibaba. Me and my e*trade account won’t even get a sniff.

And that gets me to buy where you know. I assume you have not been living in China and don’t have a solid understanding of the market, culture, and business opportunities in that market. Because you have no experience in China, you shouldn’t be investing in China. If you have no competitive advantage, you’re just following the sheep and hoping for the scraps that the pros have left.

It’s this idea of buying where you know that drives all of my investments. I’ve spent years in South and Central America, and have a good understanding of small pockets of a few cities in these regions. Particularly, I have found deals in Panama City, Panama; Ambergris Cape, Belize; Santiago, Chile; Quito, Ecuador; and Medellin, Colombia.

Don’t get me wrong. I am not saying that all of these cities offer deals. I am suggesting that local knowledge will allow you to find deals in certain communities within these cities.

You may find your way in a different part of the world. Maybe Puket, Thailand or somewhere in the Philippines will speak to you. No matter where you search out your opportunity, we will all share one important component: We will be investing where we know, which is usually an area we enjoy. A place where we are happy to spend the time to learn the nuances and culture.

So, should you buy the Alibaba IPO? Only if you have special knowledge or access to an original issue. Otherwise, focus your efforts in a niche outside of the United States that’s small enough for you to build relationships and learn the region.

Panama Foundation IRA Tax Review

10/13/2014/in Asset Protection/by Christian Reeves

The Panama Foundation has been approved as the “owner” of a U.S. retirement account in Panama. This means that, those who want to invest in Panama, have access to banks or brokerage services in Panama, or hold their retirement account n the most advanced asset protection and estate planning tool available, may now move their IRA to a Panama Foundation.

This article is a review of the U.S. and Panama tax laws as applicable to holding an IRA in a Panama Foundation. I’ve included cites for those who want to delve in to the U.S. tax code or the ERISA statutes.

I begin by noting that the U.S. code sections that allow you to move your U.S. retirement account in to a domestic or foreign LLC are the same ones used to support the Panama Foundation. The Foundation is conveyed in to a disregarded entity for U.S. tax purposes, just like an LLC, but retains its estate planning and asset protection components in Panama.

The Panama Foundation IRA structure we have created is designed around the U.S. domestic business trust IRA and the offshore IRA LLC. In a business trust, the IRA makes an investment in to the trust by acquiring the “beneficial interest” of the trust. Often the IRA will purchase 100% of the “beneficial interests” of the trust, much like it will acquire 100% of the “membership interest” of a limited liability company or shares of a corporation. Essentially, the term “beneficial interest” is the title for “equity interests” in the business trust.

Using IRC § 4975 (e)(2)(G) and ERISA Reg 2510.3-101(b)(1), we have applied these rules to the Panama Foundation, which is a hybrid trust and corporate entity. In the case of the Panama Foundation, the IRA account is the trustor or settler of the Foundation (i.e., the party who transferred assets to the Foundation) and the beneficiary (the party that holds the beneficial interest of the Panama Foundation). Therefore, the IRA account is both the trustor/settlor and the only beneficiary of the Panama Foundation.

Limitations!

In a traditional asset protection structure, we don’t usually recommend the Founder be the same “person” as the beneficiary. In the case of a Panama Foundation IRA, this is required to maintain the tax preferred status of the retirement account under U.S. law.

Also, the Panama Foundation IRA we have created may not act as both the owner of your retirement account and as an asset protection trust for your after tax (non – IRA) money. You may not mix after tax cash with your retirement savings.

U.S. Tax Classification of a Panama Foundation IRA

When you take your retirement account offshore, the objective is to (legally) eliminate all Federal and States filing obligations. To accomplish this, the Panama Foundation IRA must have only one member/founder and be considered a disregarded entity for U.S. tax purposes. This is quite different than a typical trust used for estate planning purposes or a Panama Foundation used for asset protection.

Specifically, a typical U.S. trust is governed under Subchapter J of the U.S. tax code § 641. The Panama Foundation’s tax status is determined under the “check-the-box” Treasury Regulations.

Under Treasury Reg. 301.7701-4(b), a foreign entity is treated as a business entity and classified for under Treasury Reg. 301.7701-2. Under this section, a business entity with two or more members is classified as either a corporation or a partnership. A corporation is then defined to mean a business entity organized under a state or international statute which refers to the entity as “incorporated” or as a “corporation.” For example, a Panama corporation is by default a foreign corporation, and not a partnership or trust, because it is “incorporated” under the relevant Panama code sections. Likewise, any entity ending in Inc., A.G., Corp., Ltd., or a similar designation is assured to be a corporation for U.S. tax purposes.

Now that your Panama Foundation is classified as a disregarded entity, because it has only one owner of the beneficial interests and/or submitted the form to be classified as a disregarded entity, it will not have to file federal or state income tax returns.

State tax: For example, every corporation doing business in California is subject to the minimum franchise tax of $800. The same goes for any LLC formed in California. But other entities, such as trusts formed outside of the State, are not required to pay this tax. For more information, see the California Revenue and Taxation code and related regulations (§ 23038 and CA Admin Code Title 18 § 23038(a), (b)-1 and (b)-2. As to the disregarded entity status in California, see Rev and Tax Code § 17942(a) and (b).

Plan Asset Rule

Once your retirement account has been moved to a Panama Foundation, and you are the manager of that Foundation, you’ll be required to follow the various Plan Assest Rules as defined in the ERISA Regulations at 2510.3-101(a)(2). As the plan manager, you become a fiduciary of the IRA and must always act in the best interest of the account and the Panama Foundation IRA.

As a fiduciary, you are prohibited from borrowing from the plan, using the funds for your personal benefit, making certain prohibited investments, and engaging in any transaction at less than fair market value. Basically, you are to manage the Panama Foundation for the benefit of the retirement account as a professional investment advisor would. You should act as if the funds belong to someone other than you… which, in fact, they do… cash belongs to the IRA.

I would like to point out here that these rules apply to Panama Foundations and LLCs that hold a U.S. retirement account. They are not applicable to a Panama Foundation used to protect after tax money (personal savings).

For more information on your rights and responsibilities, as well as a discussion of what you may and may not invest in, please see my Self Directed IRA page (top right of the menu).

Documents of the Panama Foundation

Where a typical Panama Foundation consists of a Foundation Charter and a Letter of Wishes, a Panama Foundation IRA is built upon a similar Charter and an Operating Agreement. The Charter sets forth the purpose of the Foundation in general terms and the Operating Agreement (which is a private document not filed with the government) describes the IRA structure in detail.

The Foundation Charter is public record and filed in Panama. The Operating Agreement is essentially a contract between you and the U.S. custodian detailing each party’s rights and obligations with regards to the IRA Foundation. Collectively, these are referred to as the Foundation documents.

The Foundation documents work together to set forth the purpose of the Foundation, which is to make appropriate investments and manage the IRA funds it controls. As such, these documents give the manager (you) the authority to open bank and brokerage accounts, purchase property, and spend money to improve or add to that property.

It is the Foundation Charter that gives the Founder the ability to enter in to the Operating Agreement with the retirement account administrator. Then it is these documents together that allow you, the beneficial owner of the retirement account, to be appointed as the manager.

As the manager of the Panama Foundation IRA, you have the right to make investment decisions, as well as any changes to the Foundation Charter and Operating Agreement. As such, you are taking the right and responsibility to make decisions away from the U.S. administrator.

The administrator agrees to transfer this authority to you, and you agree to indemnify him from any actions you take as the manager of the Panama Foundation. In other words, the Operating Agreements says you must follow all applicable rules (such as the plan asset rule), and can make any permitted investment you like. If you lose money, or break a rule and the IRA is penalized by the IRS, that’s on you… the administrator has no liability. His job is to 1) invest the IRA in to the Panama Foundation and 2) file annual forms with the IRS. For this, he will charge a few hundred dollars a year. He doesn’t get to charge a fee or make a commission on any of your investments and has no liability if you make a bad deal.

As such, you will be the only signatory on the bank accounts. The U.S. administrator will have no right to force the assets of the Panama Foundation be returned to the United States. If you come under attack (litigation), then you decide how to handle those offshore accounts.

Finally, you are not required to seek the administrator’s permission for any investment. You have total control over the check book of the Panama Foundation… and that’s how the administrator wants it.

Active Business in a Panama Foundation IRA

The Panama Foundation, as defined in Law No 25, Private Interest Foundations, issued on June 25, 1995, may not operate an active business. So, while it is legal for a U.S. IRA to operate a business, it is not possible to do so if you move the retirement account in to a Panama Foundation.

However, I don’t see this as much of a drawback… an offshore IRA should not be operating a business anyway. Any business owned and operated by a retirement account will generate Unrelated Business Income in the United States, which will be taxed at 35%. That’s right, active business income earned in a retirement account is taxable.

To eliminate this tax, an offshore IRA structure may form a UBIT blocker corporation to hold the business. Then, the corporation passes interest and dividends up to the Foundation/IRA. This converts the UBI in to traditional investment income and avoids the UBIT.

For more information on UBIT and blocker structures, please see my various posts on this topic. Suffice it to say, any active business owned by the Panama Foundation IRA should be in a Panama corporation.

I hope you have found this review of the Panama Foundation IRA structure helpful. For more information, please call us or send an email to info@permieroffshore.com. We will be happy to work with you and answer any questions you may have.

Note that we are the creators of the Panama Foundation IRA structure. As such, we are uniquely qualified to help you move your retirement account to Panama.

Move Your IRA to Panama

10/10/2014/in Asset Protection/by Christian Reeves

We have been working for months with lawyers, banks, and government agencies in Panama and are finally ready to announce some great news for those seeking asset protection. You may now move your IRA or other retirement account to Panama and in to the best protection and estate planning tool available… the Panama Private Interest Foundation.

This represents the culmination of a great deal of negotiation and a titanic shift in the offshore IRA industry. While you were previously required to form an offshore LLC, you may now utilize a U.S. compliant Panama Foundation to hold your retirement account. This means you have access to all of the investment service providers, banks, and investment opportunities in Panama without being required to add a Panama corporation to your offshore LLC or getting your LLC licensed to do business in Panama… which is a major hassle costing thousands of dollars to complete.

This also means your IRA is in a Category III entity, which is much more advantageous for larger accounts and gives you access to a wider range of jurisdictions.

Let me explain. Before we created the Panama Foundation IRA, you were required to place your IRA in to an offshore LLC. This is because you needed to move it in to a disregarded entity for U.S. tax purposes to maintain the tax benefits of being a U.S. compliant retirement account. If you wanted to invest in a country that doesn’t have an LLC statute, you needed to create a subsidiary corporation under your offshore LLC. This increased the formation costs and maintenance, as well as the U.S. compliance required to move your IRA offshore. Most notably, the offshore corporation is required to file a U.S. tax return, IRS Form 5471, which creates too many headaches to list here.

* The only countries offering compatible offshore LLCs are Anguilla, Nevis, Belize, and the Cook Islands. Obviously, this limits your investment options unless you form an offshore corporation owned by the LLC.

Being what is referred to as a Category III entity, the Panama Foundation may open accounts and make investments in Panama (obviously) and other countries that have agreements with Panama. This includes Hong Kong and Cayman Islands. Cayman is universally regarded as the most advanced offshore banking jurisdictions for larger investors, but has no LLC statute. Structures from Anguilla, Belize, Nevis and Cook Islands are (basically) prohibited from opening accounts in Cayman, but a Panama Foundation has the same legal standing as a domestic entity… which is a major advantage.

* For more on Cayman, please see my article on this topic.

Also, when designing an offshore IRA structure, you want to ensure you are not required to file any U.S. tax forms. Eliminating filing requirements will save you thousands in compliance costs and greatly reduce the probability of being audited.

Moving your IRA in to the Panama Foundation structure we have created eliminates all U.S. filing obligations. Both an offshore LLC and our Panama Foundation structure are classified as disregarded entities for U.S. tax purposes and therefore not required to file a return… again, unless you add a corporation to the structure.

* There are times when a corporation and filing Form 5471 can be a major advantage. See my articles on UBIT blockers for more information.

I also note that the Foreign Bank Account Report (FBAR) is not required for a bank or brokerage account owned by a retirement account.

The above description covers just the basics of moving your retirement account in to a Panama Foundation. I will be releasing a detailed analysis of the structure and its legal basis in the U.S. in the next few days.

Please understand that the Panama Foundation IRA has a different objective than our typical asset protection structure. As this Foundation must meet all U.S. requirements for a retirement account, and we wish to prevent the need to file U.S. returns, it uses a different legal system than a Panama Foundation for protecting after tax income. That is to say, not all my comments and articles on the Panama Foundation apply to a Foundation which holds an IRA.

Basically, what we have done is take those aspects of the Panama Foundation that maximize asset protection and estate planning for U.S. persons, and convert them in to a structure that can support your retirement account. Once the account is inside the Panama Foundation, you are the manager and have complete control over the investments and the checkbook of the Foundation.

As the manager of the Foundation, and the fiduciary of the retirement account, it’s your job to manage the assets of the Foundation for the benefit of the retirement account, and not for your own gain. I will address this in more detail in my next post.

Our design also incorporates legal components from the U.S. business trust (which is quite different from a U.S. grantor trust) and the offshore LLC structures we have offered for the last several years.

The Panama Foundation IRA may hold any investment permitted under the U.S. IRA statutes. This includes physical gold, bank and brokerage accounts, and real estate. In fact, the Panama Foundation may hold land or other property to be improved by the Foundation, or a rental where the Foundation is to collect rents and pay expenses.

So, moving your IRA in to a Panama Foundation rather than an offshore LLC, will allow you to invest in and open accounts in Panama without a corporation or other expensive maneuvers. If Panama is where you would like to keep your investments, or you need access to other advanced markets (such as Cayman), you should consider forming a Panama Foundation IRA.

Please send an email to info@premieroffshore.com for additional information. We will be happy to review this unique structure with you.

Stay tuned for my tax and legal analysis of the Panama Foundation IRA…

The Foreign Pension Tax Trap

10/08/2014/in Taxation/by Christian Reeves

If you’re working abroad for a foreign company, watch out for the foreign pension tax trap. If you get caught, you might be paying double tax on your retirement income… once when earned by the U.S. and once at distribution in your country of residence.

First, let me say that this is not meant as a definitive guide on foreign pensions. A proper analysis would review every tax treaty out there and thus be longer than War and Peace. My intent is to identify the issues faced by U.S. expats with a foreign pension so that you may go to your local tax person, or Human Resources department, to discuss how to avoid the foreign pension trap.

Second, these issues do not concern expat entrepreneurs or business owners. Presumably, you would utilize a U.S. qualified pension plan or defined benefit plan for yourself and avoid these problems.

Of course, if you are operating a small business, and your income is less than the Foreign Earned Income Exclusion ($99,200 in 2014), you don’t need to be concerned with a pension, be it foreign or domestic.

Now that I’ve buried the lead in the 5^th paragraph, let’s talk about the foreign pension tax trap. If you work for a foreign company, and have the option of taking a foreign pension, you need to understand the general rules (described here), the foreign tax credits available, timing issues, and specific tax treaty provisions between your country of employment and the United States, before agreeing to put cash in to a retirement program.

The reason a foreign pension can become a tax trap for the American expat is:

1) some foreign pensions are not compatible with the U.S. tax codes, 2) no treaty applies, and 3) your income is taxed in the U.S. as earned and taxed at distribution in your country of residence, which means the foreign tax credit may not be available.

So, while the foreign pension may appear to give you better tax treatment in your country of employment, if may result in double taxation. Here’s why:

The general rule is that a foreign pension is not a qualified retirement plan (QRP) for U.S. tax purposes. Therefore, contributions are not deductible on your U.S. tax return.

Because you are taxed on your worldwide income as earned, and because the income which flows in to the nonqualified plan is not deductible, it is included in your U.S. adjusted gross income and taxable here.

So, if you are earning $50,000 in salary and 15,000 in retirement benefits in France, the income reported on your U.S. tax return is $65,000. You might have foreign tax credits to offset the $50,000, but no credits to cover the $15,000.

Then, when you withdraw that $15,000 from your account in France, you pay tax on it there. Well, more than three years has likely passed and you are no longer able to amend your U.S. personal income tax returns to claim this credit. So, you were taxed once in the U.S. when earned and then again in France when distributed.

That is to say, these general rules require a U.S. expat in a foreign pension plan to include in income the amount of the contributions made by him or her, as well as any contributions made by the employer to the extent vested. Because you will probably need to pay tax in the foreign country when you take a distribution from the plan, it is possible that the contribution will be double taxed… but at different times. This timing issue creates a mismatch of income and the availability of the foreign tax credit in the United States.

Relief may be available to some U.S. expats, but not all. Several U.S. tax treaties cover foreign pension plans and, at least, eliminate double taxation. You should discuss the availability of a tax treaty with your pension coordinator before signing up and getting caught in the foreign pension tax trap.

And, even if these treaty provisions exist, they will be limited to U.S. IRA amounts. That is to say, they are limited to U.S. QRP levels of contribution from you and your employer, AGI limitations, and will have distribution requirements. If your foreign pension is more generous, or has terms that are significantly different than a U.S. IRA, you are in for a very complex tax situation.

If you’re really lucky, you’re working in a country with an advanced pension treaty. These exclude contributions to a foreign pension plan from your U.S. income, just as if the plan were in the United States. Though, such treaties are typically with countries that offer retirement plans on terms similar to those found in the U.S., and whose tax rate is higher or about the same as in America.

At the time of this post, the countries with advanced pension provisions in their tax treaties are the U.K., Germany, the Netherlands and Belgium.

Another area of concern with a foreign pension is whether a withholding tax will be levied on you by your country of employment. As an expat worker in a foreign land, it is likely the government will want to ensure your compliance by withholding any taxes payable… especially if you have returned to the U.S. after retiring or completing your work contract.

In many cases, the default rate of withholding is 30%. If a tax treaty applies, this might be reduced to 15% (such as in the U.S. – Canada treaty). There are even some treaties that eliminate the withholding tax all together, so be sure to discuss this issue with your representative.

The last consideration facing expats with foreign pensions are your U.S. reporting obligations. It is possible you will need to file a foreign trust return (IRS Form 3520 and 3520 – A) to report the existence of the foreign pension. If you have signature authority over the account, you probably need to report it on your Foreign Bank Account Report. In some cases, IRS Forms 8938 and 8606 may apply. Your filing obligations on your country’s applicable treaty and how your foreign pension is structured. All I can tell you with certainty is that you should look carefully before getting in to a foreign pension arrangement and seek out the counsel of a qualified representative.

As you can see, tax planning for a foreign pension or foreign retirement plan is a complex business. We at Premier do not offer foreign pension plans. We can help the U.S. entrepreneur to form his own U.S. QRP or defined benefit plan and maximize the value of being offshore.

Likewise, if you already have a U.S. retirement plan, and are moving or investing offshore, we can help get your IRA out of the United States. This is usually done by forming an offshore LLC or Panama Foundation and investing your U.S. IRA in to that structure. Once this is complete, you’ll have checkbook control over the account and your investments. Though, you are required to follow U.S. rules governing investments, act as the fiduciary of the account, and on distribution.

If you would like more information on taking a U.S. IRA offshore, pleas see my Self Directed IRA page (upper right menu of this site). If you would like to set up an offshore corporation, or create a QRP for your international business, and you qualify for the Foreign Earned Income Exclusion (are a U.S. expat), we will be happy to work with you. Please give us a call or send an email to info@premieroffshore.com.

Why the Dollar Will Fail

10/06/2014/in /by Christian Reeves

With Russia and France working hard to push the U.S. dollar from its perch as the world’s currency, there is the risk of a major revolution of the dollar. While it might not result in a total collapse, most experts agree that the U.S. dollar will be devalued by 11% to 45%. Here’s why the dollar will fail and take your retirement account down with it.

First, let’s talk about France. The U.S. has pushed this nation, and the European Union, way too far. We’ll pay for this impudence soon. Here’s why America recently levied a $9 billion dollar fine on France’s BNP Paribas bank for engaging in transactions with the country of Sudan while the United States had issued sanctions against that country.

While you might think, ok, they paid a fine because they violated the law by doing business with Sudan, that’s what they get. Well, France and the EU had no sanctions or problems with Sudan. It was only the United States who had that country on its hit list. Also, the transactions that BNP Paribas did with Sudan had no connection to the United States. No U.S. goods were sold or transferred, no U.S. persons were involved, and no business was transacted through an office or branch in the United States. The trades involved were between a bank in France and the country of Sudan… again, there were no limitations in France or the EU on doing business with Sudan… only the U.S. had these regulations.

So, why did the U.S. claim authority over the transactions and the bank? What gave Uncle Sam the right to fine a bank for something that had no connection to the United States? What made America the ultimate arbiter of ethics and business practices?

The contracts between the bank and Sudan used the United States dollar as the transactional currency. That’s right, the only connection between the U.S. and the trades at issue was that the price was listed in USD. The United States claims it has the authority to regulate any transaction completed or denominated in USD, and therefore has the right to fine BNP Paribas for entering in to a contract with a prohibited country.

Of course, the country of France has come out strongly against this attack on their financial sovereignty by the United States. They issued a number of regulations and press releases pushing to remove the United States dollar as the transactional currency in their banking and international trades.

Such a change, especially if adopted by the entire EU, could result in the U.S. dollar failing. Removing trillions in demand for dollars from the system will send our currency spiraling. Even if the results aren’t catastrophic, they certainly will mean a realignment of the U.S. dollar and a significant devaluation of your investments, retirement accounts, and other assets held in dollars.

* For more on this story, please check out www.premieroffshore.com or The Financial Times.

Before moving on to Russia, I would like to say that, you don’t need to believe in a catastrophic system failure to think that the dollar will fail or slip. It is possible that the system will continue on without our dollars, but will look very different.

If you are like me, and believe that a significant realignment is (at least) possible, then you should consider diversifying out of the United States and out of the U.S. dollar. This might mean moving your IRA offshore, holding currencies other than the dollar, buying real estate or other assets, and purchasing gold as a hedge against inflation or devaluation.

Ok, now on to Russia who is really pushing against the U.S. dollar (petrodollar). Here’s why Russia could threaten your retirement in 2015. If you follow world events, you know the path Russia is on. I don’t think it will surprise anyone that, with the dollar on the ropes, Russia will be happy to push it over and is leading the effort to replace it as the world’s reserve currency.

Let’s start by noting that the economic power of the United States is based on its being the reserve currency of the world. This status is largely due to its being the ONLY currency with which oil trades may be conducted in… which is why we call it the petrodollar.

* Many claim the primary reason for the Iraq war was that Iraq began denominating its oil transactions in euros. I don’t know about that, but it was just a few months later that the U.S. went in.

In to this landscape comes a reinvigorated Russia. They are demanding to denominate their natural gas contracts with Europe in a petroruble or petroeuro. Today, all gas contacts are priced in dollars.

If successful, Russia will effectively decouple all of its trade from the dollar… which again amounts to trillions in demand. For example, trade in hydrocarbons alone is $1 trillion. Removing Russia from the petrodollar, and thus the dollar, will reduce the demand for dollars and, once countries like France see weakness in America and its control over world transactions, you can be assured that they will follow.

And such a decoupling doesn’t need the EU to succeed. If Russia and its group of nations (BRICS) dumped the dollar, it would completely cripple our currency. These countries currently account for tens of trillions of dollars of demand and could start a major revaluation.

You can take steps to protect yourself from a major devaluation… or just a loss of value through realignment. I don’t know how this will all play out, but I do know that there is significant risk out there and that we need to protect against it.

For thousands of years, currencies have failed while gold has stood strong. Today is no different. I suggest that some of your holdings should be in physical gold. We can arrange this for you in Panama or Switzerland and physical gold may be owned by your retirement account or in a Panama Foundation.

We can help you move your retirement account or other savings offshore and invest in gold… or just hold a currency other than dollars. Feel free to phone or email me at info@premieroffshore.com for additional information. I have many posts on this topic at www.premieroffshore.com.

The Panama Foundation Scam

10/03/2014/in Asset Protection/by Christian Reeves

Just about every week someone calls asking about using a Panama Foundation as a charity. This is known in tax circles as the Panama Foundation scam and the internet is filled with it. Avoid the Panama Foundation scam at all costs. It will lead you down a very bad path with the IRS.

Here’s how the call goes: “Hey there, I’ve been reading on the internet and came across your site. What I’d like to do is…”

By this time I already know what’s coming, but let them proceed anyway. Just about any call which is prefaced by, “I was reading on the internet” is leading nowhere good. There are very few sites that provide both asset protection or formation services and U.S. tax compliance. If a company is based offshore, they can tell you whatever they want to make a sale. If they are in the U.S. and have U.S. licensed professionals, then they follow the law first and look to make the sale second.

Ok, enough pontificating. Back to the Panama Foundation scam.

“I want to form a Panama Foundation and operate it like a charity. I want to make donations to this charity and deduct them on my U.S. taxes…” or something like that.

Here’s the bottom line on the Panama Foundation scam: The Panama Foundation is not a charitable entity and can’t be turned in to a charity. All of the websites and marketing brochures talking about this are scammers… or, worse, they believe the cr*p they are selling and are tax protestors.

The U.S. tax code is very clear. Only donations to a U.S. licensed charity may be deducted on your personal income tax return. That is to say, only donations to a charitable organization licensed under 501 (c) (3) of the U.S. Tax Code are deductible. Your Panama Foundation won’t get a 501 (c) (3) license, so you can’t deduct transfers to it. If you were to spend the time, money and effort to get a license, there would be no reason to use a Panama structure… you would incorporate in the U.S.

Even if you wanted to donate to a church or legitimate charity in Panama or elsewhere, such a donation is only deductible if that entity is licensed in the U.S. Of course, you are free to give to anyone or any organization you like. You just don’t get to deduct that payment on tax returns.

For example, the Red Cross is incorporated in Switzerland, as are most of the major charities. These organizations then form corporations in the United States and apply for charitable status before taking donations.

Sometimes the Panama Foundation scam relies on the private interest foundation tax rules rather than the charity code section. A private foundation in the U.S. allows you to donate property (usually appreciated assets) to your personal foundation. You get to deduct the fair market value of the donation in the year given (which is why appreciated property is recommended) and then transfer a small percentage of that property to a licensed charity over a number of years. This allows you to maintain control over the property, manage it for the benefit of a charity, and give up only a portion over time.

So, the Panama Foundation scam often takes verbiage and rules from the private interest foundation sections and applies them to the Panama Foundation. Unfortunately, there is nothing legitimate to this analysis. The Panama Foundation is not a private interest foundation as defined in the U.S. code and this is just a scam to sell Panamanian entities to those looking for a tax loophole.

Just last week I came across someone who took the Panama Foundation scam to a new level. He would form the Foundation and file the charitable tax return in the United States for that entity. This was done with the intent of confusing the U.S. IRS computers into thinking it was a legitimate charity.

He would then sell this “licensed” foundation for many thousands of dollars to someone who fell for the scam and thought they were getting a charity or private interest foundation. Of course, the sham will be discovered some day and all the donations will be reversed. This will mean big time tax, interest and penalties will be assessed against the buyer… and criminal charges brought against the scammer… if he can be found on the day of reckoning.

Don’t fall for the Panama Foundation scam. The Panama Foundation is not a charitable organization as defined by any section of the U.S. tax code. This is one of the many reasons you should only form offshore structures with a firm that provides U.S. tax compliance.

Physical Gold is the Ultimate Investment

10/01/2014/in Asset Protection/by Christian Reeves

Physical gold has served as the universal currency for 5,000 years and will continue to do so long after We the People, and this nation of ours, have ceased to exist.

Physical gold is also the only reliable hedge against political instability, government debt, and inflation. It is a borderless currency whose value comes from supply and demand, not how ever much the government decides to print. It’s not based on a government promise or regulation, but is a physical precious metal.

Need proof? Physical gold has the highest liquidity value in the world. You can exchange it for cash in any major city in the world, and at just about any time of day. If you hold your gold outside of the reach of Uncle Sam, you can access it at any time, and exchange it for local currency, or goods and services, with minimal effort and at a guaranteed rate.

And gold thrives during inflationary times. Not if, but when, the United States and the U.S. dollar go through a revaluation, it will be physical gold that soars and where everyone is rushing to. Don’t be the sheep. Invest outside of the U.S. in physical gold now, while prices are low and access is assured.

* Note that I write about physical gold because I believe in its value and the need to diversify abroad. Premier doesn’t sell gold and we are not investment advisors. We can introduce you to firms in Panama and Switzerland that can assist you, but we earn no commissions or other income from these transactions. My advice here is independent and without financial motive.

More importantly, the price of physical gold is not dependent on investors or the markets. In fact, investors accounted for only 16% of the gold supply in 2013 (World Gold Council). The largest mover was consumer demand at 51%, then reserve banks at 17% and industry use at 12%.

If you’re like me, you start your day by watching the financial channels (I go with CNBC). The news is often hostile to gold and gold ownership as an investment class. They are too busy pushing viewers towards the U.S. stock market… it is at all time highs don’t you know! That means it’s time to buy!!

Well, regardless of this BS, and the industry news you get from the brokerage firms, the investment in physical gold (not paper gold), remains strong. I suggest that physical gold is one of the most important elements in your onshore or offshore portfolio.

The demand for physical gold has never been higher. TV viewers would be shocked to learn that investment in 2013 was up 28% from 2012… some people must know something the talking heads on TV don’t.

This represents about 44% of the total gold market of $170 billion and compares favorably to the paper gold market for exchange traded funds, which saw a loss of $40 billion. That’s to say, $40 billion moved out of paper gold and in to physical gold in 2013. There is now more money in physical gold than in ETFs by a factor of 8 to 1 (the last two paragraphs are according to the World Gold Council).

What you will find in the industry is that paper gold and hypothecation of gold is manipulating the price… pushing it down. If these are eliminated from the market, such as during a realignment of the dollar or demand in gold because of hyper inflation, the price of physical gold will skyrocket.

* This is because gold doesn’t correlate to any investment class. It went up in value during the 2008 recession.

You will also see that those who invest in physical gold take the long view. They recognize it as the ultimate hedge. Buyers see it as a superior asset allocation… not just seeking to buy low and sell high, as is attempted in the EFT market. Investors in physical gold buy to provide support for their other investments. The price they buy in at should be of little consequence. Yes, it’s low today, but if it were to double in the next few months, my advice would be the same: buy physical gold and hold it outside of the United States.

That’s right, you can buy physical gold offshore. It can be held in a vault or you can take possession. We work with a number of offshore providers and will be happy to make introductions.

You can even purchase physical gold in your IRA. You first form an offshore LLC in a country like Belize, or a Panama Foundation, and move your retirement account in to that structure. From there, you can write the checks and make any permitted investment you like… which means you can buy physical gold in Panama and hold it in a vault.

* You can buy gold in an onshore or offshore IRA LLC structure, though we only offer international formations.

Once you have physical gold in your IRA, you can take required distributions in gold, rather than cash… keeping the investment in gold without the need to convert to cash. If any tax is due (traditional IRA rather than a ROTH), you will need to make those payments with good ole American greenbacks.

In fact, about 50% to 60% of our clients now take distributions in physical gold rather than USD. This is becoming one of the most interesting uses of offshore IRA LLCs, and one of the highest demands, in the industry.

Physical gold will also allow you to maximize privacy and asset protection. Gold held in a vault outside of the U.S., and outside the reach of the U.S. courts, has little risk of being seized by an aggressive creditor. More importantly, you are not required to report physical gold held in your name.

While you have probably heard much of the new IRS laws that require just about anything you have offshore to be reported to the U.S. government, physical gold is exempt. You may hold gold in an offshore vault and are not required to report it to any agency.

From here, you can pass physical gold down to future generations, keep it outside of your U.S. estate, minimize estate taxes, and do as you like without interference from the IRS or creditors.

I hope you have found this post on why physical gold is the ultimate investment interesting. For more information on taking your retirement account offshore, or buying gold in Panama, please give us a call or send an email to info@premieroffshore.com. We will be happy to work with you to structure your affairs in a tax efficient and compliant manner.

I think you will find physical gold to be a unique and valuable addition to your international portfolio. I also believe the price is set to jump. Quantitative easing, and other factors, have been holding down the price of gold since 2011, but this is going to change. QE will be stopped this month and a number of forces are coming to bare on the U.S. dollar (take a read through my posts on the USD vs. Russia and France).

When the flooding of markets with cash, the artificial support received by the U.S. stock market, and other fakery ends, we’ll come back to physical gold. It will increase in price and we will all benefit from our offshore portfolios. Remember that physical gold is where the stability lies. It is the one and only hedge against a significant market correction or currency realignment.

When to Hold and When to Fold

09/29/2014/in My Thoughts/by Christian Reeves

With the U.S. market at historic highs, how do you know when to hold and when to fold? Here’s the best investment advice I’ve seen:

“Buy at the point of maximum pessimism; sell at the point of maximum optimism.” Sir John Templeton (1912 to 2008), known as the great contrarian.

I have always taken this to mean that, if you buy the same securities and at the same time as everyone else, you will get the same results as everyone else… which is to say, you will be average.

With the U.S. markets at historic highs, and logic (and simple math) telling us that returns over the next decade will be lower than the prior, we should be looking to move money in more dynamic markets. Of course, most ignore what’s right in front of their face and are now dumping cash in the U.S. stock market after being on the sidelines for the last few years. This makes no sense, but most buy on emotion and momentum rather then with their brains.

The investing masses expect the most from the market when the prospects are the worst and the least when things are at their best (prices at or near the bottom). You can do better. Don’t be a sucker who’s enthusiastic when stocks are expensive. Be that guy or gal who knows value, diversifies out of a bad market, and move your assets and investments to safety.

Want proof of what I am going on about? When the market was at its height in 2000, inflows were $288 billion. When stocks were cheap in 2002, inflows were a mere $13 billion. Don’t follow the herd, make your own way.

I’ll leave you with a bit of history on John Templeton.

At the outbreak of WWII, he bought nearly every NYSE listed company trading at $1 or less… and made money on just about every single one. It was a simple plan: identify weakness in the market and take advantage.

If the market is at a high, do the inverse, get the heck out.

Mr. Templeton was one of the first U.S. investors to see the benefits of diversifying out of America. As a result, $10,000 in to his flagship international fund in 1954 was worth $2 million by the time he retired in 1992.

The Templeton growth fund continues this strategy and has averaged an 18.3% return over the last 5 years.

If you’re considering investing offshore, we can help. We can set up an offshore foundation or offshore company, move your IRA to an offshore LLC and introduce you to quality banks and investors around the world.

If you want to get some of your assets out of the U.S., start by planting that first flag offshore in the form of an offshore company, foundation, and/or bank account.

We will be happy to work with you and we are the only experts providing both international formations AND U.S. tax compliance. We will ensure you are structured as efficiently as possible and keep you in compliance with the U.S. tax code. Feel free to phone or send an email to info@premieroffshore.com with any questions and for a free confidential consultation.

The Panama Foundation for Asset Protection

09/26/2014/in Asset Protection/by Christian Reeves

The Panama Foundation provides the best asset protection and estate planning available… hands down, no questions asked. Here’s why the Panama Foundation is the ticket for those wanting to move assets out of the United States and eliminate the U.S. estate tax.

First, let me take a moment to summarize the Panama Foundation as an asset protection tool. The Foundation, as defined in the Panama law in 1995, and as updated and improved over the years, is now a separate and distinct entity from its owners. As a result, the Panama Foundation is now recognized, not only by Panama, but by the United States and other countries as one of the most efficient tools out there.

For example, the Panama Foundation is one of the very few foreign structures approved in the Cayman Islands, and is a recommended vehicle for holding investments there. The very conservative country of Cayman (regardless of what you see in the movies, Cayman is extremely conservative) has approved the Panama Foundation to open accounts in its banks and funds without any extra due diligence required. Try to open an account under a Belize corporation and you will be shown the door or told to form a local company.

* Being recognized around the world gives you better access to foreign banks, currencies and investments. It also means you can move quickly out of Panama if sued there.

I also note that the Panama Foundation does not require members or shareholders. All that is needed is the Founder (settlor), the Foundation council, and a beneficiary. You may act as both the Founder and the beneficiary, and may appoint any three people or any one company as the counsel. It is usually this counsel that manages the assets should you become unable or unwilling to do so (such as if you are in litigation or your assets are otherwise under attack).

This is the basic structure. I usually recommend that larger Panama Foundations 1) don’t list the settlor as the beneficiary and 2) appoint an asset manager as the protector or foundation counsel. While it is not required, if the primary purpose of the Foundation is asset protection, taking these steps early can save you in the long urn. Of course, you can add the protector or investment manager later if an attack on your assets is not imminent.

Benefits of a Panama Foundation

There are many benefits of a Panama Foundation for asset protection and I will take many of them in turn here. The first is that the Foundation won’t be taxed in Panama… and no local accounting or audit will be required. I never recommend a jurisdiction for asset protection that requires audited financials, the filing of tax forms, or any other compliance. For example, Hong Kong has a number of these rules so I avoid that jurisdiction.

*So long as the income is from outside of Panama, it will be tax free. Of course, if you open a business (such as a bar) in Panama, you will pay Panama tax on the profits.

Next, the Panama Foundation is a hybrid entity in between a trust and a corporation. Therefore, it may act as an offshore trust, but it is far more cost effective to form and operate than many international trust arrangements.

For example, the Panama Foundation is about 1/3 the cost of a Cook Island Trust and you need not pay for a Protector or asset manager unless you elect to have one. Most trusts require one of these two persons and charge a few percentage points on the assets of the trust (assets under management) to provide them. I’ve seen a CI trust that cost $6,000+ to maintain per year move to Panama and cut these costs down to about $950.

Of course, if you desire advanced fund management services, they are available to you in Panama, Cayman Islands, or elsewhere. All of the major financial service providers are in Panama and we can make introductions to banks and brokerages at all account sizes.

Next, the Panama Foundation is a separate entity and, as such, may enter in to contracts and agreements on behalf of its Founder (you) and as the manager of its underlying assets. The ability to contract and operate as a company separate and distinct from its owner, is why we call the Panama Foundation a hybrid structure. While a trust is one with its settlor, a Panama Foundation is a legal entity like a corporation or LLC (which is why I refer to it as a company).

The only limitation is that a Panama Foundation may not own an active business. If you want to hold a business in a Panama structure, your Foundation may incorporate a Panama corporation, but may not own the business directly.

I note that real estate is usually not an active business… unless you own many units or buy land, divide it, and sell parcels. Your Panama Foundation may own a rental, or you may decide to purchase the condo in a corporation for maximum local asset protection… if something happens to the condo, liability in Panama won’t reach the assets of the Foundation.

A Panama Foundation may be established for the benefit of any third party, or the Founder/settlor may be the beneficiary. As stated above, I don’t recommend the Founder be the beneficiary, but it is possible. You may also list anyone or any company as the beneficiary. If you want to leave your estate to the Red Cross, no problem.

*Beneficiaries may be any person or company. They are not public information.

In fact, your estate plan may be as simple or complex as you like. You might decide to work with the U.S. gift tax exclusion, or the Foreign Earned Income Exclusion for a business in Panama, create a charitable remainder structure, a generation skipping Foundation, or any variation thereof.

The bottom line is that you may control the disposition of assets by lodging a simple or complex list of instructions with the Foundation council. This “letter of wishes” will tell the banks, brokerages, and property managers what to do with your assets upon your passing and may be changed or updated as often as you like… usually at no cost.

Also, the Panama Foundation requires no annual meeting or formalities. With a U.S. structure, if you fail to keep up appearances, creditors may pierce the corporate veil and get to your assets. In Panama, no such laws apply and your assets are secure. As stated above, no audit, accounting, or tax filing will be required.

Structure of the Panama Foundation

A Panama Foundation may use any name available. You’re not required to use your last name, as is the custom with a trust. Though, you do need to include the name “Foundation” in the name. So, The Reeves Private Interest Foundation, Reeves Foundation, or Great Panama Foundation would all be acceptable names.

A Panama Foundation must have a local address and local agent for service of process. Just as when you form an out of state company or LLC, you need to have a local representative to receive legal correspondence. We provide this for you at no cost.

The Founder of a Panama Foundation may be any person or entity (a foreign or domestic corporation, trust, LLC, etc.). In fact, it can be your U.S. retirement account.

* We are currently working on a U.S. compliant IRA Panama Foundation structure, to be released in the next few months.

The most common uses of a Panama Foundation are:

– To hold shares, patents, collect royalties, manage trademarks and other passive activities;

– Offshore asset protection for those who want to diversify out of the U.S.;

– Offshore estate planning for those with more than $5 million in assets (assuming the estate tax amount doesn’t go down, as it has in decades past… then, anyone at risk of qualifying for the U.S. estate tax);

– Investment management and private asset management by firms or outside of the United States, especially where the provider is unwilling to do business with a U.S. person directly.

Panama Foundation Council

As I’ve said, your Panama Foundation may be as simple (cost effective) or complex as necessary. One of the reasons for this flexibility is the Foundation Council, which is unique to Panama. It is this council that allows you to maximize asset protection and, should you come under duress, allows you to separate yourself from the structure and the assets.

* You may manage the Panama Foundation directly until or unless you have an issue (come under attack by a creditor).

You may elect to retain a professional trust company or lawyer to act as your trustee/protector. This person would be appointed by your foundation council and act at your direction.

We provide your foundation council at no additional charge. You may then add an investment manager or lawyer as you see fit. Alternatively, you can manage your Panama Foundation and then seek additional council if you come under duress or litigation becomes likely.

Your Panama Foundation Council may consist of three or more persons or one legal entity (a corporation or LLC). These people or company may be from any country… they need not be Panamanians. Though, I would not use U.S. persons or a U.S. company, as this would eliminate the asset protection benefits of the Panama Foundation. U.S. persons would be subject to the control of or whims of a U.S. court.

So, if you want to create an advanced structure, we can provide a Panama attorney, or an offshore LLC to act as the Foundation Council… maybe a limited liability company from Belize, for example, so as to maximize privacy.

Taxation of a Panama Foundation

As I said above, foreign source and passive income are not taxable to a Panama Foundation owned by a U.S. person. So long as the foundation is not operating a business in Panama, you will pay no local tax.

Of course, if you do operate a business, or sell local real estate, you will pay tax to Panama. The Foundation does not affect local transactions.

If you are living in the United States you (the Founder) are the beneficial owner of those assets for U.S. tax purposes. In other words, the Founder is the owner of the assets which are held by the Foundation and any income generated there from will be taxable in the U.S.

As you know, the U.S. taxes its citizens on their world wide income. The fact that you are using a Panama Foundation for asset protection purposes does not change the tax rule. The U.S. will want its cut of passive income so long as you hold a blue passport and its share of business income so long as you are living in the U.S.

There are a number of tax planning options with a Panama Foundation that are outside of the scope of this article. For example, you might hold an active business in a Panama corporation owned by the Foundation, qualify for the Foreign Earned Income Exclusion, and draw a salary from that corporation of up to $99,200 each (husband and wife) free of U.S. income tax. Then, you may retain earnings over this amount and defer U.S. tax for as long as you like.

You might also decide to create sub-Foundations and transfer portions of the assets in your primary Panama Foundation to your heirs over time using the gift tax exclusions. This may reduce your U.S. tax and have other estate planning benefits.

You may decide to purchase precious metal or physical gold within your Panama Foundation. This can be done in Panama by leasing a local vault and we can introduce you to reputable sources for bouillon if you like.

Finally, you might invest in an offshore life insurance policy through your Panama Foundation. These investments usually of $2 million or more and assuming they are U.S. compliant, may allow you to avoid U.S. tax on passive income and then obtain a step-up in basis upon transfer to the beneficiaries of the Panama Foundation.

For more information on offshore life insurance, the Foreign Earned Income Exclusion, or how to acquire gold in a Panama Foundation, please see my various articles. These are complex topics and I have just touched on them here.

If you would like to form a Panama Foundation, please give us a call or send an email to info@premieroffshore.com. We will be happy to work with you to structure your affairs in a tax efficient and compliant manner.

Offshore IRA LLC Tax Analysis

09/24/2014/in Offshore IRA/by Christian Reeves

Moving your retirement account in to an offshore self directed IRA LLC is the best (and really, the only) way to diversify out of the U.S., protect your assets from future creditors, and boost returns by investing in more dynamic markets.

I write quite a bit on why and how to move your account into an offshore self directed IRA LLC. This article is for those who want to get in to the nitty gritty of how it works from the IRS’s perspective. This post on the self directed IRA will include all relevant U.S. Internal Revenue Tax Code (IRC) and ERISA sections.

The first step in taking your IRA offshore and moving it in to a self directed IRA LLC is to open an account with a self directed custodian that allows for this type of structure. Note that you are required to use a U.S. custodian, but this custodian has no control over your assets or investments once they reach the IRA LLC.

We work with a number of self directed custodians/administrators, and will be happy to setup the account for you. If you prefer to do your own research, please Google Midland IRA and Entrust… these are the most efficient and specialize in offshore transactions. There are others found on domestic structures (IRA Services, for example).

Once your account is established, your administrator will give you an account number that will look something like: Midland IRA FBO Christian Reeves #55555-00. This is your self directed IRA account name and the “owner” of the offshore IRA LLC that we will form for you.

More specifically, this account will acquire a 100% of the “beneficial interest” of the offshore IRA LLC and hold 100% of the “membership interest” in your offshore company. According to IRC § 4875(e)(2)(G) and the ERISA Regs at 2510.3-101(b)(1), the beneficial interest in an LLC is the equity interest in the assets of the entity, as well as the beneficial owner of the entity.

So, all of that is to say that your IRA account is the equity holder and legal owner of the assets and the offshore IRA LLC we form for you. The custodian’s job is to manage IRS reporting and make the investment of your retirement account in to your offshore IRA LLC… that’s it. From there, the owner of the offshore IRA LLC is your self directed IRA.

Your control over the offshore self directed IRA LLC is defined in the operating agreement of the LLC which we provide. This document has been reviewed and approved by various banks and the custodians with which we work. It ensures all parties the proper levels of protection and your rights to control the investments and open bank and brokerage accounts in the name of the offshore LLC.

The operating agreement and its importance to the structure is defined in what we call the “plan asset rule” under ERISA Reg. 2510-3-101(a)(2). This regulation allows you (the beneficial owner of the IRA account) to act as the manager and exercise control over the offshore IRA LLC and its investments. As such, it requires you to manage the assets for the benefit of the retirement account, just as a professional fiduciary would. This means you must do your due diligence in all investment decisions and not use the assets for your personal benefit. You are to manage the offshore self directed IRA LLC as if it where someone else’s money.

This operating agreement also sets out the rights and duties of the owner of the LLC (your account). These terms are always very broad, giving it the authority to open accounts, modify the documents or the LLC, and appoint the manager (you). Most importantly, the document allows the account to transfer these authorities to the manager… so, you can take control over the LLC.

Note that the operating agreement is signed by your custodian on behalf of the IRA, you as the beneficial owner of the IRA, and then you again as the manager of the LLC.

The operating agreement also transfers all authority and control over the offshore self directed IRA LLC to you, and away from the administrator/custodian. You are thus the only one authorized to make investments, open accounts, and operate the offshore LLC. The custodian is relegated to filing annual reports with the IRS.

That is to say, the custodian makes only one investment: your IRA account in to the LLC. From there, you are authorized to:

Make all investment decisions,
use funds for the upkeep and improvement of your investments (such as for improvements in real estate), and
control the sale/disposition of assets.* A corporation can be used as a UBIT blocker, but not as the primary (parent) entity. We are working on a new structure for investments in Panama, which doesn’t have an LLC statute, but their Foundation laws can be used to create a trust/LLC hybrid.So, because the offshore IRA LLC we have designed is a disregarded entity (has only one member and is a limited liability company), it is an eligible entity under Treasury Regulation 301.7701-3(a) and (b). As such, it is not required to file either federal or state income tax returns. Also, no State Franchise Tax or other reporting will be required.There is an exception to the default rule that your offshore IRA LLC will have no filing obligations… and that the U.S. administrator/custodian will handle any reporting obligations other than those described here. If you generate Unrelated Business Income in your IRA, or use a UBIT blocker corporation, you’ll need to file IRS Form 3520 and may have other reporting obligations.When your IRA invests in an active business, or uses borrowed funds (such as a mortgage or leverage in a brokerage account), then you will generate UBI and will be required to pay Unrelated Business Income Tax. Because your structure is offshore, you may use a UBIT blocker corporation to eliminate this 35% tax. This allows all profits to flow tax free (ROTH) or tax deferred (traditional) in to your IRA LLC, and thus in to your IRA. This is one of the major benefits of moving your IRA in to an offshore self directed IRA LLC. UBIT blocker structures are not available in the United States.
So, if you employ a UBIT blocker, or generate active income in your IRA LLC, then you will need to file additional forms.
There are a number of UBI and UBIT blocker corporation articles on this site, so I will just describe it briefly here.
Also, none of the international forms are required for a typical offshore IRA LLC structure. The big one is the Foreign Bank Account Report, which is required for bank or brokerage accounts outside of the United States that hold more than $10,000. This form is specifically excluded for offshore self directed IRA LLCs (search FBAR at IRS.gov for additional information).
Your objective in an offshore self directed IRA LLC structure is to eliminate all U.S. tax filing and paying obligations. Therefore, your offshore company must be a “disregarded entity” under the IRS “check the box” rules. This is achieved by 1) using an LLC rather than a corporation and 2) that LLC having only one member. A single member LLC is a disregarded entity, while a multi-member LLC is considered a partnership. (For more information, see: Treas. Reg. § 301.7701-2(b), (c)(1) and (c)(2).)
The tax classification of an offshore IRA LLC is quite different than an offshore corporation, and an LLC is generally the required entity – not a corporation. Because very few offshore jurisdictions (those that won’t tax your returns) offer compatible limited liability companies, we usually form IRA structures in Belize and Nevis.

I hope this article on the taxation of an offshore self directed IRA LLC has been helpful. If you have any questions, please give us a call or send an email to info@premieroffshore.com. We will be happy to work with you to move your retirement account outside of the U.S. and ensure it remains in compliance with all applicable U.S. tax laws.

UBIT: IRA As a Dealer in Real Estate

09/23/2014/in /by Christian Reeves

If you’re going to invest in one or two rentals with your IRA, then you won’t have a tax problem. You can operate these properties through a U.S. LLC (if domestic) or an offshore LLC (if abroad) and net profits will flow back in to your retirement account tax free.

If you buy in to a hotel, acquire land that you divide up and build homes on, or buy a multi-unit apartment building, which you improve and convert to condos, then you are probably a dealer in real estate and expected to pay 35% in Unrelated Business Income Tax (UBIT) to the IRS. That is to say, if your IRA operates as a dealer in real estate, you must pay 35% tax on your profits. Then and only then does the net flow in to your retirement account, to be taxed again on distribution (if a traditional IRA, or tax free in a ROTH).

Let’s take a step back for a moment. UBIT is a tax levied on IRAs that operate as a dealer, any kind of active business, purchase real estate with a mortgage, or use any kind of leverage in a brokerage account owned by the IRA.

In the case of an IRA buying with a mortgage or using leverage, UBIT applies to the portion of income driven from that leverage. If you purchase a rental with $100,000 down and $100,000 from a non-recourse mortgage, then 50% of your net profits will be taxed at 35% and 50% will flow in to your retirement account tax free.

In the case of an IRA doing business, including the business of a real estate dealer, 100% of your net income is taxable. You’ll need to file a corporate return, or a UBIT return, pay the tax, and report the after tax net as gains in your retirement account.

Now, here’s the problem. The IRS hasn’t bothered to define what makes an IRA a dealer in real estate. All we know is that it is someone in the “business” of real estate, rather than someone who is a simple “investor.” The bottom line is that being defined as a dealer, and thus getting to pay UBIT, is based on your intent.

If your intent is to buy, refurbish and sell multiple units, you are probably a dealer. If you buy a single family home and turn it into a rental, you are not a dealer. If you build up your rental portfolio to 20 units, or adopt a “flip this house” model, you have probably flipped your way in to UBIT.

If your intent is to invest, then no special planning is required. You simply form an offshore limited Liability Company and invest your retirement account in to that entity. From there, you control the transactions and can write checks on your account for the improvements, collect the rents, etc.

If your intent is to engage in a business, or if there is any risk of the IRS classifying you as a deal now or in the future, you need a UBIT Blocker Corporation added to your international structure. An offshore UBIT blocker corporation is one of the few remaining loopholes available to Americans and will eliminate UBIT.

A UBIT Blocker corporation eliminates the 35% UBIT tax by moving the transaction it in an offshore corporation in a tax free jurisdiction. It effectively converts the ordinary income earned in to dividends or other payments from the corporation to the retirement account. The UBIT Blocker moves income from “ordinary” and “unrelated” categories in to traditional investment returns. As such, business income, including profits from an IRA classified as a dealer in real estate, can avoid UBIT.

Please note that this requires the business be entirely offshore. The IRA, the LLC, the UBIT blocker, AND the real estate must all be outside of the U.S.

I hope you’ve found this post on UBIT helpful. For more information, please give us a call or send an email to info@premieroffshore.com.

IRS Fees

09/22/2014/in Tax Debt/by admin

If you have a tax debt, there are a number of IRS fees for setting up a payment plan or installment agreement. These IRS fees can add up quickly if you default and need to reapply.

The IRS fee for setting up a payment plan on direct debit from your bank account is $52. This is the least expensive because you are authorizing the government to debt your bank account and the risk of default is lower.

The next IRS fee is $120 for an installment agreement if you will send in a check each month or have the money taken out of your paycheck (payroll deduction). With a payroll deduction, your employer must send the government a check on your behalf. As you can imagine, these are not very popular with taxpayers because of the embarrassment involved.

I will note that the IRS sometimes requires a payroll deduction rather than allowing you to send a check. If you have defaulted more than once, or without good cause, the government will want some assurances that it won’t happen again … which they believe they get with a payroll deduction.

If you have very limited resources, you might qualify for a $43 installment agreement, rather than $52 or $120. There are a number of low income categories, so, suffice it to say, you will need to be about at the poverty line to qualify for a low income installment agreement. To be honest, very view people who must make payments, and are not listed as uncollectible, qualify for the discounted rate. If your income is low enough for the discount, you probably don’t need to pay anything.

These IRS fees apply equally to payment plans setup online, through a professional, or by mail. If you owe less than $50,000, you can set up a streamlined payment plan online. If you owe $25,000 in payroll taxes, you may set up an online payment plan and these IRS fees apply.

I hope this post on IRS fees has been helpful. Please take a read through my more detailed articles on resolving your IRS tax debt.

Give Up U.S. Citizenship

09/19/2014/in /by Christian Reeves

As America becomes ever more intrusive in the daily lives of expats and residents alike, and the tax burden of the “haves” increases each year, the number of people giving up U.S. citizenship is also increasing. In some studies, the number whom give up U.S. citizenship has grown by a factor of 10 in five years.

First, let’s talk about what you get when you give up U.S. citizenship. You get a life free of the U.S. IRS. You’ll never need to pay in to the U.S. tax system again. While the U.S. does tax its citizens no matter where they live, once you dump that blue passport, you’re free of Uncle Sam.

It is fear of the IRS, and unreasonable taxation of Americans abroad, that are the most common reasons cited by those who give up U.S. citizenship. I think it is safe to say that, if the U.S. stopped taxing its citizens living abroad, the number of expatriations would drop significantly.

Note that the U.S. taxes its citizens on passive/investment income no matter where they live. If you also earn a salary from a foreign corporation, and qualify for the Foreign Earned Income Exclusion, you can earn up to $99,200 before Uncle comes calling. If you are living abroad, and your primary source of income is a salary or an active business, you may be able to operate tax free without expatriating.

If you are convinced you want out of the U.S. system, there are three steps you must take BEFORE you disengage.

– Step 1: Move your assets out of the U.S. and to a tax free offshore jurisdiction

– Step 2: Decide where you would like to live abroad … where you would like to make your home base.

– Step 3: Obtain a Second Passport

Step 1: Move your Assets Out of the U.S.

Even while your most important asset is in America (you), begin moving liquid assets and retirement accounts out of the U.S. Before you give up U.S. citizenship, you must plant that first flag offshore in the form of a corporation, business and/or investment accounts under the foreign structure, and more your retirement accounts abroad.

We can provide introductions to a number of offshore banks and brokerage firms, as well as international real estate investments and physical gold facilities. We are experienced in helping citizens diversify out of the U.S. in anticipation of giving up U.S. citizenship. We will ensure you do it effectively, efficiently, and, most importantly, legally.

Even if you are going to invest in to the U.S. markets, you should be doing so through a foreign company and brokerage. Yes, you will have access to all areas of the United States markets, as well as a range of international investment opportunities. If you are looking to diversify out of the U.S. dollar, you can hold your accounts in just about any currency you choose.

Step 2: Identify Countries Where You Would Like to Live

Once you give up U.S. citizenship, you won’t usually be able to live in the United States … though, I did know one person who did exactly this because his spouse changed her mind after the expatriation process was complete. For the rest of us, we shouldn’t plan to spend more than three or four months in America. If you’re here six months, then you are a tax resident, even though you have no U.S. passport, and get to pay U.S. tax on your worldwide income.

So, you need to figure out where you would like to live. Those of you who follow my postings know I’ve been a fan of Panama for a decade, was recently reintroduced to Chile, and have always had a soft spot for Medellin, Colombia, as having the highest quality of life in South or Central America.

Most of my recommendations center around Latin America because I like to be within the same time zone as the United States in nations with first world telecommunications. This is because I am running a business. If I were retired, I think my suggestions would be more diverse.

If you’re undecided on where to live once you give up U.S. citizenship, I suggest you take a look at www.liveandinvestoverseas.com. They are the best site on the web at providing the information and tools future expats need to make decisions.

I will note that where you live does not need to be the same country where you bank or invest, but it should be where you obtain a residency permit. I believe you should hold your assets in a country other than where you reside and plant multiple flags to ensure maximum diversification. Keeping in mind that most countries don’t tax worldwide income, this is usually an effective tax mitigation technique.

Though, you should live in a country that will grant you a residency. This will allow you to maximize the Foreign Earned Income Exclusion during your first year or two and while you are in the process of giving up U.S. citizenship. If you’re a resident of the country where you live, then you can spend more time in the U.S. If you don’t gain residency, then you must be out of the U.S. for 330 of 365 days and other issues may arise that will cost you when it comes tax time.

All of the countries I list above have efficient residency programs. I suggest that the least expensive, that doesn’t require you to make a significant investment and thus commit resources to a particular country, is Panama. Here, you can buy a small teak parcel for about $15,000 and gain residency through their Favored Nations Visa. No matter where you decide to live, you should have a solid understanding and plan for obtaining residency.

Step 3: Obtain a Second Passport

You might be surprised to find that the majority of calls I get from those who want to give up U.S. citizenship forget the most important component to the plan – you must have a second passport to go to before dumping your U.S. document. If you become a person without a country, you won’t be able to travel, open bank accounts, do business, or find a country that will grant you residency. You must have a new passport and citizenship in hand before you can terminate your U.S. tax paying obligations.

For detailed information on how to obtain a second passport, please see my page (top right menu). The basics are these:

You may qualify for a second passport by ancestry, marriage, religion, or extended residence in another country. For example, if your parents were born in certain EU countries, you can qualify for a passport and citizenship. If this is available to you, I strongly recommend you move on it immediately. Many countries have closed these programs, and others are sure to do the same.

Countries like Panama have residency programs that lead to citizenship. They require you to live and invest there for several years before applying, take 5 or 7 years, and are subject to change as national policies and the president change. In other words, the president in office and national policies will change during your residency period, and you are hoping not to be left out in the cold … or required to make a large campaign donation to the current president’s party.

If you don’t want to wait for years, and don’t have parents who can get you citizenship in their home country, then you will need to buy a second passport before you give up U.S. citizenship. The best program is from St. Kitts. I say it’s the best because the passport offers the largest number of visa free travel options. The least expensive with many visa free options Dominica. The lowest cost second passport with limited visa free options is the Dominican Republic.

If you want to buy a second passport, you should be aware that both Dominica and St. Kitts will do a very thorough background check on you and your family. Neither country will grant citizenship to anyone convicted of a felony … and you must provide a U.S. FBI report if you are going to give up U.S. citizenship.

* If you have a non-violent conviction in your distant past, you might have some options. Feel free to send us an email at info@premieroffshore.com with questions.

Thank you for taking the time to read through this post on how to give up U.S. citizenship. For more information, please see my second passport page. Feel free to phone or email us with questions.

Retire abroad with Maximum Privacy

09/17/2014/in /by Christian Reeves

If you are thinking about retiring abroad, here is how to maximize your privacy. We start with the premise that the U.S. government wants you to disclose all assets, holdings, transactions, and investments. We then look for exceptions to those rules to find the legal loopholes that will allow you to retire with maximum privacy.

As you know, U.S. persons must pay tax on their worldwide income no matter where they live. Even if you retire outside of America, the IRS wants theirs. To enforce these laws, the U.S. requires you to disclose your assets each and every year on the Foreign Bank Account Report form and the Foreign Asset Report. Both of these force you to tell the U.S. what you have and where they can find it.

Well, there are a few … and I mean a very few … exceptions to these reporting requirements. In this article, I will describe each to give you an idea on how to retire abroad with maximum privacy.

My favorite tool to maximize privacy offshore is physical gold held in your name. You are not required to report physical gold on the FBAR or the Foreign Asset statement. Physical gold is gold bars or bullion, and not gold stocks. Paper gold must be reported while physical gold is exempt.

So, you may hold gold in Panama or Switzerland, in a vault in your name, and you are not required to report it to the U.S. I suggest gold is an excellent hedge if you have any concerns about the U.S. economic system or the USD.

Two quick sidebars:

When I say something is held in your name, I mean that you are the owner. If gold is held in a corporation, trust, or foundation, you need to report the entity on the appropriate form and the asset on that entity’s balance sheet. If no structure is used to hold the exempted asset, then no reporting is required.
I am talking about living abroad with maximum privacy, not reducing or eliminating U.S. tax. I will leave that topic for another day. Suffice it to say, if you buy physical gold, you are not required to report its existence. However, when you sell that gold, it is a capital gain, taxable on your U.S. return unless it is inside a U.S. compliant retirement account.

The next best way to retire overseas with maximum privacy is to invest in foreign real estate and hold that property in your name … again, not an offshore company. So long as you live in it, or it is vacant, you have no reporting obligations on foreign real estate.

If you decide to rent it out, then it is reported on your IRS Form 1040, Schedule E, just as a U.S. property. Though, there is nothing that necessarily denotes it as an offshore property. If it is your primary or vacation home, there is no reporting until you sell it. Then it goes on Form 1040, Schedule D as a capital gain. Because you will probably pay significant tax on the sale in the country where the property is located, you usually don’t have any tax due to the U.S. You will find several detailed articles on this site discussing offshore real estate transactions.

The best way around the FBAR form is to open your offshore bank accounts in the name of an offshore IRA LLC. The LLC is owned by your U.S. compliant retirement account and thus exempt from the various reporting requirements. While all savings accounts must be reported if you have more than $10,000 offshore, a bank account owned by your retirement account is excluded.

And if you think about it, that makes sense (a rare convergence of law and logic). When you take your IRA offshore, it is the IRA that owns the offshore LLC, and you act as the manager or fiduciary of that structure. Because the account is owned by an IRA, and not a person, it would be confusing at best to require an FBAR.

If you have questions on this, or would like proof of my claim, search FBAR at IRS.gov. You will see that accounts held by an IRA are exempt.

The same goes for an IRA account inside of a Panama Foundation. This structure allows for maximum asset protection, as well as offshore estate planning, and remains exempt from the FBAR form. Please see my recent posts on the Panama Foundation IRA structure for more information.

Another option for avoiding the FBAR is to invest in an offshore life insurance. If it’s a U.S. compliant policy, a single pay policy will usually allow your income to grow tax free and won’t be reported.

Though, there are many variations of offshore life insurance. I suggest you talk with your insurance provider and confirm that the structure you are considering does not require you to report the account on the FBAR and is exempt from all other U.S. filing obligations.

The last option I will offer on how to retire abroad and maximize privacy is to hold any business interests or projects in joint venture structures where your partner is not a U.S. person. If the other owner of the offshore company is neither a U.S. citizen nor a U.S. resident, you will have a lot more freedom.

For example, if you own and/or control 50% or less of an offshore company, then you need only report the formation of the structure on IRS Form 5471. You are not required to report the company each year … just when you incorporate it and when you sell it.

Likewise, if you are not a signatory on the offshore company’s bank account, you will not need to file the FBAR. In that situation, you could be a partner in an investment company for decades and have no U.S. reporting obligations until the company is sold.

I hope you have found this article on how to retire abroad with maximum privacy helpful. Please call or send an email to info@premieroffshore.com for additional information. We will be happy to work with you to structure your retirement abroad to keep you compliant with the IRS.

Attack on Your Retirement

09/15/2014/in /by Christian Reeves

The U.S. Government has launched an all-out attack on its retirees, crushing their investment returns with low interest rates. Be it intentional, or ignorance, the government is artificially pushing down returns, which does the most harm to our nation’s seniors.

As the United States attempts to stimulate its economy with cheap money, it’s the seniors, who need safe U.S. investments, that will suffer. Just when you should be invested in boring, stable, and guaranteed, the returns on U.S. treasuries are miserable. Adding to this mess, the U.S. economy is the epitome of risk, but returns are lower. When treasury returns should be higher to compensate for this risk, you are lucky to net .5% after an adjustment of 2% for inflation.

* That is to say the yield to maturity on a 20 year treasury is 3% and inflation is 2%. At least you’re not retiring in Europe, where returns are 1% … and my see .5% this year (before inflation).

This all means that America’s seniors are left with two choices: 1) stick with treasuries and reduce your lifestyle, or 2) diversify out of the United States. I suggest there are equal or lower risk investments available offshore that are paying for better returns.

But, first, let me talk about my premise that America’s seniors are under attack from their own government. The Federal Reserve has been pushing law rates for the last six years. This has resulted in miserable returns for those who stuck with treasuries. Obviously, it’s Seniors and Retirees who most often look to protect their nest egg with conservative investments and are thus hardest hit by this policy.

As you’ve read in my previous posts, returns on treasuries are about half of what one would expect from the market. These low rates are the result of Obamanomics. Lower returns mean you have less to live on or that you must take on more risk … a Hobson’s choice for a retiree living on a fixed income.

Next, let’s talk about my claim of 2% inflation over the next decade. I extract this from the yield to maturity of 20 year U.S. treasuries at 3% (going to 2.5%). U.S. the yield to maturity of inflation protected treasuries, which is about .6%. The spread between these is the break-even inflation rate of 2.4%.

Some of this 2.4% represents a bonus for taking a risk on the inflation adjusted treasury (called a TIPS). When you buy a treasury, you get a “guaranteed” return. When you buy a TIPS, you get a return fixed to inflation. If it goes higher than expected, you make more. If it goes lower, you earn less … thus, TIPS include a bonus for taking that risk.

Most financial analysts agree that this risk is worth .4%. Therefore, the expected inflation is 2%. Of course, expectations are often wrong, but that’s the rationale behind TIPS and how we get to a 2% inflation number.

And this can bring you, my valued reader, to why holding U.S. dollars in your retirement account results in a net return of -2% per year. If you hold your account in cash, its value is going down by the rate of inflation.

All of this is based on the assumption that the United States dollar, and treasury, are the world’s safest investments. I believe this is a deeply flawed assumption. Now, I’m not a doomsayer, but I do think that America and the dollar face significant risks and that these risk are not priced in the market.

For example:

the Federal Reserve is printing money as if it’s going out of style,
quantitative easing is artificially propping up the stock market and the dollars,
France has begun to move away from the dollar as its transactional currency,
Russia wants to denominate all oil and gas contracts in Rubles or Euros, eliminating the petrodollar, and
The world’s emerging markets (the BRICS, Brazil, Russia, India, China and South Africa) have united against the IMF and Worldbank in preparation of a concerted effort to push the dollar from dominance.
The Fed’s balance sheet is 25% larger than it was just one year ago ($4 trillion – see Grant’s Interest rate observer).

You will find detailed articles on each of these risks on this site. My point here is that these risks exist. It’s up to you to figure out how much they must be protected against.

So, where might you turn for higher secured returns? Most analysts agree that the United States is in for a decade of flat, slow growth. From the Economist to Forbes, everyone is predicting tough times ahead. You can also find an article here explaining why the U.S. stock market, which is at record highs, is likely to be quite average over the next several years.

I believe it’s time for the American retiree, or anyone looking to boast the returns in their retirement account, to invest abroad. I also believe you should be defensively minded as you decide how to diversify your portfolio. Now is not the time to gamble or to play a risky gambit. Focus on safety, security and diversification out of the dollar.

The most basic form of defense, and one I certainly don’t recommend, is to the buy the 10 year U.S. treasury and hope for better by the time it matures. This means your inflation adjusted return over that decade will be around .3% rather than the lofty .6% found in the 20 year.

You can do much better than that offshore. Here is what I recommend.

First, get your retirement account out of the U.S. and out of harm’s way. Form an offshore IRA LLC and move your IRA into that structure. This will give you control over the account and allow you to invest in just about anything you like offshore. For more information, see my page Self Directed IRA at the top right of this site.

Next, consider investing in foreign real estate with your savings or your IRA. This is an asset which has a high ROI compared to the treasury, and you can invest in a country (such as Panama) with a strong history and appreciation curve. I also note that inflation, if it exceeds the 2% anticipated above, is likely to help your returns in Panama rather than hurt them.

I also suggest it is time to acquire a foreign residency in case you want to remove yourself from the United States. While times are good, these residencies are easy to get in countries like Belize, Panama, Colombia, etc. If things don’t go well in the next few years, some of these programs are likely to be eliminated.

My preferred residency program is offered by Panama. If you combine an investment in teak (around $15,000) with the favored nations visa, you can get residency in no time. Considering the minimal commitment, compared to other programs that require real estate purchases in the hundreds of thousands of dollars, this is a very efficient solutions.

Finally, I suggest you buy physical gold and store it outside of the United States. Gold is the best hedge against a system wide collapse and the only guaranteed investment that will increase in value if the dollar declines. If you’re like me, you think a realignment of the dollar and America’s way of life is more likely than a total failure. Even so, you should move some of your portfolio to physical gold as a hedge against this 10% to 35% realignment.

I never recommend paper gold. Stocks, funds, and gold certificates, are of little value in a major crisis. I also avoid the gold documents offered in Australia and the Perth Mint. Those are gold allocations, not physical gold you take possession of.

Note that physical gold (like real estate) need not be reported to the U.S. government. Gold certificates and stocks are subject to the FBAR or Foreign Assets reporting requirements, and thus are not private if you wish to comply with U.S. law … as we all must. Physical gold held in your name is exempt from these forms.

I hope this post has been helpful. If you would like more information on any of these topics, please give us a call or write to info@premieroffshore.com.

* Premier is not a gold dealer and we don’t make a commission on any sales. These suggestions are meant as a guide. We are happy to introduce you to qualified professionals.

The IRS Can Seize Your IRA

09/12/2014/in /by Christian Reeves

I want to use today’s post to clear up a common misconception. Yes, the IRS can seize your IRA or other retirement account. Yes, the great collector is exempt from state laws protecting your retirement account and can take what it wants at any time … unless you take steps to protect yourself.

Specifically, the IRS may seize your Keogh, 401(k), IRA or SEP by sending a letter to your administrator demanding all the cash, up to the amount of taxes, interest and penalties they claim you owe. You have very little recourse to protect your retirement account once the IRS has issued this letter … known as an IRS levy of your IRA. Your administrator will be required to sell all assets under his control to pay the government.

If you wish to get some of the money back, you must prove that the taking of your IRA is going to create a significant and undue economic hardship on you and your family. As someone in the business for many years, I can tell you that this claim usually falls on deaf ears … unless you are going to be homeless and have near zero to pay for food and rent. If you are a person of means, the IRS may take your retirement account at will.

The same goes for ERISA plans, but the IRS may take only the amount that is vested. If you have a right to the money, then the IRS can get to it.

Now, here’s the kicker. When the IRS sizes your IRA, you must pay tax on that money as if it were distributed to you. If the IRS takes $75,000 from you on June of 2015, you must pay tax on that amount as an IRA distribution when you file your 2015 tax return. Obviously, this creates a new tax debt in 2015, but at least the IRS has theirs.

* You don’t need to pay an early withdrawal penalty on the amount the government takes.

You do have options. If you are concerned with the IRS and what might happen in the years to come, you can take control of your retirement account away from your administration. You can prevent the IRS from seizing your IRA by moving it to an offshore LLC and investing it out of the United States.

While it’s illegal to move assets offshore for the purpose of keeping them away from the IRS, you do have a right to seek higher returns and more diversification offshore. You may for an offshore IRA LLC, open bank and brokerage accounts, and invest in more secure assets – primarily foreign real estate and physical gold.

Though, I suggest it is best to take these steps before you owe the IRS. If they are actively coming after your assets, it may be a problem to take your IRA offshore … unless you have a good reason, such as you are going to move to that country. If you are going to retire to Panama, it makes sense to move your IRA to Panama.

Note that the IRS can also seize your account if your foreign bank has a branch in the United States. Putting your IRA in HSBC or Citibank makes little sense if you have a tax issue or are concerned with government interference. If you are going offshore, you should separate yourself from country risk by holding assets in local banks and consider diversifying out of the dollar.

I hope this is helpful. For more information on moving your retirement account offshore, please see my Self Directed IRA page. Feel free to phone or email to info@premieroffshore.com with any questions or suggestions. As always, consultations are confidential.