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Retire Overseas Tax Free

09/10/2014/in Taxation/by Christian Reeves

First, let me tell you about my inspiration for this post. France has been in the news and on this site quite a bit recently. They are pushing hard against America’s recent extortion of $9 billion from one of their banks, and I think this could have a major impact on the dominance of the dollar.

You might be wondering what this has to do with how to retire overseas tax free. Well, let me tell you. Like the United States, France taxes the heck out of its citizens … with the maximum rate reaching 75% on incomes over $1 million. These new tax measures have brought in about € 70 billion Euros ($94 billion) over the last three years, but are now driving French citizens out of the country in waves.

Even with this extreme tax rate, I’d swap my U.S. passport for a French one in a heartbeat. You see, France, like most countries, only taxes citizens who live in the country. Anyone can leave France and retire overseas tax free without making any special arrangements … just be out of the country for 163 days a year and you can live, work, and/or retire overseas tax free.

As a result, French citizens are moving to Portugal. This country doesn’t tax foreign pensions and, again, France doesn’t tax its citizens living abroad, so a French citizen may retire to Portugal and live tax free.

In our part of the world, there are many countries that won’t tax your U.S. pension (or your business income, for that matter), such as Panama, Belize, and Chile. Other nations, like Colombia, will only think about taxing you if you are there for more than a few years. In other words, you get to try them out before becoming subject to their tax laws.

Now, here’s the problem. While a French citizen can retire overseas tax free rather easily, Uncle Sam wants his cut no matter where you live. The U.S. taxes its citizens on their worldwide income, including pensions, retirement income, passive and active income, and all forms of compensation. No matter where you live and no matter where the income is generated, the default rule is that you must pay taxes. The rest of this post is about the exception to this rule.

For example, if a U.S. person retires to Panama, and earns $30,000 in capital gain, Panama won’t tax you, but the U.S. will. You are looking at standard U.S. long term (20% ObamaCare tax if applicable) or short term (ordinary) income rates on your income earned in Panama.

Here are four options to retire overseas tax free.

Retire to Puerto Rico

The U.S. territory of Puerto Rico is a special case and is exempt from U.S. Federal Tax laws. As a territory, their rules take precedent over the IRS.

If you retire to Puerto Rico, live there for 163 days of the year, and become a (tax) resident of the island, you can retire overseas tax free. Puerto Rico will not tax your pension or other income, and their long term capital gains rate is 0% on assets (stocks, bonds, real estate, etc.) you acquire after moving. You will pay tax on things you owned before the move, but all stock bought and then sold after becoming a resident is tax free.

Let me clarify. If you retire overseas to Panama City, Panama won’t tax your passive income, but the U.S. IRS will. You will pay 20%+ on all long term capital gains.

This is the case because the default U.S. Federal tax laws control U.S. citizens in foreign countries. If you move to Puerto Rico, and become a tax resident of that U.S. territory, their laws govern and supersede those of the U.S. IRS … because Puerto Rico is a territory and not a foreign country.

Puerto Rico also offers business tax breaks and the above is just a summary of their tax deal for Americans who want to retire “overseas” tax free. Please see my two detailed articles on Puerto Rico for additional information.

Give Up Your U.S. Citizenship

As I have said a few times, the U.S. taxes its citizens on their worldwide income. If you give up your U.S. citizenship, your duties to Uncle Sam are terminated and you may retire overseas tax free … you can’t retire in the U.S. tax free, but you can do so anywhere else you like.

The two most common issues or questions I get on this topic are:

If I give up my U.S. citizenship, can I visit America from time to time? Absolutely. If you have a quality second passport, you can enter as a tourist at any time. If your passport doesn’t allow for visa free travel to the U.S., then you can apply for a visa just like everyone else.

I have had a number of clients do this without issues. They dumped their U.S. passports and returned as a tourist to visit friends and family several times a year. Not one ever had a problem going through immigration.

I even had a client who gave up his U.S. citizenship and then was forced to return to the U.S. as a tax resident by his wife. She decided she couldn’t live so far from her family, so they both became U.S. resident/green card holders using their foreign (second) passports. Now, he is free to burn his green card at any time and go back to his tax free existence … so long as his wife allows it. Giving up your citizenship is a big deal, leaving and no longer being a resident for tax purposes is simple.

This first question begs the second: Do I need a second passport? Yes, you must be a citizen and have a second passport from a country before giving up your U.S. citizenship. If you don’t have a second passport, you would be a person without a country and unable to travel. It’s impossible to give up your U.S. citizenship until you have a second passport in hand.

You can obtain a second passport in three ways: 1) If you have family ties to certain countries, you can come a citizen through lineage … usually because your parents, or maybe grandparents, were born there. 2) You can become a resident of a country like Panama and may qualify for a passport within 5 or 6 years. 3) You can buy a passport from countries like St. Kitts and others.

For additional information on how to obtain a second passport, please see my page (top right menu of this site). We will be happy to help you buy a passport through one of these programs or to become a resident of Panama or Belize.

Eliminate Most Capital Gains or Passive Income Sources

Assuming you don’t want to get rid of that blue passport just yet, you can minimize your taxable income by investing in tax free vehicles offshore.

*Of course, this assumes you don’t need capital gains to live on … that you can rely on your savings.

One option is offshore life insurance. So long as it’s U.S. compliant, the cash in your offshore policy will accrue tax free and may get a stepped up basis when you pass (transfer to your heirs tax free).

Another option to retire overseas tax free is to take only required distributions from your IRA or retirement accounts. These accounts can travel with you overseas, if you move them into an offshore IRA LLC or a Panama Foundation. Then, you can open offshore bank accounts and transfer your IRA or other retirement accounts to your country of residence. The same rules will apply offshore as they would onshore, so you can maintain the tax benefits of your retirement accounts overseas.

Finally, you might create an offshore Trust or Foundation and move your assets into that structure. While you will pay tax on any sales, you can accrue capital gains in the trust and use certain estate planning techniques (such as gift tax exclusions) to minimize or eliminate U.S. tax.

I also note that your IRA or trust can hole gold and real estate. You are not limited to stocks, bonds or treasuries. Certain rules apply to offshore retirement accounts, so please see my other articles for more information.

Convert Passive Income in to Active Income

One of the best ways to retire overseas tax free … is to start a business! While this might sound strange, please allow me to explain.

If you are living and working outside of the United States, and qualify for the Foreign Earned Income Exclusion, you can earn up to $99,200 tax free from your foreign corporation in 2014. If a husband and wife both work in the offshore company, they can both draw a salary and get about $200,000 tax free.

The most common way to qualify for the Foreign Earned Income Exclusion is to move overseas and become a resident of a foreign country. So long as your business doesn’t involve selling to locals, nations like Panama won’t tax you and you can “retire” overseas tax free.

So, if you are an active investor, and spend most of your time trading stocks, maybe you are a professional trader and should incorporate offshore. If you are managing a number of rental properties, or buying land to develop into a multi-unit complex, maybe you are a professional real estate developer and should run that through an offshore company. Maybe your retirement includes selling goods or books over the internet and that should escalate from a hobby to a business. Any of these can become active income and qualify for the Foreign Earned Income Exclusion.

The key to operating a tax free business overseas rather than generating taxable capital gains is how much effort you put in to it. If you are spending 40 hours a week researching, reading, training, and trading, then you are clearly a professional trader. If you are spending 25 hours per week, then you might qualify. If you are regularly and continually searching for and managing real estate projects, you are probably a professional.

So, to retire overseas tax free, you need to spend as much time as possible on your income generating efforts, qualify as a professional in your trade or business, operate through an offshore corporation, qualify for the FEIE, and draw out your profits as tax free salary up to the FEIE and retain any excess in the offshore company.

I hope this article on how to retire overseas tax free 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 discuss these options with you and plan your new life overseas.

Jim Rickards – Threats to Our Dollar

09/09/2014/0 Comments/in /by Christian Reeves

A conversation with Jim Rickards by Christian Reeves on February 6, 2015.

Our currency and our financial system are under attack from all sides. Here’s what you can do to protect your wealth and your family.

Jim Rickards is the best selling author of Currency Wars and Death of the dollar. He has been cited on to on the floor as the senate by Rand Paul and is an adviser to both the Pentagon and the CIA on financial warfare.

Please click here to listen to the recording.

Proof You Should Diversify Your IRA Offshore Now

09/05/2014/in Offshore IRA/by Christian Reeves

A record high stock market in the U.S. exposes the suckers! Don’t be one of them. Diversify your IRA offshore as soon as possible. This article offers statistical proof that you should diversify your IRA abroad. U.S. returns over the next 10 years will wipe out your retirement account.

While everyone is running to dump money in to the stock market, the smart investors are taking their profits and moving to investments with more upside. When a market is at an all time high, it means run… not invest more! If you wanted to get in to stocks, you should have been buying in 2009 after the market bottomed out. Now, you are just going to buy high and sell low. Even the most optimistic outlook is for slow U.S. growth. You will do far better to diversify your IRA in to foreign real estate or markets with significant growth potential.

What Alan Greenspan once called “irrational exuberance,” is back. I hear smart people… doctors and lawyers and such who’ve sat on the sidelines for the last four years and are all excited about investing in the United States stock market.

Remember, if you follow the herd, you’ll be left holding the bank, when the smart money gets out… and they will get out. Now is the time to diversify your IRA.

Please don’t get me wrong. I am not arguing against stocks or the U.S. market in general. If you have a 10 or 20-year plan, stick with it. Remember that the 2008 crash didn’t wipe out investor’s retirement accounts, it just delayed their plans. If you had stayed in the market, you would have made back your losses and then some.

What I’m saying is that now is the time to ignore the financial news and diversify in to international markets. Studies show that investors who received no news performed better than those who received a constant flow of good and bad news. Don’t get caught up in the reactionary cycle.

Statistical Proof That You Should Diversify Your IRA Offshore

Yes, the U.S. markets are at record highs. From here, “basic math suggests that U.S. asset prices have less room to rise. This means that the long-run outlook is for lower returns ahead.” This, according to Wade Pfau, Professor of Retirement Studies at American College for Financial Services, a Ph.D. economist, means you should diversify or reduce your IRA distributions.

Conventional wisdom says that you can withdraw 4% to 5% from your retirement account each year and have cash left over at the end of 30 years. If you are retired more than 30 years, you need to take out less. It also assumes you are 50% in stocks and 50% in bonds. This assumes you are earning 3.5% to 4% on your IRA. If this goes down, your withdrawal rate must also decrease.

Based on Pfau’s recent study of stock and bond returns since 1926, the amount you will be able to take out of your U.S. based retirement account is a function of your return on investment. Because this return is expected to be lower than the previous decade (because the market is at record highs), you’ll need to adjust your withdrawals or increase your returns. I suggest you focus on the second option and diversify your IRA out of the U.S.

Specifically, the amount you can safely take out of your retirement account has gone down from 4% or 5% to just 3%. To support his analysis, Prof. Pfau cites the U.S. Treasury markets. The historic yield has been 3.5% and is now only 2.6%. Current 10-year yields generally correlate to the total return you can expect over the next decade.

This, combined with earning ratios on the S&P 500, get you to an average return in the U.S. of 2.2% after inflation over the next decade… less than ½ of the historic average.

Assuming your IRA is $1 million, a 3% drawdown means you have only $30,000 a year to live on. With Social Security and other income, you’ll be lucky to end up with $40,000 before taxes. To me, this means I should consider living abroad… as well as investing offshore… where the cost of living can be a fraction of the U.S.

Prof. Pfau’s computer model indicates that pulling an inflation-adjusted amount of $40,000 (4%) per year from a $1 million dollar IRA ran the account dry in 57% of the simulations. Taking $30,000 in distributions crashed the account only 24% of the time and a 5% withdrawal emptied it 82% of the time within 30 years.

Where to Invest Your IRA

The solution is to use diversification to stretch your cash and extend your retirement. This is especially urgent when you consider the length of the average retirement. We are living longer, and our retirement years are more than 30, thus we are outliving our savings.

“Tell your dollars where to go rather than asking them where they went.” Roger W. Badson, 1875 to 1967

In order to diversify your IRA, the first step is to take control over your account by moving it in to an offshore IRA LLC. Once that is complete, you can invest in just about anything you like outside of the United States.

So, where might you put your investment dollars? If you consider only historic highs, most EU countries are well off their averages and a good buy. The concern is that many perceive currency and other risks because of the nature of the Union.

*To be honest, I’m not an expert on the EU. I’m focused on south of the U.S. of A.

My favorite countries for diversification are Mexico, Panama and Colombia. Most of the drug wars have come to an end in Mexico and they’ve rewritten the laws that limited investments in coastal real estate… or required you to use a banker’s trust or other convoluted structure. So long as you spend the time and get to know the city of Mexico you’ll invest in, I believe it is one of the best options available.

Those of you who read my columns regularly know that I’m a big fan of Panama and that my business and investments are centered there. I prefer Panama City to other areas, and now believe that the secondary districts of the city hold the most promise.

For example, if I were to diversify my IRA in to Panama today, I would avoid Punta Pacifica and Pitea. I’d look to San Francisco, around Park Omar, and parts of 50^th Street. Most of the gringo dollars going in to Panama are flowing in to Pitea, around Trump Tower, so I’d focus elsewhere.

The same holds true for Colombia. My preferred city is Medellin and I’d stay away from the ever popular “golden mile.” I’d look for condos around parks and within walking distance to cafes and entertainment. For me, the prices within the mile are just too high.

Whenever you invest offshore, you must understand the region of the city you are buying in to. Each area will perform differently and will have differing long term prospects. Doing your homework is 10 times more important offshore than on… especially when there’s no MLS.

If you would like additional information on where to invest, I suggest www.liveandinvestoverseas.com. For more costs and rules related to taking your IRA offshore, please send me an email to info@premieroffshore.com. I’ll be happy to answer any questions you may have.

Buy Physical Gold in Your IRA

09/03/2014/in /by Christian Reeves

If you see some risk in the U.S. economy and want to protect your retirement savings, I suggest you buy physical gold in your IRA.

This can be done easily enough. You first move your retirement account to a U.S. custodian that allows for this type of investment. We then form an offshore LLC and open bank and storage accounts under that entity. The LLC is the owner of your account and assets… with you as the only signatory on those accounts. You can now buy physical gold to hold in a vault in Panama or Switzerland, or coins that you take possession of. You can also open bank accounts in just about any currency and completely diversify out of the U.S.

And now is a great time to buy physical gold. The growing distrust of America has not translated in to higher gold prices. In fact, gold is well off its high of $1,895. Add to this the fact that production is set to decline significantly in 2015 (because the production cost per ounce is skyrocketing) and gold looks like a solid long term investment.

For the first time ever, the majority of Americans are afraid of their own government. According to a Pew Research poll 53% of us think that the U.S. government threatens our personal rights and freedoms.

Though, in my opinion, the price of gold has little to do with the decision to buy. While it’s nice to sell at a profit, the focus is to diversify and create a partial hedge out of a U.S. economic melt down. Gold is the perfect investment to protect your assets. Because it can be bought and sold just about anywhere in the world, and because you can buy it in your retirement account if you set up an IRA LLC, to buy physical gold at any price is a wise move.

For now, gold’s value is determined by a very complex financial trading system. Gold is loaned, leased, hypothecated and re-hypothecated over and over. This inflates the supply – at least on paper – and has a significant downward impact on the market price. For example, 9,000 metric tons are traded daily while only 2,800 metric tons are mined annually.

This artificial system has created havoc in the market. When Germany demanded the return of its 700 tons of gold back in 2011 the U.S. couldn’t deliver. So far, only a small portion has been sent and the U.S. now says it will be some time after 2020 before the full amount can be sent. Of course, Germany can visit its gold in New York, but they can’t take it until all of the hypothecation contracts are up.

The bottom line is that gold contracts and paper gold often leverage physical gold by 40 to 1. All of these shenanigans in the paper gold market (EFTs, LBMA, and Comex) push down the price. If there was no leverage or hypothecated trading, especially as a hedge in FX, prices would be many times higher than they are now.

Again, this is all to say that the price of gold has a lot of potential and is a uniquely interesting investment. Though, I still believe that, to buy physical gold for your retirement account is not about investment return. It’s to protect your retirement from the United States and the weakened financial position we find our nation in.

It is also to say that, holding paper gold for the purpose of protecting yourself from a major devaluation or catastrophic collapse is folly. Fear of the government means you must also fear the economic system in general and that you must hold physical gold.

For these reasons, I suggest you buy physical gold in your retirement account. The price should not be your primary motivating factor, but know that any event that cuts off leverage and hypothecation will send the value of physical gold rocketing upward. In a panic, paper gold has no value. You need the real thing.

I hope you have found this post interesting. For more information on how and where to buy physical gold in your IRA, please send me an email to info@premieroffshore.com. I look forward to working with you.

France’s Attack on the Dollar

09/01/2014/in /by Christian Reeves

There is an attack on the dollar from all sides that will have a major impact on your retirement and savings. This is the first of a two part series on the attack on the dollar by friends and old foes alike. This time, it’s France coming after our currency.

Here’s the setup: The United States now claims authority to regulate ANY transaction denominated in dollars. Basically, any time the dollar is involved in a deal, the U.S. feels it has the duty to control the terms… might makes right seems to be the prevailing sentiment.

To many of you, this might sound ridiculous. The U.S. wants to regulate a transaction having nothing to do with a U.S. business interest or one not tied to America in any way, simply because the contract lists the terms in dollars?

That’s exactly what happened in the case of the French bank BNP Paribas. This company entered in to transactions with countries that the U.S. government didn’t like, including Sudan. They made the mistake of setting the terms of these transactions in dollars, which let mighty Uncle Sam step in and fine the bank nearly $9 billion dollars (yes, that is billion, with a B, and yes, the fine was denominated in dollars).

These transactions between BNP Paribas and Sudan had nothing to do with the United States. Neither party had any business interest in America, no European Union or French regulations were violated, and the only connection between the transactions and the U.S. is that they were completed in dollars.

Of course, France has come out very strongly against this attack on their financial sovereignty. The best articles I’ve found on the topic are in the Financial Times, including July 7, 2014 – Paris rails against the dollar’s dominance.

And this is why we get to a place where France is mounting an attack on the dollar. If the U.S. wants to control all transactions involving its currency, the solution is simple: dump the dollar as the transactional currency.

Now, I’ve been on this beat for a number of years and consider myself experienced in international banking. I never thought that the U.S. would go so far as to regulate a transaction simply because it was in dollars. It seems preposterous… but I guess there is no limit to the audacity of my country.

Even after rules like FACTA et al came along, where foreign banks must report transactions involving U.S. persons, I still failed to see the level of control the U.S. was hoping to force on the rest of the world. I justified these regs as being for the collection of tax from Americans living or investing abroad. Now it is clear all of these attacks on liberty and financial freedom are for control.

While we’ve talked in theory about what would happen if the U.S. dollar was no longer the dominant currency, it now seems reasonably likely it will fall from its perch. For example, the French Finance Minister, Michel Sapin, said,

“We need a rebalancing of the currencies for global payments. The BNP Paribas case should make us realize the necessity of using a variety of currencies.”

“We Europeans are selling ourselves in dollars when we buy planes for example. Is that necessary? I don’t think so.”

“A rebalancing is possible and necessary, not just regarding the euro, but also for the big currencies of the emerging countries, which account for more and more of global trade.”

While the U.S. dollar has enjoyed a long run as the world’s currency, its hold over the world is becoming a matter of tradition, but no longer a requirement. There is no need to buy oil in dollars. Even if the price is quoted in our currency, the refinery can certainly transact in euros, or any currency it chooses, by using a standard exchange rate. As with any other transaction, if the buyer or seller wants to hedge against fluctuation, they are welcome to do so.

And, after BNP, the major industries in France are behind the attack on the dollar. For example, Total, the largest company in France by market capitalization, and the CAC Industrial Group, both came out in favor of dumping the dollar. CAC said, “Companies like ours are in a bind because we sell a lot in dollars but we don’t want to always deal with the U.S. rules and regulations.”

And why should a company in France, doing business with a company in Africa, have any involvement with U.S. regulations? It seems America may have bitten off more than it can chew in this case and their imperialistic attitude just might come back to bite them. You can only push others so far before they fight back.

And, this attack on the dollar is a BIG deal. It has significant implications for you and your savings. If the dollar loses its place as the transaction currency, the demand for dollars, which has been artificially propping up its value for decades and allowing the U.S. to borrow and repay through inflation, will be over.

How much damage might this cause? More than half of all international transactions are done in dollars. The FX market is $5 trillion a day and the dollar is on one side or the other of 87% of all trades. Add to this the fact that 60% of government reserves are in dollars, and you can see the size and scope of a move away from the dollar and how it will affect demand.

The risks associated with this attack on the dollar are enormous. Please stay tuned for my next post, Russia’s Attack on the Dollar, and why the BRICs are looking to dump the petrodollar.

I will leave you with the suggestion that you diversify a portion of your portfolio out of the United States and out of the U.S. dollar. You might consider purchasing physical gold and/or taking your IRA or other retirement account offshore.

We at Premier don’t sell gold, so my suggestions are just that… and I like to think they are unbiased since we don’t have a financial incentive to suggest one product over another. If you would like a few recommendations on how to purchase physical gold outside of the U.S., please send me an email to info@premieroffshore.com.

We do offer offshore IRA LLCs and will help you move your retirement account(s) offshore. For a confidential consultation on taking your savings offshore, please drop me an email or give us a call.

Russia’s Attack on the Dollar

08/29/2014/in My Thoughts/by Christian Reeves

Russia is mounting an attack on the dollar and will threaten your retirement account in 2015. An attack on the dollar that results in a significant devaluation will have a major impact on your assets denominated in dollars.

As I said in my last post, France Attacks the Dollar, our mighty greenback is in trouble. I now say that Russia will be happy to push it over the cliff. Harkening back to the days of the cold war, Mr. Putin is leading the effort to replace the United States dollar as the world’s reserve currency.

First, remember the election battle between Romney and Obama. Romeny claimed Russia was the number one international threat America would face in the coming years. Obama claimed that his opponent was living in the 1980s to great applause… I guess no one is cheering now.

Here are the facts. America fined the French bank BNP Paribas nearly $9 billion for a transaction having nothing to do with the United States. Uncle Sam didn’t like the bank doing business with Sudan – who was on our naughty list, and put sanctions on this tiny nation. France and the European Union had no such laws or regulations and no formal position against Sudan.

Well, the U.S. claimed the authority to regulate BNP because the contracts that it entered in to with Sudan were in United States dollars. That’s right, the only connection to the U.S. was the currency in which the trades were in.

As you might imagine, this caused a great uproar in France and has led to a major attack on the dollar as the transactional and reserve currency of Europe.

Add to this the fact that the United States claims the right to regulate all foreign banks, including those who don’t have branches or offices in the States, that accept U.S. persons as clients, and you will see that the international community is being pushed hard by our government. At some point, enough will be enough and the dam supporting the dollar will burst.

It is important to note that the U.S.’s economic power is based on its being the reserve and transactional currency of the world. And, this status is based primarily on the petrodollar and our being the primary trading currency.

Petrodollar refers to the requirement that the U.S. dollar be used for all oil transactions. When a Chinese buyer wants to purchase Saudi oil, they must use the USD, even if the U.S. has nothing to do with the transaction.

It’s this status as the world’s transactional currency that allows the United States to amass enormous debt while other countries pay for it through inflation. As I’ve said, this will end some day… when these nations have had enough… and it will be time to pay the debt.

In to this landscape steps a new and empowered Russia… and the attack on the dollar gets a major ally (Russia and its group of countries, the BRICS).

Like oil contracts, Russia’s natural gas sales with Europe are priced in USD. Mr. Putin is pushing hard to change to a petroruble or petroeuro… any currency but the dollar. If successful, Russia will be able to decouple all of its trade from the dollar and Europe may follow.

As you read in my last post, France is hoping to do the same… dump the dollar. And this will have a devastating affect on the demand for greenbacks. For example, removing the dollar as the transactional currency from the Russia/EU hydrocarbon market will take about $1 trillion dollars out of the market.

Regardless of what France or the European Union decide, if Russia and its group of nations effectively abandon the petrodollar, tens of trillions of dollars will be wiped from the market. Today, the USD might be riding high against the euro, but such a loss in demand, followed by a move away from the USD as the reserve currency in these countries, will cripple the dollar. It could result in a cascade of nations and large industries moving away from the dollar and the regulation (and fines) that doing business in dollars now entails.

As this point, you might be thinking I’m just crying wolf… that the USD is here to stay and there is no way to escape it. Well, I could point you to a number of examples in history where currencies and nations have fallen following a similar line of attack. But, I’ll leave that to the historians. I need only to direct your attention to the events of the last few years.

As I said above, the United States has begun to regulate ALL foreign banks that allow U.S. citizens or residents to hold accounts. These banks may not have branches or offices in America, but we claim authority over them because they do business with someone holding a blue passport.

And this regulation is based on the threat of taking away that bank’s ability to do business with corresponding partners that hold dollar facilities. Without the leverage/threat of prohibiting these foreign banks from doing business in USD, America would have no way to punish non-compliant institutions.

Many banks have responded by kicking American clients to the curb. I estimate that 90% of the foreign banks without offices in the U.S., and 75% of them who do business in the States, are now closed to Americans seeking offshore accounts.

It doesn’t take a great deal of imagination to see that these same banks could decide to give up the dollar. All they need is some support from the likes of France, Russia, and the E.U., and an alternative transactional and reserve currency.

In my opinion, we Americans should take action to protect our retirement accounts and assets against the coming times. I believe the attack on the dollar will be (partially) successful and that a significant realignment of value is on the horizon. It may not result in the annihilation of the dollar (at least, I hope it doesn’t), but it certainly will have a major impact on the value of the U.S. dollar denominated assets.

My suggestions are simple enough to implement. First, get some or all of your retirement account out of harms way by diversifying offshore. This is done by forming an LLC outside of the U.S. and investing your savings there. You will find a number of articles on this site on how to move your IRA offshore.

Next, I suggest you invest in physical gold. For thousands of years, currencies have failed while gold has stood strong. Today is no different. Please see my recent posts for more information.

I’ve written on why I believe the price of gold is artificially low and is due for an upward correction… especially against the dollar. However, today’s low price is barely a factor in my recommendation to hold physical gold. Gold will act as a hedge against any catastrophic event and can be turned in to currency or goods just about anywhere in the world.

Also, it’s legal for you to hold physical gold offshore and not report it to the IRS. That’s right, you don’t need to report gold held in a vault offshore to the U.S. government.

Those are my thoughts. I hope this article on the attack on the dollar has been helpful. Feel free to call or email us at info@premieroffshore.com for additional information. Alls consultations are confidential.

Chile: An Entrepreneur’s Paradise

08/27/2014/in /by Christian Reeves

Chile is now one of the best countries in South and Central America for tech startups. As you will see in this article, it is blowing past my Panama… at least in attracting tech start-ups.

Termed “The Chilecon Valley,” Santiago, Chile has become the entrepreneurial hub of Latin America by focusing on talent… and backing up its policies with cash. As a result of these government programs, it’s attracting many tech professionals from the U.S. and elsewhere.

In tech, the world’s most valuable resource is talent. Chile doesn’t have the talent, but they’ve found a way to import it. While the U.S. turns away many of the best and brightest by denying them residency and visas, Chile is welcoming them with open arms. Tech geniuses come to Stanford, Harvard and MIT, only to find that the U.S. won’t allow them to stay when their schooling is over. Chile is cashing in on our loss by giving out residency permits to anyone who will add to the country’s emerging tech industry… and then giving out grants to get these businesses up and running.

Want to move your startup to Chile? Talk to Start-Up Chile first. They offer a government sponsored program that may award a grant of $40,000… and all the visas you need… if you come to their fine country. As your business becomes more mature, they have additional government funded seed capital programs and investment rounds. For those moving on to the big leagues, Chile has convinced many of the best venture capital firms to visit Chile to hear pitches from these businesses.

This program, which began in 2012, has funded over 1,000 companies and entrepreneurs from 37 countries. Of these, around 1/5^th are local businesses and about 1/4^th are American. The rest are from anywhere and everywhere on the globe. This has created a very “Californian” vibe along the Pacific coast of South America and a vibrant expat entrepreneurial community. Like Paris in the 1920s and 1030s was the home of a great expat writing revolution, led by the likes of F. Scott Fitzgerald and Earnest Hemingway, Chile is leading the way for the best and brightest in tech that don’t feel welcome in Silicon Valley.

The differences between Chile and Panama are: 1) Chile is focused on tech start-ups while Panama has targeted call centers; 2) Panama wants you to hire local, where Chile will allow you to bring in as many of your own people as you like… from your home country or elsewhere (i.e., India).

Panama’s visa programs are for executives, while Chile’s are for anyone.

What does Chile get out of the program? Other than the obvious short term financial benefits of bringing in successful people, they require recipients of the grants to coach local businesses. They expect you to give back some of your time. Since 2012, Start-Up Chile has held 500 meetings and 1,200 workshops and conferences focused on improving local talent.

Also, these programs have led to a number of joint ventures between Chilean and international businesses that would’ve been unattainable just a few years ago. This, and the influx of international talent which is often hired by Chilean companies, has had a positive and lasting impact on local businesses.

But Chile has some tough competition coming on. Brazil has been working towards becoming a tech mecca for the last few years, and, now that the World cup with its billions in investment is completed, this nation is pushing hard. With aspirations of being the China of Latin America, Brazil offers better infrastructure and local resources, and an economy 10 times larger than Chile’s, but also a much more dense bureaucracy… one that can be impenetrable for foreign investors.

Whether or not Brazil is successful in its efforts, I suggest that Chile will remain a strong option for tech start-ups. For me, the focused community and a government that looks to make my life easier, rather than one that’s constantly looking over my shoulder (Uncle Sam), is all I need to know to say that Chile is a great place to set up an offshore tech business.

Brazil might become the China of Latin America, but Chile will be the Singapore… which is where I would rather be. Brazil has the local market base, but Chile has the privacy and community I want, plus a more educated workforce.

As the U.S. pushes out foreign-born talent, some might say in favor of the huddled masses coming through the Mexican border, you can expect the likes of Chile and Brazil to become even more important players on the world tech stage.

In fact, the U.S. has cut its skilled worker visas to 65,000 per year, down from 100,000 in 1999, and made the process nearly impossible to navigate. Back in the days of Reagan (the good ole days to some), these visas took 18 months to procure. Now, one can wait as long as 10 years!

The U.S. should be focused on winning the global war for talent, but obviously has decided to focus on other matters. Tech firms hoping to compete with lower cost and more efficient programs in South America might find themselves losing to Chilecon Valley and the like.

I hope you’ve found this post interesting. If you’re considering moving your business out of the United States, we can help structure it in a manner that is tax efficient and compliant. Feel free to call or email us at info@premieroffshore.com with any questions. All consultations are confidential and free.

Next up will be a review of Chile’s economy tax system, which was designed to go hand in hand with the U.S. Foreign Earned Income Exclusion.

Avoid the ObamaCare Tax, Offshore Edition

08/22/2014/in Taxation/by Christian Reeves

The new ObamaCare tax, called the Net Investment Income Tax, or NIIT, hits U.S. residents and expats alike with a 38% levy on most forms of investment income. If your taxable income in 2014 was $200,000 (single) or $250,000 (joint), the ObamaCare tax is coming your way.

These rates are fixed and will not increase with inflation.

The ObamaCare tax applies to the following forms of income:

interest,
dividends,
capital gains,
rental and royalty income,
non-qualified annuities
businesses classified as passive activities, and
income from investment and trading businesses.

Assuming you don’t want to pay any more than necessary to the Obamanation, there are a number of ways to amputate the ObamaCare tax. For example, you can get a divorce or cancel the wedding to avoid the marriage penalty. Two single people may earn up to $400,000 before paying in to ObamaCare, compared to a married couple who start contributing to the cause at $250,000.

If you have residency or citizenship outside of the United States, and can qualify to file as a nonresident alien, you will avoid the ObamaCare tax all together, regardless of your income. That’s right, the NIIT doesn’t apply to nonresident aliens.

If your spouse won’t go for a divorce, and you don’t qualify as a nonresident alien, here are a few other suggestions:

One way around the ObamaCare tax is to give appreciated property to your heirs. If their incomes are below the $200,000 and $250,000 thresholds no NIIT will be due. This can also have significant estate planning and asset protection benefits.

As you may know, when you donate property to your children, who are minors or full-time students up to age 24, they must pay capital gains at your higher rate. However, the ObamaCare tax does not apply to this kiddie tax.

Another solution to the NIIT is to form a Family Foundation and donate appreciated property to that Foundation. This allows you to maintain control over the property, take a deduction for the fair market value on this years return, and then transfer small portions each year to a charity. This allows you to maximize your deduction and avoid both the capital gains and NIIT taxes… all while maintaining control over the assets.

If you don’t need to control the distributions over a number of years, you can achieve the same benefits by donating the appreciated property to a traditional charity.

You can also cut out the ObamaCare tax by lending money to your onshore or offshore business. Interest income from a third party is taxable under the NIIT, but interest coming from your own business is not. This is a rather strange differentiation, but should motivate you to invest in your business.

Along the same lines, if you take an active roll in a business, rather than being a passive partner, dividends and royalties from that company are not subject to the ObamaCare tax.

An active roll, or, more properly, material participation, means that you spend at least 500 hours per year in the business, you are the primary worker, or you can show a consistent work history in the company. Special care should be taken when converting from passive to active, as other taxes might outweigh the NIIT. But, it is quite possible for this to save you money.

If your business is offshore, and you qualify for the Foreign Earned Income Exclusion, then you should be taking out the full exclusion each year to maximize the benefits of being offshore. This means you (and you spouse) should be taking $99,200 in tax free salary from your offshore company in 2014 and holding any excess as retained earnings in the offshore corporation.

The ObamaCare tax doesn’t apply to this salary. As you will be an active participant in the business, which is why you qualify to take the FEIE, you will also avoid the NIIT on interest, dividends and royalties this business generates. When combined, these savings should be major incentives to invest in your offshore company.

If your offshore company needs cash, take the full FEIE salary and lend back whatever is requires.
Note that these benefits do not apply to an onshore or offshore company in the business of trading financial instruments or commodities.

Keeping the trend going, you can rent property to your business and avoid the ObamaCare tax on these payments. The NIIT usually applies to rental income, but not if it comes from your onshore or offshore company.

Leaving offshore companies behind, you can also avoid the ObamaCare tax when you sell your real estate by doing an exchange rather than a traditional sale. A Section 1031 exchange allows you to swap one like-kind property for another and defer the capital gain until you sell the acquired property. A 1031 exchange also defers the ObamaCare tax for as long as you hold the property.

“Like-kind” means that the property you swap for must be similar to the one you are giving up. So, you can transfer one business property for another, one rental for another, etc. However, you may not swap a U.S. property for a foreign property. You must swap a U.S. property for another U.S. property… and you may exchange a foreign property for another foreign property. The foreign properties need not be in the same country. The only requirement is that they both be outside of the United States.

My last suggestion on how to eliminate the ObamaCare tax is that you might sell your losing stocks and use these tax losses against your winners. This common tax mitigation strategy works against the NIIT as you may net capital gains against capital losses and calculate the ObamaCare tax on the net. Even better, you can use a carry forward loss against current year gains to keep the NIIT at bay.

I hope you have found this article on cutting out the ObamaCare tax helpful. If you have questions about forming or operating an offshore company, please contact me at info@premieroffshore.com. I will be happy to work with you to structure your offshore business and keep it in compliance with the Internal Revenue Service.

Quotes from Financial Giants Applied to Offshore Investment

08/19/2014/in My Thoughts/by Christian Reeves

These are my favorite quotes from the giants of finance that I apply to my offshore investment and my offshore business. If you want to manage your offshore investment portfolio, follow this advice to diversification and wealth.

The two quotes that I follow in every offshore investment that I make, and in my business (which is based in Panama), is a combo from Warren Buffet and Peter Lynch. Mr. Buffet says to “only invest in what you know and at the right price,” while Mr. Lynch says, “Buy what you know!”

I believe firmly one should only make investments, be they onshore or offshore, that you fully understand. For this reason, much of my offshore investment is putting capital back in to my own business. It also means that I thoroughly vet all rental real estate properties I purchase, and focus on hard assets, such as gold and wood.

To achieve this goal, I have taken control over my retirement plan. Only I have the time, motivation, and am willing to spend the money necessary to vet each and every offshore investment.

If I left my retirement accounts to a U.S. advisor or custodian, he is not going to spend the time necessary to research, visit, and analyze a condo in Medellin. He doesn’t make that kind of money from my accounts. On the other hand, I expect a significant return from each and every offshore investment, so I am willing to spend my time, effort, and money to guarantee a high return to my IRA.

Next is Thomas Rowe Price, Jr., founder of T. Rowe Price & Assoc., probably not someone you’d expect me to be citing, too. Premier makes quite a bit out of taking your retirement accounts and investments away from these big firms and under your control. Well, my favorite quote attributed to Mr. Price is, “Most big fortunes result from investing in a growing business and staying with it through thick and thin.”

I interpret (or spin) this to mean we should make each offshore investment in a growing, tax efficient business and, if you own or control that business, even better. Only you know for certain how your business is doing and are willing to fight through any adversity to keep it going. Make your offshore investment count – invest in your business or start a joint venture offshore with a partner committed to these same principles.

Next, I’m a fan of Carl Icahn, who once said, “Complain loudly to force improvement.” As you may know, Mr. Icahn rose to prominence as a corporate raider in the 1980s, and is now considered an activist investor… a term I guess means he or the industry has softened its approach.

In either case, Mr. Icahn invests in under-performing companies, complains loudly, and turns them around. One way to apply this to an offshore investment or an offshore business is to bring American efficiency and work ethic to Latin America. By pushing your employees, and complaining loudly about inefficiency, you are sure to increase revenues.

Also, because your investment is in a region with lower wages on average, you are able to compensate those who live up to your expectations. You may have a tough time implementing this in some countries, but others, like Panama, already know what to expect and are more willing to adapt.

Now for two classics. First, Nathan Mayer Rothchild (1777 – 1836) said that “information is money.” This is the most important quote in this post for the American making an offshore investment in Latin America. The bottom line is that there are two prices for many offshore investments, the local price and the gringo price. The only way to avoid the gringo price is through information.

Keeping in mind that there is no MLS system for real estate in South and Central America, you must come about information the old fashioned way, just like Nathan Rothchild. You need to build relationships, do your due diligence, speak to as many locals and real estate people as possible, and build a reliable spreadsheet of prices in each region in the city.

For example, you should be aware that name brand real estate agents in Panama often buy and flip property to an American to increase their profits. I have also seen them push up the price and take a kickback from the seller. Only through research and local knowledge will you be able to ferret out the best deals.

These backroom deals are common knowledge among Panamanians. I have rented many apartments, and I am always asked if I want to offer the unit at the local rate or the gringo rate… which means I will need to wait for a sucker to come along, but will receive a higher monthly fee… often 50% or more than the local rate.

And this goes back to my first point of invest in what you know and at the right price. Only someone willing to do the research in order to understand the market and the culture will have the information necessary to make an offshore investment. There is no way your U.S. IRS custodian will be willing to put in this kind of time. Information will ensure you get the best deals and can make a significant difference offshore. But, you must be willing to work for and spend to obtain that information.

Second is Roger W. Babson (1875 – 1967), who said “diversification, caution and no margin debt are the keys to investing.” Today, the only way to truly diversify is to go offshore. If you diversify out of the United States, and out of the U.S. dollar, you are protecting against country and currency risk, which many believe are quite significant at this time in our history. I also believe this should lead you to physical assets, such as gold and wood on the conservative side of your ledger and real estate with significant upside on the aggressive side of your offshore investment portfolio.

I personally don’t recommend leverage or margin debt in your retirement account. I believe the only place for leverage in your offshore investment portfolio is in income producing real estate.

Margin interest increases your gains, but is also increasing your risks. This is especially true with margin debt on currency trading, which can reach 100 times. Very few should be taking these kinds of risks with their retirement money.

Of course, many don’t agree with me or Mr. Babson. If you use margin debt in your retirement account onshore, then you must pay 35% tax on the income derived from this leverage, called Unrelated Business Income Tax or UBIT. This UBIT is eliminated by taking your IRA offshore. So, moving your retirement account offshore, and adding a UBIT Blocker Corporation to your offshore company structure, is the best way to go against the traditional wisdom of not using leverage in a retirement account.

The best quote and argument for taking control of your retirement account also comes from Mr. Babson. He said, “Tell your dollars where to go rather than asking them where they went.”

By taking control of your retirement account, and directing those dollars to well researched higher yields and/or more diverse assets classes, you will be buying what you know and securing your retirement.

I believe William F. Sharpe sums up my feelings on offshore investments quite succinctly. “Understand your risks!”

If you buy what you know, and have sufficient information to understand the market and, maybe more importantly, the culture in to which you are investing, then you will understand the risks of a particular offshore investment. When you know your risks, you can take steps to mitigate those risks.

I will close with a quote from Alexander Hamilton (1755 – 1804), who said “sovereign strength begets financial stability.” A basic reading of this statement will lead you to invest in countries which are stable and encourage you to do your research on the currency and balance sheet of any nation you are thinking of making an investment in.

On a deeper level, it might cause some to look back at the United States and see a country that has lost much of its sovereign strength because of its ever weakening financial position. When you consider that holding accounts in U.S. dollars is a form of investing in the U.S., you might decide to modify your portfolio mix.

I will leave it here because I prefer to focus on the facts of offshore investment and doing business abroad. I try, and sometimes fail, to keep politics out of it.

As a parting shot, here is one more quote from Mr. Hamilton: “A nation which can prefer disgrace to danger is prepared for a master, and deserves one.”

The Offshore Tax Inversion

08/15/2014/in Taxation/by Christian Reeves

What the heck is an offshore tax inversion and why should I care? The inversion has been all over the news and was even called “un-American” by our President today (July 25, 2014). Here is everything the small to medium sized business owner needs to know about the tax inversion.

Where a large corporation is headquartered is called its tax home. Its tax home is usually where its “brain trust” is located… where its President, CEO, CFO, and primary decision makers reside, often the tax home of a world-wide conglomerate.

Where a corporation tax home is located determines which laws guide the business. So, if your tax home is in the United States, then the U.S. laws control. If you move your headquarters to a country that is business friendly and has less onerous lax laws, then that nation’s laws govern.

An offshore tax inversion occurs when a large corporation headquartered in the U.S. acquires another large corporation located in a tax friendly jurisdiction, such as Ireland. Then, they move the decision makers to Ireland, turning it in to their headquarters and thus their tax home.

Once the offshore tax inversion is complete, U.S. tax laws only apply to any officers or production facilities located here. Most tax inversions are done to save many hundreds of millions in taxes on worldwide income and to get away from the complex sections of the U.S. tax code, such as the Controlled Foreign Corporation and Passive Foreign Investment Company rules.

A tax inversion can be compared to an individual changing his citizenship and moving out of the U.S. All U.S. citizens are taxed on their worldwide income. If you dump your U.S. passport and move to a country with more favorable tax laws, you probably won’t pay tax on your worldwide income… just on your local income.

In much the same manner, a corporation changes its domicile and tax home through an offshore tax inversion. Once its headquarters are moved, it only pays U.S. tax on its remaining U.S. operations.

While the offshore tax inversion is used by large corporations to get out of the U.S. tax system, there are other provisions of the U.S. code that allow smaller businesses to do the same.

Those of us with a smaller operation can take our business and ourselves offshore, qualify for the Foreign Earned Income Exclusion, and earn up to $99,200 per year free of Federal Income Tax using an offshore corporation. If we leave some employees in the U.S., we will pay some tax to the U.S. If we get rid of all U.S. ties, we can eliminate U.S. tax all together… even if our sales are to U.S. persons.

Tax is based on where you and your business are located, not by where your customers are.

If you are thinking about moving your business offshore, please start by browsing my articles on the Foreign Earned Income Exclusion. Basically, you need to move abroad and become a resident of another country or be out of the U.S. for 330 of 365 days to qualify.

Next, you can form an offshore corporation and draw a salary up to the FEIE amount. If a husband and wife are working in the business, and both qualify, each can take a salary and you’ll (basically) get to earn $200,000 free of U.S. tax. If your business profits exceed this amount, you may retain earnings in your offshore corporation and defer U.S. tax for as long as you like.

You’ll find a number of articles on this site describing how to take your business offshore. If you have any questions, please send an email to me at info@premieroffshore.com.

The Real Return on a U.S. Treasury

08/13/2014/in Offshore IRA/by Christian Reeves

The real return on U.S. Treasuries is a miserable 0.6% per year. If you don’t think you can do better than this offshore, then leave your retirement with Fidelity and risk it being taken over by the U.S government and MyRa.

If you think you can beat the real return on U.S. Treasuries by diversifying out of the United States and out of the U.S. dollar, then get your retirement account out of harms way ASAP.

If you buy a U.S. Treasury bond today (July 2014), which is due in 2024, the yield to maturity is 2.6%. If you subtract inflation from this lofty percentage, it becomes a miserable 0.6% per year.

If you, like many of my readers, are concerned with the U.S. dollar and the possibility of significant inflation in America, you can always buy a TIPS bond. The TIPS protects against inflation and is returning all of 0.4% per year.

There has been a lot of talk of late that the U.S. will nationalize the retirement account system and block foreign investments. If this happens, all retirement accounts will be transferred to government control and forced to buy U.S. Treasuries, the most secure investment around… and the nationalization will be sold as protecting Americans.

Now, I don’t know if this will occur, but I do know how to protect you from the possibility. Take your IRA offshore now, by moving it in to an Offshore IRA LLC. This will give you control over your assets and investments, all while keeping the government out of your affairs.

If the return on U.S. Treasuries excites you, and you don’t believe the U.S. will come for your retirement account, then do nothing. If you want to protect your assets and diversify offshore, please take a read through my various articles on offshore IRAs.

As I said, I don’t know what will happen, but I know how to eliminate the risk. Most advisors agree that, once your IRA is offshore, it will be grandfathered in and no changes in the law will affect its status. Therefore, time is of the essence.

The reason for this opinion is simple: it would be near impossible to force the sale of real estate and physical assets (like gold) that are held offshore. It is much more likely that future formations will be prohibited. Those already setup will be allowed to continue.

“Tell your dollars where to go rather than asking them where they went.” – Roger W. Badson, 1875 to 1967

If you have any questions, feel free to phone us or drop me an email at info@premieroffshore.com. I will be happy to work with you to get your account under your control and out of the United Sates.

IRS Collection Statute for Expats

08/11/2014/in Taxation/by Christian Reeves

A few days ago I wrote an article on dealing with the IRS as an expat. Apparently, a number of you are carrying tax debt and are concerned with the IRS collection statute – how long the IRS has to collect that tax debt. This article is specifically for those living abroad that owe the IRS. The IRS collection statute might just be the fresh start you have been looking for.

The basics of the IRS collection statute are these: They have 10 years to collect from you once a tax is assessed. A tax is assessed when you file a return, an audit is completed and your appeals run their course, or the government computers prepare a return for you based on whatever information they may have (called a substitute for return).

If you never file a return, and the IRS doesn’t prepare one for you, the IRS collection statute never starts.

The IRS collection statute is placed on hold whenever the IRS is prohibited by law from collecting from you. This is usually when you file an Offer in Compromise, a Collection Due Process request, or bankruptcy. These can delay the IRS collection statute for many months or years.

Not to hurry the lead, but the IRS collection statute is put on hold while you are out of the United States. More specifically, Sections 6502 and 6503(c) of the U.S. Tax Code work together to extend the collection statute if you are out of the U.S. for “a continuous period of six months or more.”

That is to say, if you are out of the U.S. for any six month period, the IRS collection statute is extended. If you return every few months, so you are never gone for six months, then the IRS collection statute is never tolled.

Application of the IRS Collection Statute

If you incur a U.S. tax debt while living abroad, and you never set foot in America, the collection period never starts. If you incur a tax debt and then move abroad, again never visiting your country, the collection period (basically) never starts.

Conversely, if you’re visiting family in the U.S. every few months, even for a day or two and thus never out of the country for a continuous period of at least six months, the IRS collection statute is running and the debt will expire in 10 years.

If you incur a U.S. tax debt while abroad, and then return to the U.S., the collection statute starts when you touch down. So, if you are traveling to America from time to time, you might want to make sure you are never out for six months.

There is one more minor issue for expats. If you are out of the U.S. for six months or more, and when you return the IRS collection statute is about to expire, the statute is automatically extended for six months.

Basically, if you are out of the country for six months or more, the IRS will always have six months after your return to get you and your assets.

Now let’s talk about the practical implications of the IRS collection statute on expats. Most of you will find that the IRS computers stop sending you bills, and that your debt will drop off and out of the system, after ten years.

If the great collector ever gets its act together, and compares the travel days claimed on IRS Form 2555 filed with your personal return, expats with tax debts might well have an issue. So far, this has not happened and the collection statute is running… at least the computers are processing bills as if the debts have expired.

If you want to know how much you owe the IRS, you can phone them and ask for a Transcript of Account. This will tell you which years show a balance due, as well as the tax, interest and penalties that have accrued.

If you know you owed for a particular year, and think the 10 year collection statute may have run, you can call the government and ask the status of a particular year. Though, I wouldn’t mention to them you are living abroad.

I hope this post helps to clarify the IRS collection statute and how it applies to expats. If you have any questions, feel free to call or send an email to info@premieroffshore.com.

Offshore IRS Audit Statute

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

For most Americans, the IRS audit statute, the amount of time the IRS has to come after you once you have filed your return, is three years. Not so for those with foreign accounts and foreign assets. In most cases, the IRS has six years to audit your international investments.

First, let’s review the IRS audit statute of limitations. Basically, it says that the IRS has three years to come after you once your file a tax return. If you never file, the IRS audit statute never starts… so file your returns.

There are several exceptions to this three year IRS audit statute of limitations. For example, if you omit more than 25% of your income, the three year statute is doubled to six years. Which is to say, if you have a substantial understatement, the IRS has six years to find it.

It is common for tax preparers to allow returns with aggressive deductions that don’t exceed 25%.

Also, there is no IRS audit statute of limitations for fraud. If the IRS can prove fraud, which is tough for them to do, they can go back as far as they like. In practice, it is rare for the IRS audit statute to be extended beyond six years.

For U.S residents who keep their money at home, the IRS audit statute of limitations is linked to your income. If you make $100 million, and make an error of $10 million, the statute will not be extended to six years without a showing of fraud on your part… again, the IRS’s burden on fraud is high, and so it is not used too often.

For those of us living, working, or investing abroad, it’s a different story. If you omitted more than $5,000 of foreign income from your return, regardless of your total income, the IRS audit statute is doubled to six years.

That’s right… if you made $100 million, and inadvertently omitted $5,000 of foreign income from your personal income tax return, your IRS audit statute is six years. And, this increase applies to every aspect of your return, not just your foreign source income.

Even worse, and as I stated above, if you never filed a particular return, the audit statute never starts. So, even if you reported all of your foreign source income, but you did not file an offshore corporation return (IRS Form 5471) or an offshore trust return (IRS Form 3520 and/or 3520-A), the IRS audit statute for these foreign structures never started.

The same holds true for the Foreign Bank Account Report form, commonly called the FBAR. If you never file this form, the IRS can audit your offshore bank accounts as far back as they like… and impose penalties of up to $100,000 per year.

And this is one of the ways the IRS goes after expats and those with foreign assets even after the six years has passed. You might have included some, but not all, of your foreign income on your return and were just waiting for the three year or six year IRS audit statute to pass. Well, if you did not file the forms required in addition to your 1040, your clock never started to run.

I note that failure to file the FBAR, financial asset report and offshore company or offshore trust forms extends the IRS’s time to audit those forms, as well as add any tax due to your personal return.

In addition to the items above, which are specific to those of us living, working, and investing abroad, there are other ways your IRS audit statute can be extended. The most common is by mutual agreement between you and the IRS. If you are being audited and either side needs more time, you will be asked to sign an IRS audit statute extension.

Most of us in the tax representation game suggest you should extend the statute whenever asked. The reason is simple: if you don’t agree, the IRS assesses whatever additional income you have and disallows all expenses and deductions you took on your return. From here, you can fight it out with appeals and the IRS audit statute is not an issue… the audit is over.

Your IRS audit statute can also be extended by your filing an amended return. If you file a return with an increase in tax (balance due) within the three year audit statute, your statute is not increased. If you file a return with a balance due after the statute runs out, the IRS gets one year to revise it. So, file your amended returns with a balance due 60 days before the statute runs out and cut the Service off before they get to you.

An amended return that does not have a net increase in tax does not extend the IRS audit statute.

Understanding the IRS audit statute can become a major issue and determine how far you want to push the envelope. It begins with you filing a return, so always send in your returns by certified mail or file electronically.

Note that this article is focused on the IRS audit statute. Your state may also treat your domestic and international source income differently. I will mention that my State of California has a four year audit statute rather than the more traditional three year period. You should check with your local office.

Offshore Basics – What’ Legal and What’ Not

08/06/2014/in Offshore Banking, Offshore Company, Taxation/by Christian Reeves

If you’re new to the world of offshore, then this article on offshore basics is for you. Thinking about starting a business abroad? Want to move you or your assets out of the United States? Offshore basics will tell you how… and what’s legal and what’s not for an American abroad. Many of the articles on my site are quite detailed. This one is intended to cover just the basics of going offshore.

First, let’s talk about the person living in the United States that wants to invest abroad. The bottom line is that Uncle Sam will tax your worldwide income. No matter where you invest, so long as you are living in the United States, there are very few breaks for going offshore… there are three exceptions below.

That’s not to say there are no benefits to moving your assets abroad… there are just no tax benefits in doing so. Investing abroad will give you access to dynamic markets, get you out of the United States dollar, and allow you to hedge or diversify much more effectively than you can here at home.

As for asset protection, so long as you set up the structure before someone comes after you, you’ll be able to maximize privacy and protection offshore. A trust or Panama Foundation will provide maximum protection and may minimize estates taxes.

If your estate is over $5 million, a well designed trust or Panama Foundation will get those assets out of your taxable estate and make the transfer to heirs more tax efficient.

Note that the income earned in the offshore trust is taxable to you, the founder or settlor. Passive or investment income is always taxable to you – the U.S. person and “owner” of the assets until your passing.

Transferring property to an offshore foundation, and then to your heirs will eliminate the 3.8% Obamacare tax on investment income. Your children will still pay tax at your rate, but should avoid the extra bump.

There are three major exceptions to the rule that investing offshore is tax neutral. They are: 1) the offshore IRA LLC, 2) the offshore captive insurance company, and 3) the offshore life insurance policy.

You can invest your retirement account in to an offshore LLC and keep the same tax benefits (deferral for a traditional IRA and tax free for a ROTH) you had onshore. If you invest with leverage or in to an active business, you may add a UBIT Blocker Corporation to your structure for big time tax savings not available in the United States. For more information on this topic, please see my various offshore posts on IRA and UBIT Blockers.

With an offshore captive insurance company, your business can (basically) reduce its U.S. taxes by $1.2 million per year… moving that money offshore. Any passive investment income that this premium generates is taxable in the U.S., but your business gets an immediate deduction for the $1.2 million insurance premium. If you would like more information, please send and email to info@premieroffshore.com.

The offshore basics for offshore life policy are basically the inverse of the offshore captive. You can invest an unlimited amount of after tax savings (money you have already paid tax on) in to a single pay life insurance policy. Any returns earned in the policy are tax deferred or tax free. This assumes it’s a U.S. compliant offshore life policy and typical underwriting guidelines apply.

So, if you are living in the United States, the IRS wants its cut. What about those of us living abroad? If you’re out of the U.S. for 330 of 365 days, or are a tax resident of another country, then you qualify for the Foreign Earned Income Exclusion and get to earn up to $99,200 in salary for 2014 free of Federal Income Tax. If you’re self-employed, operate your business through an offshore corporation, you can draw a salary up to the FEIE and leave the balance in the company as retained earnings. This will usually be taxable in the U.S. only when taken out as a distribution. You should be able to leave it there tax deferred for many years. For more information on these topics, please check out my articles on moving your business offshore and the Foreign Earned Income Exclusion.

Even if you’ll owe no tax because of the FEIE, you must file your U.S. tax forms each year.

If you retire abroad, you won’t see much of a tax benefit. Your passive income will be taxable in the U.S., though you should be able to avoid most state taxes.

That is to say that the offshore basics for a person who retires offshore is that their Federal tax rate will not change much. Their retirement, Social Security, and passive income will go to Uncle Sam. Most of the offshore loopholes are for active businesses.

There is one big exception… though, I guess, it’s not an offshore basic, because it isn’t offshore.

If you move (retire) to Puerto Rico, you can eliminate all capital gains taxes on your passive income. This only applies to assets you acquire after you move to PR, and requires you to become a resident of the island.

You see, when you retire to a foreign country, U.S. Federal law controls. When you move to the U.S. territory of Puerto Rico, their tax code takes precedence… and they have a great deal for you. See my articles on Puerto Rico for more information.

I’ll conclude this post on offshore basics with a suggestion: If you have a foreign souse or a foreign business partner, and are living abroad, you have some significant planning options.

A foreign spouse or partner is one who is neither a U.S. resident or a U.S. citizen for tax purposes. Anyone who holds a U.S. passport or green card is a U.S. person.

For example, your spouse can open an offshore bank or brokerage account and trade her funds without paying U.S. tax. She can also buy real estate and do business without the U.S. looking over her shoulder.

If you’re operating a business with a foreign partner, and that partner owns 50% or more of the business, you will find there are many tax advantages not available to a company owned 100% by Americans.

For example, the business will not be a Controlled Foreign Corporation, so its income may not be taxable in the United States (assuming it is not U.S. source income), and your filing obligations will be reduced. Take a read through the instructions for IRS Form 5471 for more information on your filing obligations.

I hope this article on offshore basics has been helpful. Feel free to contact us for information on moving your business or assets offshore.

Invest in What You Know with an Offshore IRA

07/28/2014/in Offshore IRA/by Christian Reeves

Follow the advice of Warren Buffet and many others who came before him and invest in what you know. An offshore IRA gives you the power to diversify offshore and invest in what you understand at the right price.

An offshore IRA placed in an offshore company, where you are the manager of that company, gives you checkbook control. The IRS can then pay your research and travel expenses and you can buy what you know, which is not possible in a self directed IRA.

The offshore company is usually structured as a limited liability company.

In a self directed IRA, you can recommend investments to your custodian or advisor. If he is comfortable with the investment, he will proceed. If he is not, then he will block the transfer… which is quite common with offshore investments.

The bottom line is that the custodian does not have the time or desire to understand and vet the offshore project. Are you going to pay him thousands to visit a build in Panama? Probably not… but you are willing to spend your time and money to get to know the city and the investment.

The custodian has some liability if the investment goes south. In an offshore IRA LLC, this is all on your shoulders.

So, while an offshore real estate investment is filled with risk and uncertainty for the self directed custodian, it is something you can become knowledgeable in, which means it is the perfect investment for your offshore IRA.

If you want to research and invest in high returning international real estate or hard assets, like physical gold or wood, you should be making these investments through an offshore IRA held by an offshore company.

You should only buy what you know, and you are the only one who is willing to spend the time and make the effort to get to know a real estate project offshore.

Offshore Business Tax Reporting Summary

07/25/2014/in Taxation/by Christian Reeves

If you’re operating a business outside of the United States, your offshore business tax reporting obligations can be daunting. Failure to comply can result in significant interest and penalties, the loss of your business, and even the loss of your freedom. Here is a brief description of the most common offshore business tax reporting obligations.

The first and most important offshore business tax reporting obligation is not about paying taxes, but reporting where your assets are located. FinCEN Form 114, commonly referred to as the FBAR, requires you to disclose your foreign bank accounts if you have more than $10,000 offshore. This form requires the name of the bank, account number, account size, address of the bank, and whether you own the account. Failure to file FinCEN Form 114 can result in a penalty of up to $100,000 per year and 5 years in prison.

The next non-tax offshore business tax reporting obligation is IRS From 8939, “Statement of Specified Foreign Financial Assets.” This one expects you to disclose all assets and investments you hold outside of the United States. It is only required if you have “significant” assets abroad, so check the instructions for the filing requirements. They vary depending on where you live (in the U.S. and abroad) and whether you are married or single.

There are several exceptions to Form 8939. For example, you do not need to report gold you hold in a vault nor real estate that you hold in your name. For more information, please see my articles on gold and offshore real estate.

The balance of your offshore business tax reporting obligations are in concert with your personal income tax return (Form 1040) and the forms are attached there, too. For example, you should be drawing a salary from your offshore company of up to the Foreign Earned Income Exclusion and retaining earnings in excess of this amount ($99,200 for 2014). To accomplish this, you will attach Form 2555, “Foreign Earned Income,” to your personal return. This form requires information on your employer (the offshore company you own), your salary, foreign residency if any, and your travel days to and from the United States.

The largest (in terms of number of pages) offshore business tax reporting item is IRS Form 5471, “Information Return of U.S. Persons with Respect to Certain Foreign Corporations.” This is a full blown corporate tax return, akin to IRS Forms 1120 and 1120-S. It will require information on the owners and shareholders of the offshore business, as well as Profit and Loss and Balance Sheet data. It includes a variety of forms and schedules and is attached to your personal income tax return.

Because Form 5471 goes in with your personal return, it is due whenever your 1040 is due. If you’re living in the U.S. on tax day, you need to mail it by April 15. If not, you can get an automatic extension to October 15. If you are living outside of the U.S., you get an extra two months to file.

If you will use an offshore Limited Liability Company to hold intellectual property, or to manage personal investments, you will file IRS Form 8858, “Information Return of U.S. Persons with Respect to Foreign Disregarded Entities.” This form allows you to create subsidiaries of your parent corporation and eliminates corporate level tax on passive investments that you wish to flow through to your personal 1040 or Form 5471.

Finally, if you will hold your business inside an offshore trust for estate planning, privacy and asset protection purposes, you may need to file IRS Forms 3520 and 3520-A. These will allow you to hold your offshore business in an offshore asset protection trust and may provide significant tax benefits if your estate is over $5 million.

The bottom line of IRS Forms 3520-A and 3520 is that income from the trust will flow through to the settlor’s personal income tax return (your 1040). Only at your passing will your heirs need to begin reporting and paying tax, albeit at a stepped up basis.

I hope you’ve found this post on offshore business tax reporting interesting. See our tax section (top right of the website) for more detailed information. If you are interested in receiving these posts by email, please sign up for our free email newsletter.

Offshore Privacy Exists!

07/23/2014/in /by Christian Reeves

Offshore privacy is available for U.S. citizens with offshore bank and investment accounts. If you know the tricks, offshore privacy is alive and well.

Unless you have been living under a rock, you know that the IRS has declared war on Americans with hidden assets and accounts offshore. There are 1.000 plus individuals sitting in jail right now for this exact “crime.” So, throughout this site, and in various publications, I ramble on incessantly on how offshore privacy is dead and that you must report your offshore bank accounts to the IRS or risk their wrath.

Well, the uber rich have built in backdoors to offshore privacy. If you know how the game is played, you too can have offshore privacy in your international banking and investments. Here are a few examples:

The best and biggest offshore privacy loophole is the offshore IRA. You can take your IRA offshore by forming an offshore IRA LLC and opening an offshore bank account, and you are not required to report either of these activities. That’s right, you do not need to file a Foreign Bank Account Report for an offshore bank account in the name of your retirement account. Also, you do not need to file a tax return to report an offshore LLC that is owned by your retirement account. Even better, your LLC and bank account maintain the same tax benefits as they had onshore, but with a much higher level of asset protection.

If you have a taxable offshore LLC and/or bank account with over $10,000, you are required to report them each year on your personal income tax return, on a tax report for the LLC attached to your 1040, and on the FBAR. If the account and assets of the LLC are sizeable, you might also need to file a statement of foreign assets.

If you, like Mitt Romney, have $100 million in an offshore IRA structure, you don’t need to file any of these returns or forms. So long as you know the rules of the game, you can maintain complete offshore privacy without running afoul of the U.S. tax laws.

Note that these offshore privacy laws don’t apply only to the rich and monster sized offshore IRA LLC accounts. They may have been added to the tax code at the behest of the “1%ers,” but we can all use them for maximum offshore privacy. Any IRA can be taken offshore and placed in an offshore bank account… though, I suggest the minimum size be around $35,000 because of the costs involved.

There are two other major areas of offshore privacy, and they apply to taxable assets (money not in a U.S. compliant offshore IRA). They are gold and real estate.

You can hold unlimited amounts of physical gold and real estate offshore in your name with no U.S. reporting requirements. In fact, you have maximum offshore privacy in all precious metals, so long as they are in your name and held in a vault outside of the United States. This applies only to physical gold and not gold certificates.

As you might expect, there are a few caveats when it comes to offshore privacy, gold and real estate. Most importantly, these assets must be held in your name, and not in an offshore corporation or LLC. If held in a Trust, they may be reportable.

You see the offshore privacy rules apply to the underlying assets (gold and real estate) but not to the structure. So, if you have Panama real estate in a Panama corporation or foundation, you must report the structure to the IRS. If you hold real estate in Panama in your name, you have no reporting requirement.

We are talking about reporting requirements here. When you sell the property, you must report it on Schedule D, Form 1040, and pay taxes on any gain. Offshore privacy does not affect your U.S. tax paying obligations… only your tax reporting obligations.

The same is true of gold and other precious metals. If you hold them in an offshore structure, including a reportable offshore trust, then the structure must be reported, which means offshore privacy is eliminated. Unless asset protection is a major concern, I recommend holding precious metals in your name only.

In many cases, offshore privacy might not be efficient for foreign real estate. There may be significant tax benefits for a foreigner to buy real estate in a local structure. You should discuss this with a local expert before deciding how to hold real estate.

A final note on offshore privacy and real estate: privacy applies to your ownership of the property, not any taxable events that result from that investment. If you have a rental property in Panama, you must report income and expenses on your 1040, Schedule E, just like a U.S. rental. Offshore privacy benefits refer to the reports required by the IRS, such as the FBAR and Report of Foreign Assets, not taxable events, like the sale of the gold or real estate, nor the rental income that comes from the foreign property.

I hope this article on offshore privacy has been helpful. You will find a detailed post on foreign real estate on this site.

If you would like more information on offshore privacy, to take you retirement account offshore, or for an asset protection structure to facilitate your international investments, please call us or send an email to info@premieroffshore.com. We will be happy to work with you. All consultations are confidential and free of charge.

What is U.S. Source Income?

07/21/2014/in /by Christian Reeves

All income that is U.S. source income is taxable in the United States. Income that is not U.S. source income is not taxable. So, planning to ensure your business income is not considered U.S. source income is the only way to keep Uncle Same out of your wallet.

This article will describe U.S. source income and tell you how to avoid it in your offshore company. From here on, I will assume that you are living and working abroad and that you qualify for the Foreign Earned Income Exclusion. If you are not sure you qualify, please check out the various articles on these topics before reading on.

Your offshore company must pay U.S. tax on any U.S. source income, so a quality international tax plan will do everything necessary to ensure you have no U.S. source income. Note that whether your profits are U.S. source income is not determined by where your clients are located. It is based on where you and your company are doing business. If your business is operating from Panama, and all of your customers are in the United States, you probably do not have U.S. source income.

In other words, if your offshore company has minimal contacts with the United States, then it does not have U.S. source income. If your offshore company has significant ties to the U.S. then you probably have U.S. source income (U.S. Tax Code Section 882).

The income earned in your offshore company is U.S. source income, and thus effectively connected to a U.S. business, if you have an office, employees, or other similar connections to the United States. Even if most of your operations are in Panama, and you have an office in California, you will have some U.S. source income (U.S. Tax Code Section 86(c)(1)-(3)).

If you don’t have employees in the U.S., you are not necessarily safe from U.S. source income. There is much planning that goes in to ensuring your offshore company’s contacts with the U.S. don’t rise to the level of being engaged in a business within the United States.

The simplest case is when you have an internet based business in Panama, selling an electronic product, such as a book delivered by email. Assuming all staff and banking is in Panama, you have no U.S. source income.

If we take the same example, but we move banking and credit card processing in to the United States, assuming no other contacts, you still don’t have U.S. source income. An offshore company with bank and merchant accounts in the U.S. is not conducting a business in the U.S. for tax purposes and thus has no U.S. source income.

Keep in mind that it does not matter where your customers are located. Title/ownership of the electronic product passes to the buyer in Panama, where the business is located. Even if 100% of your customers are in the U.S., you are safe.

Add to this a website and IT in the United States and you still do not have U.S. source income. Hosting your internet e-commerce site in the United States does not create sufficient contacts to result in U.S. tax.

Now, let’s change the electronic product to a physical product such as a new miracle vitamin. If you don’t set up a plant that manufactures the vitamin, you will have U.S. source income. If your Panama company contracts with an unrelated/independent fulfillment house, you can avoid this tax issue.

To clarify, the independent fulfillment house must be providing similar services to other companies, and not be controlled by you. If it were, it may be considered a branch of your Panama company.

The safest scenario is a fulfillment house that is manufacturing the same or similar products for many firms, slapping your label on the bottle, and shipping it to your customers. Again, so long as this is an arms length transaction, it will not result in U.S. source income. See IRS Treasury Regulation 1.864-7(d)(3)(i) and 1.864-7(b)(1).

Since we are piling on, let’s now assume you are marketing your business through an affiliate marketing group. For those of you not so tech savvy, an affiliate marketer is someone who advertises your web page through search engines and pay per click to earn a commission on each sale they generate. Leads are tracked by “cookies” that are saved on to your computer each time you click on one of their links.

I believe contracting with an affiliate network is safe and will avoid U.S. source income. In an affiliate network, you pay the network (i.e. management firm) and they pay their agents. If these agents are independent contractors, then the network is responsible for issuing 1099s and U.S. tax issues. See U.S. Treasury Regulation 1.864-7(d)(3)(i).

I strongly recommend working with affiliate networks rather than contracting with individual affiliate marketers. If it was found that your affiliates are employees and not independent contractors, in a payroll tax audit, then some of your income may be deemed U.S. source income. The U.S. would like nothing better than to tax a Panama corporation. The risk of having the marketers reclassified as employees is eliminated with a network.

I will conclude by pointing out that the U.S. source income tax rules are not an “all or nothing” proposition. If it is found that you have both U.S. source and foreign source income, then only that income earned in the U.S. will be taxable in the U.S. Foreign source income will still be eligible to be retained in your offshore company.

In that case, the calculation of what is U.S. source income and what is foreign source income is referred to as transfer pricing. You and the IRS must agree on how much value is being added to the product (your vitamins) by your sales office in the U.S. and how much value is being added by the office in Panama.

If the transfer pricing analysis finds that 50% of the value of the bottle of vitamins is being derived from the work you are doing through your branch in the U.S., and 50% is being created by the parent company in Panama, then half of the net profits from the sale of the product is taxable in the U.S. and half can be attributed to Panama and retained in that offshore company as active business profits.

If you are considering forming a business outside of the United States, proper planning will consider these U.S. source income rules. Please call or email us at info@premieroffshore.com if you are considering forming an international business. We will be happy to design and incorporate an offshore company that will maximize your tax benefits and keep you in compliance with the U.S. IRS.

Controlled Foreign Corporation Defined

07/18/2014/in /by Christian Reeves

If you are doing business offshore, you need to understand the IRS Controlled Foreign Corporation rules. It is these tax laws that allow you to retain earnings from an active business offshore. These same rules force you to pay tax on passive income. If you have a non-U.S. partner, then avoiding the Controlled Foreign Corporation rules is great international tax planning.

Any business that is incorporated outside of the United States with a U.S. shareholder or shareholders directly or indirectly owning or controlling more than 50% of the entity and is a Controlled Foreign Corporation for U.S. tax purposes (Section 957 (a)).

It is important to note that it is more than 50% of the vote or control, which is another way to say ownership or control of the company. So, while you might assign nominee directors and voting proxies to an offshore corporation, so long as a U.S. person is pulling the strings (control), the entity is a Controlled Foreign Corporation. Back in the day, nominees were powerful tools. Under current IRS rules, they are of little value.

Indirect ownership of a Controlled Foreign Corporation can also refer to shares held by your children. Even if they are not U.S. persons (you are living outside of the U.S. and they don’t hold U.S. passports), the attribution rules mean the offshore company you and your kids control is a CFC. See Section 958(b).

These same attribution rules apply to ownership of the offshore company by a foreign trust. Most offshore trusts are taxed as grantor trusts. In that case, the settlor of the trust (presumably you) is deemed to be the owner of the shares of the company because you control the trust.

If the offshore company is owned by an offshore trust that is not a grantor trust, your heirs are usually the beneficiaries. In that case, ownership is attributed back to you, the settler, and, again, the offshore company held by the offshore non-grantor trust is considered a Controlled Foreign Corporation.

What Does Being a Controlled Foreign Corporation Mean?

So, what does it mean to you, the American business person operating abroad, that your offshore company is a Controlled Foreign Corporation? It means that the subpart F anti-deferral rules defined in Section 951 of the U.S. tax code apply. These rules disallow continued reinvestment by forcing the distribution of certain types of income, summarized as passive income. It also means that these types of income, regardless of whether actual corporate dividends are paid, will not be eligible for U.S. income tax deferral as retained earnings.

Now, let me translate that into English.

Because your offshore company is categorized as a Controlled Foreign Corporation, you don’t get to defer U.S. tax on passive income and capital gains the business generates. Assuming you are living and working abroad, and qualify for the Foreign Earned Income Exclusion, you can defer U.S. tax on active business income by holding it in the company, but not passive income.

Also, if you have passive income, such as capital gains and interest on your investments, and you don’t pay it out to the shareholders, those owners are still required to report and pay tax on it. This often frustrates partners because they are paying tax on money they did not receive, but that’s offshore tax law for you.

Let’s say you are living and working in Panama, and operating your business through a Belize entity to minimize or eliminate tax in Panama. That company nets $300,000 in profits this year (2014). You and your wife are both working in the business and both qualify for the Foreign Earned Income Exclusion. Both you and your spouse should take out the maximum Foreign Earned Income Exclusion as salary from the Belize company. Let’s round that up to $100,000 each, for a total of $200,000.

As a result, the offshore company has left over profits of $100,000. The Controlled Foreign Corporation rules allow you to keep that $100,000 in the corporation and not pay U.S. tax on it until you take it out as a dividend or in some other form… which is great for you. You are operating free of tax in Panama and free of current tax in the United States because of your structure. Your U.S. taxes are deferred for as long as you leave the cash in the offshore company.

Now, let’s assume you’ve built up $1 million in retained earnings in your offshore company over a few years. That cash generates $30,000 per year of interest income (a 3% return from your bank).

Because your offshore company is a Controlled Foreign Corporation for U.S. tax purposes, that $30,000 is taxable on your personal income tax return, Form 1040. If you distribute it out to yourself, you have $30,000 in hand with which to pay the tax. If you leave this interest income in the offshore company, you still must pay the tax.

There is only one way to avoid this Controlled Foreign Corporation issue. If your business partner is not a U.S. citizen and not a U.S. resident, and he or she owns 50% or more of the venture, then the company is not a Controlled Foreign Corporation and may be eligible to retain passive income.

Note that you are still required to report an offshore company which is not a Controlled Foreign Corporation to the IRS on Form 5471. So long as U.S. persons hold 10% of an offshore company, you will have U.S. reporting requirements.

I hope you have found this article on Controlled Foreign Corporations to be helpful. For assistance in structuring your offshore company or business, 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.

You can find additional information on this site on how to eliminate your U.S. filing obligations, such as Form 5471, the FBAR, and others… assuming you have a partner or spouse who is not a U.S. person for tax purposes.

Buy Gold in an Offshore IRA

07/16/2014/in Offshore IRA/by Christian Reeves

When you buy gold in an offshore IRA, you create a hedge against currency risks, move assets out of the United States, and maximize asset protection, all the while maintaining the tax benefits of the retirement account. Buy gold in an offshore IRA LLC to maximize the benefits of taking your retirement account offshore.

When you invest in only U.S. stocks and U.S. dollar denominated assets, you place your retirement at risk. Diversify out of the U.S. by moving your retirement account in to an offshore IRA LLC and then buy gold in an offshore account.

When you buy gold in an offshore IRA LLC, you create a hedge against currency devaluation, economic turmoil, and volatile markets. As I write this post, the price of gold is lower and more attractive than it has been in years. But, I suggest you buy gold in an offshore IRA at almost any price. When you hold gold as a hedge against catastrophic risks, it makes little long term difference where the spot price moves. Buying gold in an offshore IRA LLC is the ultimate retirement insurance policy.

When you take your IRA offshore, you take control over all account decisions. You choose your investment mix and can reduce volatility and risk while safeguarding your standard of living. This type of control is not available onshore. Yes, you can form a domestic IRA LLC, but you will be limited to U.S. investments and tied to the U.S. government.

*Tax Tip: You are not required to report gold held in your name offshore. This is not an issue for gold in an offshore IRA, but it is for those who buy in a taxable account. For more information on this topic, check out my article on gold.

Note that I am referring to physical ownership of gold and other hard assets. I never recommend gold certificates or holding facilities like Perth Mint. Unless you take possession of the assets, they must be reported to the IRS and are not a true hedge against catastrophic events.

When you buy gold in an offshore IRA, you have the same tax benefits and responsibilities as if you made the investment in the United States. You are acting as the investment manager for your offshore IRA and must follow U.S. rules while offshore. This means that you may buy gold bullion and Golden Eagle coins, but you may not buy collectable gold coins.

When you buy gold in an offshore IRA, you must be buying it for the value of the gold. If the coin has a value in addition to its gold content, it is probably not a permitted investment.

I recommend you buy gold in an offshore IRA and take possession of that gold. We work with firms in Zurich, Switzerland and Panama City, Panama that offer bullion in just about any amount and private vaults that will store it in complete anonymity. The private vault company we work with in Panama will allow you to store just about any investment asset.

If you search the web for how to buy gold in an IRA or how to buy gold in an offshore IRA, you will find a number of U.S. providers. There are even some U.S. firms offering to buy foreign gold through a self directed IRA, without an offshore LLC or offshore bank account. This makes no sense to me. There is no value to going offshore if you are not going to take control over the investments.

When you use a self directed IRA, you can “direct” the custodian to make certain investments. You can’t force him to make an investment, but you can request and suggest investments. Also, all investments in the self directed account are under the control of the custodian/investment manager. If the U.S. comes calling, and tells him to bring the money back to invest in U.S. Treasuries or in the MyRa scam (see my article on MyRa), he will do so. You have very little control over the investments in your retirement account if things go bad or you want to make an investment that the custodian is not comfortable with. If you are buying gold in an offshore IRA as a hedge against catastrophic risks, you must use an offshore LLC.

I also note that the self directed custodian/investment manager earns a transaction fee from each investment you ask him to make. If he picks up the phone, he’s getting paid. If you move your retirement account in to an offshore IRA LLC, you make the investments, choose your gold broker, your vault, and the level of protection you feel is necessary. You will pay no transaction fees to the custodian.

If you want to buy gold in an offshore IRA, I suggest you go all in and dump the self directed U.S. controlled investment advisor/custodian. When you form an offshore IRA LLC, you are the signor on the bank account, gold purchase contract, and the vault. No one has access to or control over your investments. If you go offshore, then go offshore.

To clarify, when you buy gold in an offshore IRA LLC, there is a U.S. custodian involved, but he has no control over your investments or accounts. His job is to invest your retirement account in to the offshore LLC. Once the money is in the LLC, the custodian is responsible for annual reporting to the IRS… that’s it. He doesn’t charge a transaction fee on your investments in the LLC and has no control over your retirement assets.

As I said above, you must follow the same rules offshore as a professional advisor follows onshore. My point is that the choice of what to do if the U.S. decides to force retirement accounts to invest in Treasuries, is yours. The decision to comply or not comply is yours and not the custodian’s.

Also, most experts believe that offshore IRA LLCs will be grandfathered in should the IRS go after foreign transactions. They may close IRAs and prohibit the formation of new IRA LLCs (or the funding of offshore structures), but it is unlikely they will go after existing entities.

If you buy gold in an offshore IRA, go offshore with an LLC. If you plan on using a self directed IRA without an LLC, then save a few dollars and buy the gold in the United States. There is no reason to go offshore with a self directed account.

I hope this article on why you should buy gold in an offshore IRA has been helpful. We all come at risk and diversification from different points of view. If you want a hedge against catastrophic events, move your assets out of harms way and out of the control of a U.S. custodian with an offshore IRA LLC. If you think this risk is minimal, then a domestic self directed IRA is all you need.

Feel free to phone or email us at info@premieroffshore.com for a confidential consultation. We will be happy to help you take your retirement account offshore and diversify out of the United States.