Research, News and Legal Services for the Offshore Entrepreneur

Panama Foundation
Christian Reeves

The Panama Foundation for Asset Protection

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

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

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

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

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

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

Benefits of a Panama Foundation

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

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

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

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

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

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

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

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

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

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

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

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

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

Structure of the Panama Foundation

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

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

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

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

The most common uses of a Panama Foundation are:

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

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

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

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

Panama Foundation Council

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

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

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

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

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

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

Taxation of a Panama Foundation

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

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

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

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

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

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

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

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

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

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

Foreign Assets
Christian Reeves

Offshore IRA LLC Tax Analysis

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

UBIT
Christian Reeves

UBIT: IRA As a Dealer in Real Estate

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

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

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

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

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

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

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

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

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

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

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

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

Give Up U.S. Citizenship
Christian Reeves

Give Up U.S. Citizenship

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

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

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

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

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

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

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

–  Step 3: Obtain a Second Passport

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

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

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

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

Step 2: Identify Countries Where You Would Like to Live

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

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

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

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

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

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

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

Step 3: Obtain a Second Passport

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

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

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

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

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

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

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

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

Retire Abroad
Christian Reeves

Retire abroad with Maximum Privacy

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

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

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

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

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

Two quick sidebars:

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

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

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

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

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

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

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

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

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

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

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

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

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

Attack on Your Retirement
Christian Reeves

Attack on Your Retirement

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

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

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

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

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

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

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

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

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

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

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

For example:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Seize Your IRA
Christian Reeves

The IRS Can Seize Your IRA

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

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

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

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

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

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

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

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

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

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

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

Retire Overseas Tax Free
Christian Reeves

Retire Overseas Tax Free

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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.

  1. 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.

  1. 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.

  1. 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.

  1. 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.

Christian Reeves

Jim Rickards – Threats to Our Dollar

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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.

Diversify Your IRA
Christian Reeves

Proof You Should Diversify Your IRA Offshore Now

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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 50th 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.

IRA Gold
Christian Reeves

Buy Physical Gold in Your IRA

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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.

Attack on the Dollar
Christian Reeves

France’s Attack on the Dollar

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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.

Attack on the Dollar
Christian Reeves

Russia’s Attack on the Dollar

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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
Christian Reeves

Chile: An Entrepreneur’s Paradise

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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 1/5th are local businesses and about 1/4th 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.

ObamaCare Tax
Christian Reeves

Avoid the ObamaCare Tax, Offshore Edition

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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.

Offshore Investment
Christian Reeves

Quotes from Financial Giants Applied to Offshore Investment

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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.”

Dollar Will Fail
Christian Reeves

The Offshore Tax Inversion

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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.

Return on U.S. Treasuries
Christian Reeves

The Real Return on a U.S. Treasury

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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
Christian Reeves

IRS Collection Statute for Expats

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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.

IRS Audit Statute
Christian Reeves

Offshore IRS Audit Statute

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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.