Research, News and Legal Services for the Offshore Entrepreneur

Cheap offshore Company
Christian Reeves

How to Prorate the Foreign Earned Income Exclusion

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When you first move offshore, you will need to know how to prorate the foreign earned income exclusion. This is because, you will be using the physical presence test in your first year and, presumably, won’t move abroad on January 1, so you will need to prorate the foreign earned income exclusion.

Let me take a step back. As you probably know, the Foreign Earned Income Exclusion allows you to exclude $99,200 in salary from your US taxes in 2014. To qualify, you must be a resident of a foreign country (residency test) or be out of the United States for 330 out of 365 days (330 day test or physical presence test).

Under the physical presence test you can choose any consecutive 12 month period for your Foreign Earned Income calculation. So, you might have moved abroad on Mach 15, 2014 and begin your new job on April 1, 2014. Therefore, you will probably want to prorate the Foreign Earned Income Exclusion from April 1, 2014 to April 30, 2015.

In this case, you should be out of the U.S. 330 days from April 1, 2014 to April 30, 2015. You could use March 15th as your start date, but that would mean you lose 15 days of the exclusion and these 15 days can’t be recouped when you file your 2015 return.

I note that it is necessary to prorate the Foreign Earned Income Exclusion because most people don’t leave the good ole USA on January 1, so they need to prorate in the year they begin their new lives. Also, to qualify as a resident of a foreign country, you must be out of the US for a full calendar year. Therefore, the physical presence test is common in year one.

In the example above, it would be possible to use the 330 day test to qualify for the FEIE from Aril 1, 2014 to December 31, 2014, and then use the residency test to qualify for the exclusion from January 1, 2015 to December 31, 2015. However, this will not affect your exclusion amount. You will still need to prorate the Foreign Earned Income Exclusion. In other words, there is no financial benefit to converting to the physical presence test, though you will be able to spend more time in the United States. The prorated exclusion amount may not exceed the maximum allowable exclusion.

To prorate the Foreign Earned Income Exclusion, use the number of days you were physically present during the tax year over 365. That is to say, exclusion is calculated by dividing the number of days physically present in the foreign county or countries (numerator) by the number of days in the year (denominator). (See Publication 54, section on part-year exclusion.)

In the example above, your 2014 exclusion is April 1, 2014 to December 31, 2014, or 274 days. Each day is worth $271.78 ($99,200 / 365= $271.78), so you can exclude up to $74,467.72 in 2014. If you earned $100,000 in salary from April 1, 2014 to December 31, 2014, you will owe U.S. tax on about $25,500 ($100,000 – $74,467 = $25,532.28) because of the prorated Foreign Earned Income Exclusion calculation.

Prorating the Foreign Earned Income Exclusion is common in the first year an ExPat moves abroad. It is also possible to prorate if you are forced to leave the country due to civil unrest.

According to the instructions for IRS Form 2555, under Waiver of Time Requirements:
If your tax home was in a foreign country, you reasonably expected to qualify for the Foreign Earned Income Exclusion in that country, but were forced to leave because of war, civil unrest, or similar adverse conditions, the time requirements residency test or the 330 day test may be waived. You must be able to show that you reasonably could have expected to meet the minimum time requirements if you had not been required to leave.

To support this rule, the IRS publishes a list of countries and the dates they qualify for the waiver. If you left one of these countries during the period indicated, you can claim a prorated Foreign Earned Income Exclusion on Form 2555 for the number of days you were a resident of or physically present in the foreign country.

As I wrote above, you must reasonably expect to qualify for the Foreign Earned Income Exclusion in the affected country. This is aimed at contractors moving in to dangerous areas. Basically, if you move to a dangerous area, and then decide to leave or are forced to leave, you don’t get the benefit of this rule. If you move to an area after it is listed in the IRS publication, you are on notice that it is dangerous and don’t get the benefit of this section.

I hope you have found this article helpful. Please post any questions in the comments below and I will respond online. You may also contact me directly at info@premieroffshore.com.

Offshore IRS Audit
Christian Reeves

Will the IRS Audit Me for Going Offshore?

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For those of you living and working abroad, or investing outside of the United States, the fact that you file one or more of the offshore company forms and report a foreign bank account on the FBAR will have little to no effect on your chances of an audit. The IRS is focused like a laser on those who fail to report their offshore transactions. So, if you are in compliance, you have little to fear.

To put it another way, individuals who file an offshore return are not currently a target for the IRS. They have amassed their forces to go after the banks and non-compliant individuals because that’s what makes headlines…that’s what brings in the cash.

How much are we talking about you ask? The IRS has brought in about $4 billion through the Voluntary Disclosure Program and another few billion in fines and penalties against Swiss and other banks who helped Americans avoid taxes. These are the kind of numbers the government is going for…they are not concerned with the average person’s compliant offshore dealings.

This is all to say that the IRS is not so concerned with those in compliance. If you have been filing your forms and paying along, you are no more likely to be audited that the average person. If you get in to compliance voluntarily, then you take the target off of your back.

It is also important to realize that the IRS audits less than 1% of taxpayers each year…and their budget for 2014 and 2015 has been cut by Republicans angry about the way their fund raising groups were treated in the last election cycle. Based on the following factors, I believe that most of my clients have a 3% to 5% chance of facing the tax man…not because of international structures, but because of their higher levels of income.

My point here is not that you will never be audited. It is simply that going offshore does not significantly increase your probability of facing down the IRS. For more on this topic, please take a look at my article How to Avoid an IRA Audit – Expat Edition.

If you are behind in your U.S. tax filings, I suggest you take a look at my article on the IRS Voluntary Disclosure program. If you qualify as an Expat, this might be a cost effective avenue for you to get right with the Service.

IRA & Retire, Asset Protection
Christian Reeves

How to Avoid an IRS Audit – Expat Edition

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If you are living and working abroad, you still need to worry about the IRS. In this article, I will talk about how to avoid an IRS audit with a focus on Expats.

Are you worried that the IRS will come knocking on your door? Want to know how to avoid an IRS audit? I battled the IRS for a decade and here are a few of the tips and tricks learned, often the hard way, in those skirmishes.

So, what are the major audit flags? What will bring the IRS to your door? Some are selected at random, a kind of control group, but there are a number of items that can increase your chances of being selected by the computer for an audit.

The key factors are the amount you earn, the type and quantity of deductions you take, the volume of capital gains transaction on Schedule D, your line of work, and whether you own your own business.

Of these, income level is far and away the most important factor. As I said above, less than 1% of the taxpaying population is audited each year. If your income is $200,000 or more (defined as rich in today’s America), your chance of an audit jumps to 3.26%. If you have a great year, and make $1 million, your chance of a visit skyrockets to just over 11% (about 1 in 9). So, you want to know how to avoid an IRS audit…just stop working!

I assume you won’t decide to work less, or earn less, to keep the IRS from your door, so let’s talk about what you can control. By far, the most egregious error is failing to report all of your income…and this is exactly what the IRS is targeting with FACTA and its offshore banking initiatives.

You see, FACTA forces all banks around the world to report the income and transactions of their American clients to the IRS, just as American banks do today. It essentially turns your foreign banker in to an unpaid agent of the U.S. government.

Next, IRS computers compare these reports to the return you file and audit those whose report doesn’t match the computer file. The larger the discrepancy, the higher your chance of an audit. The purpose of FACTA is to ensure all Americans are reporting each and every transaction and to provide a tool to the IRS to easily track down and persecute those who failed to toe the line.

Therefore, the best way for the U.S. person living, working or investing abroad to avoid an IRS audit is to file all necessary forms.

Another red flag is your charitable donations. The IRS keeps statistical data by income bracket on this category. The further you get from the standard deviation, the higher your chance of an audit. If you give 5% of your income to charity, with no non-cash donations, your audit meter will hardly register a beep. Give 50% of your adjusted gross income in donations of clothing and personal affects, and I guarantee you will be audited…possibly before you have time to cash the refund check.

Next on the list of red flags are rental real estate losses. If you have a loss from one foreign or domestic property of less than $25,000, your risks are minimal. If you claim to be a real estate professional so you can take larger losses, or because your income from other sources exceeds $150,000, then your risk of an audit is very high.
The last major caution is to day traders and those claiming to be professional traders of their own accounts. I understand that the desire to be considered a professional trader can be strong, and I field a number of calls from those wishing to do this “business” offshore.

Those who trade in stocks and securities as professionals have big time advantages over the rest of us. Their expenses are fully deductible and their profits are exempt from self-employment tax. Losses of traders who make a special section 475(f) election are fully deductible and aren’t subject to the $3,000 cap on capital losses.

But, to be a professional trader, and not just a simple investor, you must regularly and continuously trade stocks. It must be your primary business and you should be spending about 30+ hours a week trading, researching, and working on your craft. If you aren’t that involved, you are not a trader.

And the IRS realizes that it can be quite difficult for a person trading his own portfolio to prove he is a professional, so they are easy targets…often fish in a barrel.

If you are reporting your business on Schedule C, rather than an onshore or offshore corporation, you have a significantly higher risk of audit compared to someone who is properly structured. The favorite categories on this form are home office deduction, automobile expenses, notoriously hard to prove and often estimated by clients, and meals and entertainment. Did you actually bother to keep all of your receipts and write down who you met with and why? Keep it “simple” and get a corporation.

Why will a corporation reduce your chances of an audit? Let’s say you reported $200,000 on Form 1120. You will be grouped together will all of the other corporate entities. At $200,000, you are probably a small fish in a big pond. But, report that same profit on Schedule C, you are probably a medium to large fish to the self-employed audit group in the IRS. In other words, not many are making $200,000+ on Schedule C, but the number of corporate entities earning more than that is significant.

As someone who has handled hundreds of IRS exams over the years, I believe that these categories cover 90% of the non-random audits. If you want to know how to avoid an IRS audit, focus on compliance and your corporate structure. I will give you a few more examples below, but as we move on, the effect on your chances of an audit get less.

Hobby losses are major red flags, but one most people manage to avoid. You must report income from a hobby (such as horse racing) and you can deduct expenses up to the amount of that income. You are prohibited from deducting expenses in excess of that income. So, if you are considering racing ponies in Panama, don’t deduct them on your U.S. return.

The same is true of gambling. U.S. casinos will report your wins, and you are allowed to deduct your losses to the extent of those wins. You should never take a loss from gambling, though some try on Schedule C by calling it a business. Keeping in mind that you must be able to prove your losses, usually with a gambling log, you can deduct foreign losses against U.S. wins. If you took $100,000 from a lucky streak in Las Vegas, and gave it all back to the Trump Casino in Panama City in the same year, you can net losses against wins to break-even.

Just about any small business has a high risk of audit. This is especially true of bars and restaurants with cash transactions. In fact, these establishments often get hit by the IRS, State tax board, and employment tax board in the same year.

If you are in a business offshore, and pay your employees or consultant’s in cash, you will have a tough time if the tax man comes calling. You must prove all expenses to the U.S. IRS, so you should try to pay by check or wire whenever possible and have an invoice or receipt in the file. If not possible, then a signed receipt may get you by.

I will conclude with this: if you are living, working, or investing offshore, and have been filing all of the proper forms, you have nothing to fear from the IRS. If you have been lax in your reporting, then you might just find yourself at the top of the IRS hit list. Did you miss an FBAR or two? Do you have foreign real estate in a corporation that you did not report? You should get these issued resolved before FACTA arrives in full for on January 1, 2015.

If you are considering filing your delinquent forms, please take a look at my article on the voluntary disclosure program. If you qualify as an expat, and you owe no tax to the IRS, you might get away with zero penalties.

Feel free to contact me for a confidential consultation on any of these issues. You can reach me at info@premieroffshore.com or by calling (619) 483-1708.

Seize Your IRA
Christian Reeves

Foreign Earned Income Exclusion 2014

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Good news for those American’s living and working abroad. The Foreign Earned Income Exclusion in 2014 has been increased to $99,200. This means that you can exclude up to $99,200 in salary for 2014 on Federal income tax return if you are a resident of another country or are abroad for 330 out of 365 days.

  • This article from 2014 contains some valuable information. For 2015 FEIE numbers, please see: FEIE 2015

If a husband and wife both qualify for the Foreign Earned Income Exclusion in 2014, they each may deduct up to $99,200 this year. That means a husband and wife team may earn up to $198,400 from their offshore corporation.

Unfortunately for retirees and investors, this exclusion only applies to earned income, which is income from a business or a salary. If you are drawing that salary from a corporation formed in the United States, social taxes will still apply. If you are operating a business without a corporation, then Self Employment Tax at 15% will still apply.

  • Note that the exclusion applies to salary from any foreign corporation. It does not matter if you own the company or you work for someone else.

The Foreign Earned Income Exclusion for 2014 does not apply to passive investments or capital gains. If you are an American living and working abroad, the U.S. wants its cut of your investment profits. If pay taxes to another country (such as when you sell foreign real estate for a capital gain) you get a dollar for dollar credit and are not double taxed by America. For more information on foreign real estate transactions, see my article U.S. Tax Breaks for Offshore Real Estate.

This amount of $99,200 is the maximum exclusion you can qualify for. If you earn less than the exclusion, you may not carry forward the unused portion. For example, if your salary is $60,000 in 2014, you may only exclude $60,000. You may not carry over the balance of $39,000 to 2015.

If you earn more than $99,200, you must pay tax on the excess for the right to carry that U.S. passport. So, if you earn $299,200 in 2014, you will pay U.S. tax on $200,000 at about 38%, or $76,000. If you are operating a business through an offshore corporation, you might be able to retain earnings in that company and thereby defer U.S. tax. For more information, see: Eliminate U.S. Tax in 5 Steps with an Offshore Corporation.

Since 2006, the FEIE has been pegged to inflation, so we expect it to increase each year ever so slightly. The Foreign Earned Income Exclusion for 2014 increased by about 1.6% from 2013 and about 2.5% from 2012. So, we might expect an increase of 2% in 2015. Which is to say that the Foreign Earned Income Exclusion for 2015 might be about $101,184.

Here are Foreign Earned Income Exclusion amounts from 2014 back to 1998.

  • Tax year 2014: $99,200
  • Tax year 2013: $97,600
  • Tax year 2012: $95,100
  • Tax year 2011: $92,900
  • Tax year 2010: $91,500
  • Tax year 2009: $91,400
  • Tax year 2008: $87,600
  • Tax year 2007: $85,700
  • Tax year 2006: $82,400
  • Tax years 2002-2005: $80,000
  • Tax year 2001: $78,000
  • Tax year 2000: $76,000
  • Tax year 1999: $74,000
  • Tax year 1998: $72,000

I hope you have found this article helpful. If you would like more information, I suggest you read start with the Tax Benefits of Going Offshore. Feel free to contact me at info@premieroffshore.com with any questions or article requests. As always, you may leave questions in the comment section below and I will respond online.

Offshore Roth Conversion
Christian Reeves

IRS Automatic Extension for Expats: April 16 is the First Day of the Expat Tax Season

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Because of the IRS automatic extension for Expats, today, April 16, is the first day of the Expat tax filing season. While those of us stuck in the U.S.A. must file and pay by April 15, Expats get an automatic two month extension.

This two month automatic extension for Expats is more valuable than the standard six month extension to file your taxes. See, the six month extension allows you to file your return on October 15, but it does not extend the time to pay your taxes. If you pay after April 15, penalties and interest will apply.

If you are living abroad, you have two extra months to file and pay without getting hit with any fees by the ever generous IRS. This means you have an extra two months to use that cash before it goes in to Uncle Sam’s coffers.

If you use the automatic two month extension for Expats, make sure the IRS knows that you qualify so you don’t get stuck fighting over an erroneous bill. There is no form available to put them on notice, so you need to attach a letter to the front of the return with your name (or names if a joint return), foreign address, and social security number(s). Either tell the IRS that you are employed in Country X, or that you are a tax resident of Country Y and thus your return is due on June 15.

This extension is only for those who are resident or working in another country as of April 15th. If you were living abroad in 2013, and returned to the U.S. in January of 2014, you may not take the IRS Automatic Extension for Expats.

If you need more than two months, you can use IRS Form 4868 just like the rest of us gringos to get the standard 6 month extension. Of course, you will be expected to pay by June 15 and, if you pay after that date, interest and penalties will apply. For a rough estimate, paying after June 15 will cost about 4.5% per month in fines.

  • For more information on Form 4868, see the IRS website.
  • For information on late filing penalties, see this section of the IRS site.

You should also keep in mind that the two and six month extensions don’t affect your FBAR filing deadline. You must report your foreign bank account by June 30th, no matter when you file your personal return. If you need to report a foreign bank account, checkout my article on New FBAR Filing Requirements for 2014.

If you are operating a business through an offshore corporation and filing Form 5471, this form is attached to your personal return. Thus, extending your personal return automatically extends the time permitted to file your corporate return. No additional extension is required.

However, the two month and six month extensions above do not apply to offshore trusts. If you file Form 3520-A or 3520, these are due on March 15 and can be extended until September 15 using IRS Form 7004 (see the IRS website for more information).

Finally, if you are an Expat who is going to qualify for the Foreign Earned Income Exclusion late in the year, you can get a special extension from the IRS to file after the October 15 deadline. To use this extension, you must file IRS Form 2350 by April 15, and pay any expected tax due by April 15 (that’s right, not June 15 when using this extension). For more information, see Extension of Time to File in Order to Qualify for the Foreign Earned Income Exclusion.

When might someone need this FEIE extension? Let’s say you leave the U.S. on November 1, 2014 and want to use the 330 day test to qualify for the FEIE on income earned abroad from November 1, 2014 to December 31, 2014, as well as get credit for those days to qualify in 2015. In that case, you must file your 2014 return 30 days after you qualify for the FEIE, which would be December 2, 2015. You may not file your 2014 return until you actually qualify for the FEIE…you may not assume you will qualify.

For those of you who love trivia, here is the origin of the automatic extension for Expats to file their Federal tax returns. Under the mail box rule, your tax return is received by the IRS when you place it in the mail box. Lawyers also call this constructive receipt.

When you mail your tax return in the U.S. on April 15, it arrives at the IRS in just a few days. If you are out of the U.S., it might take a very long time in deed to go from China to a package to Uncle Sam using standard international post. The automatic extension for Expats came about as the longest time the IRS would allow a package to arrive from overseas. So, back in the day, the IRS was to receive your return by June 15, whereas you needed to post your return by April 15 from the U.S.

Today, those using the automatic extension for Expats can mail their return and payment on June 15…it need not be received on that date. If you will be sending in a paper return on this date, I strongly recommend you use FedEx or another courier service to avoid significant delays.

As electronic filing has become the norm, the justification for the automatic extension for Expats has changed. Today, it is explained as the extra time Expats might need to collect documents and file their local returns so that they know how to make use of the Foreign Tax Credit and related deductions.

As we get ready for the Expat tax filing season, please take a minute to read through my tax page. Feel free to send me an email at info@premieroffshore.com or call (619) 483-1708 if you would like for us to prepare your U.S. Expat tax return. We are experts in Forms 5471, the new FBAR, Form 2555, and all the others those living, working and investing abroad must come to terms with.

design

أفلام الجنس

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غالبًا ما تعرض الأفلام الجنسية مشاهد جنسية صريحة ، لكن بعضها يستهدف جمهورًا أكثر عمومية. هذه الأفلام ليست بالضرورة عن لقاءات جنسية حقيقية. بدلاً من ذلك ، فهم يدورون حول كيف يقودنا هوس مجتمعنا بالجنس إلى الجنون. على عكس لقاءات الحياة الواقعية ، تميل هذه الأفلام إلى التركيز على مخاطر الإدمان الجنسي.

أصبح لارس فون ترير معروفًا بأنه سيد xnxx  الاستفزازي. تشتهر أفلامه بتصويرها الجرافيكي للجماع واعتبرت “المحرض الكبير” للسينما الحديثة. يتميز فيلمه الشبق ، وهو فيلم مدته أربع ساعات عن مدمن للجنس ، بنكاح غير مقلد. على الرغم من ذلك ، فإن المشاهد الجنسية للفيلم أكثر دقة مما قد يوحي به عنوانه الحاد.

Dark Horse Ranch هو فيلم جنس كلاسيكي آخر ، على الرغم من تعرضه للحطام في الغالب بسبب أداء إليزابيث بيركلي الجدير بالملل. الفيلم يصور فتاة الإستعراض وثقافة الدعارة في لاس فيغاس بلا روح. أفضل مشهد هو عندما تمارس شخصية بيركلي ، نومي مالون ، الجنس مع مدير ترفيهي أنيق في حوض سباحة في سين سيتي ، يكتمل بأشجار النخيل المزيفة بأضواء النيون.

لدى British Sex Films مجموعة رائعة من الأفلام ومجموعات الصور. إذا كنت تبحث عن المزيد ، فتحقق من شبكة Real Sex Pass ، التي تضم آلاف الأفلام. يمكن دفق هذه الأفلام أو تنزيلها وهي متوافقة مع معظم الأجهزة. الاشتراكات سريعة وسهلة ، والإلغاء سهل.

تم تضمين الأفلام الجنسية في الأفلام منذ العصر الصامت. العديد منها كوميديا ​​رومانسية ، وأفلام إثارة مثيرة ، ودراما شهيرة. ومع ذلك ، ليس لديهم عادة ميزة فنية. تهدف هذه الأفلام إلى ترفيه الجمهور وتحفيز رغباتهم الجنسية. من المهم أن تتذكر أنه يجب دائمًا عرض الأفلام الجنسية في سياقها. لا ينبغي أن يشاهدها الأطفال الذين تقل أعمارهم عن 18 عامًا.

في حين أن العديد من الأفلام تستهدف الجمهور الأصغر سنًا ، إلا أن بعضها يستهدف جمهورًا أكبر سنًا. من أكثر الأفلام الجنسية ديمومة فيلم “ميلف” ، الذي أشاع مصطلح “جبهة تحرير مورو الإسلامية”. تعد جبهة مورو مثالاً رائعًا على كيف يمكن للجمهور الاستمتاع بفيلم جنسي لا يأخذ نفسه على محمل الجد. يعود نجاح الفيلم في جزء كبير منه إلى المودة تجاه الشخصيات المركزية ، التي تحملت عددًا كبيرًا من الإهانات ، بما في ذلك التبول في الأماكن العامة وتناول سوائل الجسم.

العار فيلم عظيم آخر. إنه فيلم مكثف من إخراج ستيف ماكوين وبطولة مايكل فاسبندر. إنها عالية في الدراما ، ومنخفضة الدعابة. تتمة للعار ، The Shagger ، لها نفس الممثلين ، لكن نسخة من إخراج Ben Stiller.

نوع فرعي شائع آخر هو الإثارة المثيرة. يتضمن هذا النوع الفرعي أفلامًا مثل Dressed to Kill و Angel Heart. كلاهما مشهور في الولايات المتحدة. والجاذبية القاتلة أدت إلى ظهور مصطلح “مرجل الأرنب”! والعديد منها أكثر من مجرد أفلام جنسية.

Chile
Christian Reeves

Should I use an Offshore Corporation or Offshore LLC?

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Which is better, an offshore corporation or offshore LLC? Does an offshore corporation provide more protection than an offshore LLC? What are the benefits of an offshore LLC compared to the benefits of an offshore corporation?

These are the questions I get every day, and the answer is not as simple as you might think. There are a number of important differences between an offshore corporation and an offshore LLC that you should take in to consideration when setting up your offshore structure.

First, there is no difference in the level of protection offered by an offshore corporation or an offshore LLC. They are equal in the eyes of the law. Offshore jurisdictions have always afforded them the same high levels of deference, and U.S. courts have generally maintained that a corporation is equivalent to an LLC for asset protection purposes.

When thinking about how to best use an offshore corporation or offshore LLC, your first instinct should be to put an active business in a corporation and passive investments in an LLC. Here is why:

Benefits of an Offshore Corporation

When you operate an active business in an offshore corporation, you maximize the value of the Foreign Earned Income Exclusion and can retain earnings in excess of the FEIE. This allows you to eliminate or defer U.S. tax on your offshore earnings. You accomplish this by:

1. Drawing a salary from the offshore corporation of up to the FEIE, about $98,000 for 2014, and reporting that salary on your personal return, Form 1040 and Form 2555. If a husband and wife operate the business, they can each draw out the FEIE amount in salary, and thus earn up to about $196,000 free of Federal income tax.

– The FEIE is actually $99,200 for tax year 2014 and 2015 has not yet been released. I usually round down to $98,000 to make the math easier to follow.

2. If your corporate profits exceed the FEIE amount, then you leave (retain) those funds in the corporation. If you take them out in salary, they will be taxable in the U.S. By leaving them in the corporation, you defer U.S. tax until they are distributed as dividends…or possibly as salary in future years.

3. Using an offshore corporation allows you to eliminate Self Employment or social taxes (FICA, Medicare, etc.), which are about 15% on your net profits and not covered by the FEIE.

These tax breaks come at a compliance cost: you must file a detailed offshore corporation return on IRS Form 5471 each year. Because this form includes a profit and loss statement, balance sheet, and many sub forms, the cost to pay someone to prepare it for you should be at least $1,250 per year.

Benefits of an Offshore LLC

The primary benefit of an offshore LLC over an offshore corporation is the lower cost of compliance. An offshore LLC owned by one person, or a husband and wife, will usually files IRS Form 8858, which is much easier to prepare and Form 5471.

Because of this lower (and simpler) filing obligation, offshore LLCs are the best option for passive investments. Whether you are living in the U.S. or abroad, there is no tax break for passive investments in a corporation (these breaks apply only to active businesses income). Passive income is taxed as earned, reduced only by the Foreign Tax Credit, so you might as well make it as easy as possible to report.

  • The Foreign Tax Credit allows you to deduct any money paid in taxes to other countries on your foreign investments. It generally means you will not be double taxed on offshore transactions.

An offshore LLC can’t retain earnings, so it is usually not the best entity for an offshore business. However, if the business will never earn more than the FEIE, then an offshore LLC might do just as well as an offshore corporation.

If you were to operate a business through an offshore LLC, you would report your total net profits on Form 2555, and if those profits exceeded the FEIE amount the excess would be taxable.

To put it another way, if your net profits are $200,000 and you are operating through an offshore LLC while qualifying for the FEIE, then you would get $98,000 in salary tax free and pay U.S. tax on the remaining $102,000. If those same profits were earned in an offshore corporation, you would draw out a salary of $98,000 and leave the balance in the corporation, deferring U.S. tax indefinitely.

If your business earns $50,000, then the full amount would be covered by the FEIE and no tax would be due. Likewise, if a husband and wife both operated the business which earned $200,000, each could draw out $98,000 tax free, leaving only $4,000 for the IRS to take a cut from. So, if your business will always earn less than $98,000 or $200,000, you might as well use an offshore LLC.

I estimate that the cost to have a professional prepare Form 8858 to be $690.00, and that, if you usually prepare your own personal return, then you can prepare 8858 yourself. In other words, if you are experienced in advanced personal return forms like Schedules C, D, or E, or you are used to dealing with complex K-1s, then you will have no problem with Form 8858.

So, when deciding between an offshore corporation or an an offshore LLC, if the structure will hold passive investments or a small business, then you might save a few dollars and simplify your life with an offshore LLC. If you will operate an active business that might someday earn more than $98,000 in profits, you should form an offshore corporation.

Retire Abroad
Christian Reeves

New FBAR Filing Requirements for 2014

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As you, the American with investments abroad, get ready to prepare your 2014 tax return, there are important new FBAR filing requirements for 2014. Some of these FBAR filing requirements are cosmetic and others could get the misinformed in hot water.

Note: If you have no idea what an FBAR is, you might check out my general article on filing requirements for those living, working, or investing abroad. If you want to learn how to legally avoid the FBAR, click here.

First, let me tell you how your accountant or CPA thinks. The foundation of tax preparation for professions is SALY…prepare the return the Same As Last Year to reduce the risk of an audit.

So, when your preparer pulls out your file, he or she will be thinking SALY and will reach for the same old forms to file. When new FBAR filing requirements for 2014 are announced, but don’t get much press, tax preparers without many Expat clients can get caught unprepared.

It may be up to you to educate your preparer on the FBAR and these New FBAR filing requirements for 2014. Here they are:

Not one to bury the lead: IRA owners don’t need to file an FBAR in 2014!

For those of you with Offshore IRA accounts, the IRS has finally come out and said that IRA owners and beneficiaries do not need to file an FBAR. Whether an offshore IRA needed to file an FBAR was never clear, so we all aired on the side of caution and filed it year after year. Well, that burden has been lifted (see below).

The cosmetic change is that the name of the form has changed. The official name of the FBAR changed from Treasury Form TD F 90-22.1 to FinCEN Form 114. I’ll bet not many people even noticed, as we all refer to it as the FBAR.

The big change to the FBAR for 2014 is that it must now be filed online. No more paper allowed. So, when your preparer pulls out your file and grabs the same old forms, you may be in for penalties.

That’s right, if you or your preparer are unaware of the change and mail in SALY, you could face significant penalties for filing late…or not filing at all. So, be sure to talk to your tax man or woman!

Note: the deadline for the electronic FBAR filing did not change and remains June 30. If you file your FBAR with your personal return on April 15, all is well. If you procrastinate and get an extension for your personal return until October 15, your FBAR is still due on June 30. That’s right, the extension of time to file your personal return does not apply to the FBAR.

Do you prepare your own returns? Do you want to sound cool when you explain things to your preparer? Then here is how to file an electronic FBAR in excruciating detail.

To file an electronic FBAR:

  1. Go to http://bsaefiling.fincen.treas.gov/main.html.
  1. Click “File an Individual FBAR” on the left side of the page.

  1. You will then be brought to the screen below, where you can download a PDF version the FBAR (FinCen Form 114). This PDF allows you to type information into the form and save the results (wow, a fillable PDF form – modern technology fresh from 2001!)

  1. Fill in FinCen Form 114 PDF. You will need your information, including social security number and date of birth, as well as your bank name, address, account number, and highest balance for the year. Be sure to save the document when you are finished. If you are unsure what information you need to enter in a certain field, you can move the mouse cursor over that field, hold it for a moment, and a box of text will pop up explaining what you need to enter. See the picture below for an example.

  1. Once everything is filled out correctly, go back to the first page digitally sign the document, save and validate it, and then finalize it for submission.

  1. When you’re ready to submit the form, go back to the page from Step 3 and click the link to “Submit FBAR.” This will take you to the submission page, where you’ll need to enter some contact information and then upload the finalized PDF. The process is not complete until you submit the form.

As you can see, the government has taken a simple form, which could be filled out a a 5th grader and mailed in, and turned it in to a computer nightmare for some. How many of those preparing their own returns will be confused and confounded by this new fangled technology? It will be an interesting year.

New FBAR Filing Requirements for 2014 – Who Must File?

Anyone who is a “U.S. person” must file an FBAR and enjoys the honor of paying U.S. tax on their worldwide income. Basically, this is anyone with a U.S. passport, green card, or someone who lives in America for 6+ months in the year.

If you are not sure you qualify as a U.S. person, please read: Who is a US Person?

The list of those exempt from filing an FBAR has also been updated and codified. For many of you, the most important statement is that IRA owners and beneficiaries are not required to file an FBAR.

Here is the complete list:

  • Certain foreign financial accounts jointly owned by spouses;
  • United States persons included in a consolidated FBAR;
  • Correspondent/nostro accounts;
  • Foreign financial accounts owned by a governmental entity;
  • Foreign financial accounts owned by an international financial institution;
  • IRA owners and beneficiaries;
  • Participants in and beneficiaries of tax-qualified retirement plans;
  • Certain individuals with signature authority over, but no financial interest in, a foreign financial account;
  • Trust beneficiaries (but only if a U.S. person reports the account on an FBAR filed on behalf of the trust); and
  • Foreign financial accounts maintained on a United States military banking facility.

To be clear, the above list is not necessarily new FBAR filing requirements for 2014. I am saying that the IRS finally listed the exceptions on their website and ended the debate, especially in regard to IRA owners and beneficiaries. For more information, see IRS.gov.

I hope you have found this article helpful. Please post any questions or suggestions in the comments below. I will personally respond to every inquiry.

Give Up US Citizenship
Christian Reeves

Americans Give Up US Citizenship in Record Numbers

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Record numbers of Americans gave up US citizenship in 2013. As the IRS mafia becomes ever more hostile to its citizenry, Americans give up US citizenship in record numbers. In 2013, 3,000 Americans lined up at embassies around the world to renounce their citizenship and get Uncle Sam out of their pockets for good. This is an increase of well over 200% in the last year, up from 933 renunciations in 2012, 1,780 in 2011 and 235 in 2008.

Why did so many Americans give up US citizenship? The three most common reasons given were 1) the IRS, 2) the IRS, and 3) the IRS.

Let’s take a step back: America is about the only country in the world that taxes its citizens on their worldwide income, regardless of where they live. So long as you hold a U.S. passport, the IRS wants its cut. And the IRS has become very hostile in attacking American’s abroad and those offshore accounts, putting a number of them in prison over the last few years. Of course, these attacks are limited to average people and not big corporations, who have record amounts of cash offshore.

This attitude has resulted in some very unreasonable tax assessments. For example, I have met many people who have never set foot in the U.S., but whose parents wanted them to have a U.S. passport at birth, who have been caught in the IRS mill. Once in the government’s sites, they were forced to pay enormous fines and penalties, in addition to the tax due. Adding insult to injury, some of these people had their bank accounts seized and real estate sold at auction to pay in to the Obamanation.

Then there are the laws targeting offshore banks. If you are a U.S. citizen, you are not wanted at most financial intuitions. Of those banks that will do business with you, most will hit you with extra fees, such as $500 to open the account and a $300 per year special assessment to cover compliance costs.

Finally, there is the invasion of privacy. As an American, you have zero right to privacy in your financial dealings. In fact, nearly all offshore banks will report your transactions to the IRS.

  • If an offshore bank fails to report your transactions, they are on the hook for major fines or being locked out of the banking system all together. Considering this risk, and the high cost of compliance, it’s no wonder that Americans are persona non grata.

HOW TO GIVE UP US CITIZENSHIP

If you are thinking of giving up your US citizenship, there are several hoops you must jump through. First, you don’t just show up at the embassy, burn your passport, give the ambassador the finger, and go along your way. You must complete a complex process and receive a renunciation letter before you are free. This might include an audit of your last 3 to 5 years of tax returns and an in-depth review of your finances to ensure you are paid-up.

  • Before you open a new account as a free man or woman, the bank will want proof that you have renounced your U.S. citizenship. Even if you have a second passport, you must prove that you gave up your US citizenship. Therefore, getting this renunciation letter from the consulate is of the utmost importance. It also ensures the IRS will not come after you years later looking for more cash.

Second, you might need to pay an exit tax. If your worldwide assets exceed $2 million, or your average tax bill over the past five years has been more than $151,000, a tax may be due on unrealized capital gains.

Basically, you will be required to file a final U.S. return as if you have sold all of your assets for fair market value and you will be taxed on that gain the year you give up US citizenship. Calculating this cost to escape is simple for those who hold major stocks. If your assets include private investments, real estate that has not easily appraised, or you have other issues in determining fair market value, you could be in for a battle with the IRS.

Third, you must have a second passport in hand before you give up your US citizenship.  If you give up your US passport and don’t have another ready and waiting, you will be a person without a country and it will become impossible to travel or immigrate.

If you don’t already have a second passport, there are three ways to get one.

By nationality or family history: If your parents or grandparents were born outside of the U.S., you might be able to get naturalized in their home country. For more information on this option, I suggest you read up at Live and Invest Overseas.

Earn your second passport through residency: If you move to a country like Ireland, Panama, Chile, New Zealand, or Singapore, you should be able to gain citizenship within 3 to 9 years (assuming the rules don’t change while you are waiting).

Of the residency programs that I have investigated, I believe the best is the favored nation’s residency permit linked to a teak investment in Panama. This requires a minimal investment of $15,000 and allows you to gain residency immediately. Citizenship should be processed in 4 to 5 years. For more information on this program, please contact me at info@premieroffshore.com.

Pay for it: You can purchase citizenship and a second passport from St. Kitts and Nevis, Dominica, and a few other nations. Most of the available programs require you to have no criminal history and cost anywhere from $165,000 to $300,000, depending on family size and other factors.

For a detailed description of the available economic citizenship programs, please see my Second Passports page. You will find the requirements and costs for Dominica and St. Kitts on this page. If you have issues in your past and need a more lenient jurisdiction, please contact me for a consultation.

I hope this information has been helpful. As the IRS becomes ever more hostile to its populace, I believe we Americans will have fewer and fewer escape and banking options. I also predict it will become very challenging to move assets out of the United States. If you would like to know more about how to give up US citizenship, please contact me at info@premieroffshore.com for a confidential consultation.

benefits of an offshore company
Christian Reeves

Benefits of an Offshore Company

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One of the most confusing areas of going offshore are the benefits of the offshore company. Will going offshore reduce your taxes? The answer is a qualified maybe. Will an international corporation or LLC structure protect you from creditors? The answer is a resounding yes.

In this article I will attempt to describe the benefits of an offshore company for those living in the United States and for those living and working abroad.

Offshore Company for Those Living in the U.S.

The benefits of an offshore company for those living in the United States are simple: it provides some of the best asset protection available and allows you to diversify your investments internationally. Moving your assets in to an offshore company should not increase or decrease your U.S. tax bill.

This is the say that there should be no tax benefit to going offshore if you are living in the United States. Offshore asset protection should be tax neutral.

So, your offshore company might invest in gold bullion held in Panama or Switzerland, real estate in Belize or Colombia, and hold a brokerage account at any number of quality firms. It will allow your assets to escape from America and plant that first flag offshore.

Protecting yourself with an offshore company will require you file a corporate tax return, IRS Form 5471, or a disregarded entity return, IRS Form 8858, and, if you move more than $10,000 out of the US, to report your international bank accounts  on the FBAR form. For additional information on tax reporting, click here.

Offshore Company for Those Living and Working Abroad

Let me begin by noting that U.S. citizens are taxed on their worldwide income no matter where they live. Operating a business through an offshore company may significantly reduce the amount you must hand over to Uncle Sam…so long as you file all of the necessary forms each year.

If you are living and working outside of the United States, the benefits of an offshore company can be significant. First, it allows you to protect your business assets, increases privacy, and offers an unparalleled level of asset protection.

Next, an offshore company allows you to maximize the Foreign Earned Income Exclusion. If you were to operate a business without a corporation, or with a US corporation, then you must pay Self Employment tax or FICA, Medicare, ObamaCare, etc. This basically amounts to a 15% tax on your net profits.

If you were to roll the dice and operate a business offshore without an offshore company, unprotected from litigation, you would report your income on Schedule C of your personal return. When this happens, expenses on Schedule C reduce the value of your Foreign Earned Income Exclusion.

For example, if your international business grosses $400,000, and your expenses are $200,000, your expenses are (obviously) 50% of your gross. When this is reported on Schedule C and Form 2555, your FEIE is reduced by 50% and you only get $49,000 tax free…not the full FEIE amount of $98,000.

– The FEIE is actually $99,200 for tax year 2014 and 2015 has not yet been released. I usually round down to $98,000 to make the math easier to follow.

If this same $400,000 in gross profit and 50% expense is reported in an offshore company, on IRS Form 5471 and 2555, then you get the full $98,000 FEIE. If the business is run by a husband and wife, each may take the exclusion, and you will get $196,000 tax free.

Finally, by operating your business through an offshore company, you may retain earnings that are in excess of the FEIE. So, if your net profit is $200,000, you might draw a salary of $98,000 and leave the rest of the money in the business. Thereby, you will pay zero US tax on your offshore business.

So, the tax benefits of an offshore company can be major. When planned and structured properly, your offshore company may pay zero U.S. tax…while remaining in compliance and following all of the applicable laws.

For more detailed information on the benefits of an offshore company, please check out my Expat Tax and Business Guide.

Why So Much Confusion on the Benefits of an Offshore Company?

So, why is there so much confusion about the benefit of an offshore company? Why do I receive calls nearly every day from people who are mixed up on the tax benefits? I think there are two answers:

First, promoters located offshore, and out of the reach of the IRS, often give false information to make sales. If you call an incorporator in Nevis and ask about taxes, they will say something like, “no, you don’t need to pay tax on your profits. You can leave them offshore as long as you like and no one will know about them until you bring them in to the U.S.”

Well, this is true from the perspective of someone in Nevis. That island will not attempt to tax your Nevis IBC, nor will they require you to file any tax returns or report your business. But that is not what is important here…as a U.S. citizen, you are concerned with the IRS knocking down your door and not what Nevis thinks.

This is why all U.S. persons must use a U.S. firm that offers tax and business consulting services to incorporate offshore. The risks and costs associated with failing to keep in compliance will certainly outweigh any premium you pay for quality representation. If you don’t choose Premier to create your offshore company, make sure you use another U.S. tax expert!

Second, you read all the time how big companies like Google and Apple have billions of tax free dollars offshore. Why can’t you, the average guy or gal, setup an offshore company and do the same thing?

These big guys have business units with employees and other assets that are working and producing sales outside of the U.S. They don’t just form an offshore company and run revenue through it. They build an offshore division that makes money…and it is these profits generated by their offshore units that retain earnings offshore.

  • Want to learn more about how big corporations operate? Read up on terms like “transfer pricing.” This is the foundation of the offshore corporate tax break for large firms.

Because small businesses can’t usually hire a bunch of employees in Panama and Ireland, and pay big money to tax lawyers to structure their worldwide affairs, we are left with the basics: the only way to emulate Apple and Google is to move you and your business offshore and qualify for the FEIE.

I hope you have enjoyed this article on the benefits of an offshore company. Feel free to contact me at info@premieroffshore.com for a confidential consultation, or post a question to this page in the comments.

Best Offshore Company Jurisdiction
Christian Reeves

Where to Incorporate Your Offshore Company

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Before forming an offshore company, give some thought to where you will incorporate that entity and where you will operate the business. Of course, these don’t need to be the same country…you may do better to incorporate in one jurisdiction and operate from another. The following article will help you select the best jurisdiction for your offshore company.

Offshore Company Tax Tip: If you are an American living and working abroad, the country where you form your company does not make difference. It should be somewhere that will not tax your business and will not require you to file any tax forms. To put it another way: your only reporting requirements should be to your home country of the United States and not to the country where you form your offshore company.

I have developed the following offshore company formation checklist based on my own experiences through the years of operating a number of businesses in five countries, as well as in structuring the affairs of a wide variety of clients around the world.  

The first list are business reasons to select your country of operation:

Offshore Company Tax Issues – Start your business in a country that will not tax your income. Of course, if you open a bar selling beer to the locals in Belize, they will tax you. I am referring to a business that sells a product or service to people outside of your country of operation…usually an internet based business. There are a number of countries that will not tax offshore company foreign sourced income in that case.

Time Zone – One of the most overlooked issues is the time zone. You should operate your business from the same time zone as your clients. If you are selling to the US, then you should be in South or Central America. I can’t tell you how many clients started up an internet business from Asia, only to give up the night shift and move to Panama after a few months.

Banking – Your offshore company can open an account at any number of international banks around the world. The account need not be in your country of incorporation. Of course, you will need a business account in your country of operation. To open that account, you may be able to use your offshore corporation from another jurisdiction, or you may be required to form a local corporation. Never put business income in a personal account…you must use an offshore company!

Tax Tip: I suggest that your offshore company bill your clients and receive payment outside of your country of operation. Then, you should only bring in funds necessary to operate your business, leaving the balance as retained earnings in the offshore structure.

For example, if you operate your business in Panama, bill your customers from a Belize corporation and send only the minimum necessary from Belize to Panama to avoid tax in Panama.

World Image – The way your country of incorporation is perceived by perspective clients might be relevant to some entrepreneurs. This is the country listed in contracts and other documents, so customers will see it. Your country of operation can be kept private, but your country of incorporation will be public knowledge.

Cost of Labor and Office Space – Of course, you will expect labor to be significantly cheaper offshore, but you might be surprised that office space is quite costly. Quality office space in Panama City costs about the same as in my home city of San Diego, California.

Availability of Labor – While cost of labor is low, the demand for English speakers is high. You may find it challenging to hire good people in certain countries. I also note that labor is rather transient in many countries. English speakers are in demand and often move from job to job in search of a dollar more an hour.

Availability of Professionals (CPAs & Lawyers) – One of the most overlooked aspects of starting a business offshore is the need for quality LOCAL counsel. You must have someone nearby who can advise you on leases, employment law, local taxation, and any number of issues. Going in blind, or expecting things to work as they do in the US, is a very common gringo mistake. Don’t be that guy or gal…find a few local experts on which you can rely. We at PremierOffshore.com can get you started, but there is no substitute for local knowledge.

Quality of Telecom and internet – Be sure your office has excellent internet and telecom facilities. You never want to sound like you are in a banana republic!

Availability of Computer Equipment – You might be surprised how expensive it is to import quality computer equipment in to some counties. I have had desktop systems, including monitors, stashed in my large checked cases on many occasions.

In addition to the business checklist above, careful consideration should be given to the quality of life offered in your country of operation. The following are the personal considerations of forming an offshore company and operating a business outside of the United States.

  • Can you learn the language?
  • Is there a community you will fit in to?
  • Can you adapt to the culture / speed of life?
  • Can you adapt to the weather?
  • Is the country accessible by air in 1 day?
  • Can you live with the security concerns?

Now, let’s apply these offshore company criterion to doing business in Panama City, Panama.

For myself and PremierOffshore.com, we decided to form an offshore company in Panama, operate from Panama, and form our offshore corporate billing entity in Belize. While the heat and humidity in Panama City is challenging for a San Diegan, the quality internet and low cost of labor won out. Also, escaping the heat to Medellin, Colombia is only a 30 minute flight!

I hope this article has been helpful and given you some ideas on how to select the jurisdiction for your offshore company and your offshore business. Please contact me at info@premieroffshore.com with any questions or to arrange for a confidential consultation.

Spain tax guide
Christian Reeves

Spanish Tax Guide: Tax Implications of Living, Working and Investing in Spain

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Spanish Tax Guide – this is the first in our country tax guide series.

Spain emerged from five years of recession in mid-2013, and now is one of the hottest investment options around. Real estate and investment markets are still priced near the bottom, but are on the upswing, employment is improving, and the government’s austerity measures are growing the economy.

Spain’s economy, the fourth-largest in the EU after Germany, France and Italy, crashed in 2008 when a real-estate boom went bust, taking down much of its banking system and raising doubts about the country’s solvency. The gross domestic product, which briefly rebounded in 2010 and 2011, has shrunk 7.5% in the past five years.

Investing in Spain is still not for the faint of heart. Its tax system is one of the most complex in the world, still boasts one of the highest rates in Europe, faces staggering budget deficits which have resulting in “wealth taxes” for residents and nonresidents alike, and the economic rebuilding has just begun. In an interview with The Wall Street Journal, Spain’s Prime Minister Mariano Rajoy said “Spain is out of recession but not out of the crisis,” cautiously touting the effects of budgetary and structural overhauls that have been among the deepest in the euro zone. “The task now is to achieve a vigorous recovery that allows us to create jobs.”

There are strong signs of recovery, and thus opportunity for international investors. Labor costs have been reduced, exports are on the rise, and the current-account deficit, once 10% of GDP as cheap money poured in to fuel the building boom, has turned to surplus. However, GDP growth is expected to increase by .5% to 1% in 2014.

High corporate and personal taxes on your worldwide income, and possibly your worldwide assets, are a major issues for anyone moving to Spain. Unwilling to cut government spending, Mr. Rajoy’s right-leaning government chose to raise taxes. According to the Cato Institute, “Following the tax increase, Spanish individuals will be paying one of the highest personal income tax rates in Europe. For instance, from 2012 onwards, only Sweden and Belgium, with 56.4% and 53.7%, respectively, will have a higher top marginal income tax rate than Spain, which stands at 52%. However, if one takes into account local surcharges imposed by some Spanish regional governments, the top marginal rates rise further. In Catalonia, for example, the top tax rate is 56%.”

For just about any income, Spanish tax rates are higher than in France, Britain, Italy and Germany, they say, adding:

“All of those countries enjoy a considerably higher income per capita than Spain and thus can more easily withstand higher taxes than a poorer country. With Rajoy’s tax hike, Spain suffers from the worst of both worlds: very high taxes combined with decreasing income and employment levels. At 23%, Spain has the highest unemployment rate in the European Union.”

Spain’s immensely complex tax regime means that the well organized and researched resident entrepreneur might take advantage of a number of planning opportunities. While Spain has one of the highest tax rates in the EU, it has one of the lowest effective tax rates. The official corporate tax rate, for example, is 30% but large Spanish companies pay about 8% on average. This compares favorably to the US effective corporate rate of 12.6% for 2013.

  • There are few planning options available to non-residents…who basically pay a 21% flat tax without deductions.

Spanish Tax Primer

A resident of Spain is liable for tax on their worldwide income at scale rates after any available allowances and deductions. A non-resident of Spain is liable for Spanish income tax only on Spanish income, and possibly Spanish assets, generally at fixed rates with no allowances for deductions.

If you spend more than 183 days in Spain during the calendar year, or your “center of economic or vital interest” is in Spain, you are a resident for tax purposes. Depending on where you live, personal income tax on wage and business income will range from 24.35% to 56%.

  • “Vital interests” usually refers to someone whose spouse lives in Spain and they are not legally separated, and/or their dependent minor children live in Spain.

If you are a tax resident of Spain, income “derived from savings,” such as interest income and capital gains, are taxed at 21% to 27%. Specifically:

  • Up to €6,000: 21%
  • Excess from €6,000 up to €24,000: 25%
  • Excess from €24,000: 27%

By comparison, non-residents pay 21% on capital gains and 24.75% on investment income earned in Spain. Where residents are taxed on their worldwide income, nonresidents are taxed only on income earned in country.

As a tax resident, you might also get the joy of paying a wealth tax on your worldwide assets. This levy varies from year to year and has come and gone in various forms since 2008. In 2014, each person is generally allowed assets of €700,000 and a personal residence of €300,000, so a husband and wife might be able to hold up to €2 million before paying the wealth tax. If you are caught up in this toll, you will be required to pay a tax equal to 0.2% to 2.5% of your total assets.

Spain’s wealth tax is quite complicated, varies from region to region, has been repealed and brought back from the dead more than once, and might finally be eliminated in 2015. In some areas, allowances are reduced and, if you are fortunate enough to live in Madrid, you pay no wealth tax at all…I guess that’s where the politicians call home. If you are at risk of the wealth tax, you should contact a local expert.

Taxation of Real Estate for Residents and Non Residents

If you are a tax resident and own a rental property in Spain, net income earned is taxed at ordinary rates, which are 24.35% to 56% rate. You are allowed to deduct ordinary and necessary expenses, which include interest on loans used to acquire the property, repairs and maintenance, leasing fees, etc. Spain allows you to depreciate the value of the home or structure on the land at up to 2 – 3% of the purchase price, but you may not depreciate the value of the land. 3% results in a depreciation rate similar to the United States (33.3 years in Spain compared to 27.5 years in the US) and more “generous” that the 40 year depreciation schedule Americans are allowed for foreign property.

If you are not a tax resident and own rental properties in Spain, net income is taxed at a rate of 24.75%. If you are not a resident of the EU nor a resident of Spain (ie. you are a US resident for tax purposes), you may not deduct any expenses against your rental income.

If you are not a resident of Spain, you pay 21% in capital gains tax on the profits from the sale of your real estate and 24.75% on other types of investment income. But, be careful because local capital gains tax (which is levied by the town hall where the property is located and depends on local values) may also apply. This should be considered before making a purchase.

  • 3% of the gross sale price is held back by the buyer and paid over to the Spanish tax authorities. If 3% of the gross is more than 21% of the net (more than the total tax due), you can file a claim for refund.

In addition to the tax on net rental income, you will pay property tax at 1% to 2% per year based on the value of the property. This rate varies by municipality and you should take it in to account when considering properties from different areas. You should also look in to whether you must pay cantonal property tax in addition to the general property tax described above.

There is also a special assessment on real estate owned by non-residents. If you are not a tax resident of Spain, you will pay 3% per year on the value of the property for the right to own property in Spain.

When you go to sell the property, you will pay capital gains tax as described above. Because Spain’s capital gains rate is equal to or higher than the United States, you will probably not owe capital gains tax to Uncle Sam on the transaction. This is because, in most situations, the Foreign Tax Credit will come in and eliminate a double tax.

Spain will also hit you with a Stamp Duty on the transfer. In most cases, this is 0.5% rising to 1% in some autonomous regions and can reach up to 6%! It is paid by the buyer, but you should take it in to account when valuing your property. A property with a small duty might garner a higher price than one with a 6% toll.

Finally, if you own significant real estate in Spain, and you are not a tax resident, you may still get to pay the wealth tax on your assets in Spain. That’s right, if you own rental properties worth more than €700,000 in 2014, you are required to pay a tax based on their value. The levy starts at 0.2% and jumps to 2.5% quickly. It is uncertain whether this tax will apply after 2014.

Taxation of Rural Land

Many of these taxes do not apply to rural land (land primarily dedicated to farming). For example, transfers of rural land and used buildings on that land are exempt from the 21% tax described above. Used for this purpose means that the building is transferred for the second or subsequent time, except when the building is acquired for rehabilitation, and the property is classified as rural by the taxing authorizes.

In many cases, the transfer of rural land will be taxed at around 7% and property taxes will apply at 2% per year. Though, this is an estimate and can vary by region. You should seek the advice of a local attorney before purchasing rural land…and be aware that is extremely difficult to obtain a permit to build in land zoned as rural.

Tax Summary

As a resident living and working in Spain, you are facing personal income rates that cap at an astounding 57% and capital gains taxed at 21% to 27%. However, you can make use of a number of deductions and exclusions that may get your effective rate down to that of the UK and France…now, there’s something to aspire to in tax planning!

If you are a non-resident, you will enjoy a 21% to 24.75% flat tax with very few deductions (unless you are an EU resident). When you consider that owning rental properties in the US generally reduce your taxes (mortgage interest, expenses and accelerated depreciation often exceed rental income), rather than increasing them as is the case in Spain for a nonresident, one should think long and hard before buying a Spanish rental.

As a non-resident, you will also pay a special 3% tax per year, and a property tax of 1% to 2%. Therefore, a non-resident’s carrying costs may be as high as 5% of the assessed value each year.

When you purchase real estate in Spain, the buyer is responsible for a scaled transfer tax of 8 – 10%, and this usually jumps to 12% for new builds (property acquired from the builder / developer). When you sell the property, you pay 21% on the net gain plus an average stamp duty of 1.5%. Local and municipal taxes may also apply.

Finally, when a non-resident sells their property, a special 3% withholding on the total sale price must be held back by the buyer.

I hope you have found this tax review helpful. I’d like to end with an interesting caveat in the Spanish tax code:

  • Because of the extremely high transfer taxes, buyers and sellers might be incentivized to misreport the sale price, with the buyer giving cash on the side to the seller to make up the difference. Well, if the tax authority can prove that the transfer was reported at less than 50% of its fair market value, the government has the right to buy that property for the value reported in the sale.

I hope you find this article helpful. Please contact me at info@premieroffshore.com with any questions or article requests.

US Person for tax purposes
Christian Reeves

Who is a U.S. Person for Tax Purposes?

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Who must pay US taxes you ask? Who is a US person for tax purposes? Who is in the crosshairs of the IRS? The answer is not quite as simple as you may think…and something that confuses many people living and operating a business in the US.

Who is a U.S person for tax reporting purposes? Who are these unfortunate soles who must file an FBAR, report their foreign assets on IRS Form 8938, and pay tax on their worldwide income?

As those of you know who have met me at conferences or read my articles, I often ramble on about the many filing requirements for those living and working abroad. I won’t go in to them again here, but you can see my taxation page for more information.

First, a U.S. person is ANYONE with a U.S. passport. It doesn’t matter if you currently live in the United States, nor does it make a difference that you have never lived in the U.S. So long as you hold a passport from the U. S. of A., you are required to pay up and report everything.

That is the easy answer. But, what about those who were not blessed at birth with a blue passport and the honor of giving half of what they earn to the American machine?

For example, I recently had someone in my office that had been living in the United States for the five years on a Green Card. He had been filing his U.S. tax returns, and paying tax on his U.S. income, but had done nothing about his international obligations.

He was considering obtaining U.S. citizenship and was wondering what that would do to his tax situation. He had no idea that he was already screwed and a U.S. person for tax purposes.

A U.S. person for tax purpose includes any of the following: (see the IRS website):

  1. A U.S. Citizen, which is anyone with a U.S. passport,
  2. A green card holder (see: http://www.irs.gov/Individuals/International-Taxpayers/Alien-Residency—Green-Card-Test), or
  3. A U.S. resident for tax purposes – most commonly defined as someone who spends more than 183 days in the US under the Substantial Presence Test. A U.S. resident for tax purposes is commonly referred to as a resident alien.

Therefore, if you have a U.S. passport or green card, or are a resident alien for tax purposes, you must report income from all sources within and outside of the U.S. For more information, see Publication 525, Taxable and Nontaxable Income.

Also, if you are a U.S. citizen, green card holder, or resident alien, the rules for filing income, estate and gift tax returns and for paying estimated tax are generally the same whether you are living in the U.S. or abroad. See the IRS website for information on how to file as a resident alien abroad.

So, a U.S. person for tax purposes is just about anyone with immigration ties to the U.S., or spends most of their time here. If you want to enjoy the benefits of America, it’s going to cost you…and if you are unaware of these obligations, it can cost you big time!

I hope you find this brief article helpful. For additional information, or questions on your tax filing

Physical Gold
Christian Reeves

Do I Need to Report Gold to the IRS? FBAR and Form 8938

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Are you required to report gold to the IRS? Surprisingly, the answer is no. Gold you hold directly is not reportable on the FBAR or IRS Form 8938. But be careful…when you sell the gold, you have a reportable transaction.So, in most cases, you are not required to report gold to the IRS!

You hold gold directly if you own gold bars, gold bullion or coins and keep them in a vault. It doesn’t matter whether that vault is inside the U.S. or somewhere secure like Panama. You do not hold gold directly if you own a gold certificate, gold stocks, or a gold future contract. Only physical gold that you have direct access to is allowed to be private. For additional information, see the IRS website.

I note that your IRA can hold gold bullion directly, and that gold can be held in a foreign vault. Many of our clients form offshore IRA LLCs to hold this type of asset. In that case, your administrator must report the appreciation in the IRA account, but are not required to file an FBAR or IRS Form 8938.

The same holds true for tangible assets that you buy as investments. Examples of tangible assets include art, antiques, jewelry, cars and other collectibles. If you hold these assets outside of the United States, you are not required to report them on your FBAR or IRS Form 8938. Note that an IRA may not own art, antiques, jewelry, cars or any type of collectible

Finally, you are not required to report the existence of a safe deposit box at a foreign bank. A safe deposit box is not a foreign account and is thus not covered by these forms. If your safe deposit box has only gold and jewelry, then you have nothing to report.

Now, here’s the rub: If you sell your gold or tangible property to a foreign person, that sales contract is a reportable asset. According to the IRS, “The contract with the foreign person to sell assets held for investment is a specified foreign financial asset investment asset that you have to report on Form 8938, if the total value of all your specified foreign financial assets is greater than the reporting threshold that applies to you.”

Therefore, if you sell your gold and collectables to a U.S. person, no reporting is required. If you sell these same assets to a foreign person, and the total value is significant, you must report the transaction on IRS Form 8938.

I hope this helps. For a similar article on foreign real estate, see: Do I Need to Report my Offshore Real Estate on IRS Form 8938?

design

Industria în creștere a videoclipurilor porno

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Deși este dificil de cuantificat impactul economic al videoclipurilor porno, estimările sugerează că industria porno ar putea fi mai mare decât Netflix, care aduce 11,7 miliarde de dolari anual.

Acest număr de venituri este greu de identificat din cauza pirateriei rampante, a proprietății private și a discrepanțelor în studiile pornografice. Cu toate acestea, un lucru este cert: Pornhub domină în mod clar industria video porno online. De fapt, compania deține mai multe companii de producție care recoltează date de pe propriile site-uri porno. Aceste date sunt apoi folosite pentru a crea videoclipuri porno personalizate pentru utilizatori.

Deși studenții nu sunt familiarizați cu porno, nici ei nu sunt excluși. De fapt, studenții sunt al doilea cel mai mare număr de spectatori de videoclipuri porno, cu aproape o treime dintre ei cu vârsta cuprinsă între 18 și 24 de ani. Videoclipurile porno pot atrage spectatorii tineri, dar nu sunt sănătoși pentru sănătatea lor. În plus, porno este adesea degradant și violent, aproape 90% dintre scene prezintă violență. Ca rezultat, porno poate provoca boli cu transmitere sexuală la oameni.

De asemenea,  filmexxxgratis îți inundă creierul cu substanțe chimice care creează dependență, inclusiv dopamină. Această aprovizionare constantă face ca creierul să devină copleșit, ceea ce provoacă dependență. Utilizatorii de pornografie caută din ce în ce mai mult porno hardcore pentru a-și satisface dependența. Activitățile regulate și sănătoase, cum ar fi vizionarea la televizor, nu produc suficiente din aceste substanțe chimice, așa că atunci când nu vizionați porno, vă simțiți dezamăgiți. În cele din urmă, acesta nu este un lucru bun.

Industria porno există de secole, dar există câteva exemple recente care vă pot surprinde. De obicei, producția video porno durează cel puțin trei zile. Multe dintre aceste videoclipuri sunt foarte grafice și descriu viața sexuală a unui bărbat. Videoclipurile porno ar putea să nu fie pentru toată lumea, dar genul ar trebui să facă parte din lecțiile de alfabetizare media. Acest articol va oferi câteva date despre industria video porno. Să aruncăm o privire mai atentă asupra industriei și asupra modului în care este creat și consumat porno.

Există mai multe țări despre care se știe că sunt cei mai pasionați urmăritori de videoclipuri porno.

Aceste țări sunt în mare parte creștine, musulmane și mixte. Pornografia este, de asemenea, foarte populară în Japonia și Pakistan, iar conținutul videoclipurilor porno nu este limitat doar la aceste țări. Cei mai buni urmăritori de videoclipuri porno sunt enumerați mai jos. Nu există nicio îndoială că industria videoclipurilor porno este în creștere. Dar această industrie nu este lipsită de controverse. Este o sursă majoră de venituri pentru companiile care sunt interesate să-l monetizeze.

Una dintre cele mai mari preocupări este impactul pornografiei asupra creierului. Când ne uităm la videoclipuri porno, creierul produce o substanță chimică numită dopamină, care este responsabilă pentru crearea unei conexiuni între anumite acțiuni și dezirabilitatea percepută. Această substanță chimică promovează ulterior crearea de noi căi neuronale, legând pornografia cu plăcerea. Acest fenomen este responsabil în mare măsură de creșterea consumului de porno în rândul bărbaților. În consecință, vizionarea pornografiei poate avea un impact negativ asupra relației dintre bărbați și femei.

Dacă aveți o cască VR, puteți viziona porno VR folosind Samsung Gear VR.

Pentru a descărca aceste videoclipuri, creați mai întâi un dosar numit /MilkVR pe telefon. Apoi, descărcați aplicația Samsung VR și selectați canalul Sideload. Apoi, deschideți videoclipul în playerul VR. Dacă aveți o conexiune la internet, puteți viziona videoclipul. Cu toate acestea, dacă nu aveți acces la Internet, descărcarea conținutului este, de asemenea, o opțiune viabilă.

Unele filme au dus chiar pornografia la noi niveluri, cu exemple notabile, inclusiv The Bare Wench Project și The Blair Witch Project. Ambele filme au fost false ale unor filme mainstream și chiar au dat naștere unor sequele. Infamul Les Liaisons dangereuses a inspirat, de asemenea, mai multe filme și emisiuni TV. Pe lângă cele menționate mai sus, alte două filme care și-au făcut loc pe listă includ Legături periculoase și Intenții crude.

Popularitatea genului a crescut în anii 1970. În anii 1970, regizorul Bill Osco a început în industria filmelor porno producând Mona. Acest film urmărește o tânără în timp ce trăiește diverse situații sexuale. Epoca de aur a pornografiei a cunoscut, de asemenea, un val de creativitate în industria pornografiei. Filme precum Flesh Gordon din 1974 au fost un amestec de science-fiction și comedie.

Offshore Captive Insurance Company
Christian Reeves

Can I Invest in a Business with my IRA?

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Surprisingly, yes you can invest in an active business with your retirement account. There are a many caveats and limitations, but you can usually lend money to a business, purchase shares in a corporation or LLC, or buy in as a partner receiving a share of the profits (flow-through structures).

Now, let’s talk about those limitations:

First, if you are investing in a business in the United States, your IRA can’t own shares of an S-Corporation.  This is not an IRA rule, but rather a U.S. corporate statute which requires owners of S-Corps to be U.S. persons. In other words, no foreign person (for tax purposes), entity, or tax exempt /preferred structure may invest in a business structured as an S-Corp.

Next, you can’t invest in a business of which you are a highly compensated employee. Basically, the IRS wants to make it difficult for you to take money out of your retirement account as salary and thereby circumvent the distribution rules.

A highly compensated employee is an individual who:

  • Owned more than 5% of the interest in the business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or
  • For the preceding year, received compensation from the business of more than $115,000 (if the preceding year is 2012 or 2013), and, if the employer so chooses, was in the top 20% of employees when ranked by compensation.

I note that, if you draw a salary from a business you invest in using your IRA, you open yourself up to audit on that issue. This is especially true if you also take expense reimbursements and other payments that could be categorized as salary. I always recommend clients not take a salary when investing through a retirement account. And, if you do take a salary, to keep very good accounting records on all transactions to ensure they are below the threshold.

Next, your retirement account is prohibited from investing in a business of which you own or control more than 50%, or which is owned or controlled by any “disqualified person.” The first part of this rule is simple enough: you may own up to 50% of a business or corporation through your retirement account. To put it another way, you can’t invest in an entity (corporation, partnership, trust or estate) owned or controlled more than 50 percent by you…straightforward enough.

Now, let’s talk about who else (other than you, the owner of the account) is a disqualified person. In this section, the IRS is attempting to limit any conflicts of interest involving your IRA and related parties and to ensure all transactions benefit the retirement account and not the IRA owner.

A “disqualified person” (IRC Section 4975(e)(2)) extends into a variety of related party scenarios, but generally includes the IRA owner, any ancestors or lineal descendants of the IRA holder, and entities in which the IRA holder holds a controlling equity or management interest.

A disqualified person is defined as follows:

  • A fiduciary, which includes the IRA holder, participant, or person having authority over making IRA investments,
  • A person providing services to the plan such as the trustee or custodian,
  • The employer who created the plan or an employee organization any of whose members are covered by the plan,
  • A spouse, parents, grandparents, children, grandchildren, spouses of the fiduciary’s children and grandchildren of a disqualified person,
  • An entity (corporation, partnership, trust or estate) owned or controlled more than 50 percent by a disqualified person, and
  • A 10 percent owner, officer, director, partner, joint venture, or highly compensated employee of a disqualified person.

Note: brothers, sisters, aunts, uncles, cousins, step-brothers, step-sisters, and friends are NOT treated as “Disqualified Persons”.

What will happen if you (whether by accident or intentionally) break one of these many rules? If the IRS finds out, the consequences will be swift and severe. Specifically, if an IRA owner or his or her beneficiaries engage in a prohibited transaction at any time during the year, the account stops being an IRA as of the first day of that year and major penalties apply.

This means that the account is treated as distributing all its assets to the IRA owner at their fair market values on the first day of the year. If the total of those values is more than the basis in the IRA, the IRA owner will have a taxable gain that is includible in his or her income.

In addition, the IRA holder or beneficiary would be subject to a 15% penalty, as well as a 10% early distribution penalty, if the you are under the age of 59 1/2.

The prohibited transaction rules are extremely broad and the penalties harsh (immediate disqualification of entire IRA plus penalty). Thus, if you invest in an active business, you must be cautious when engaging in transactions that could be considered self-dealing or result in a direct or indirect personal benefit. Whenever you consider a complex transaction, it is important you consult with a qualified expert.

Let’s conclude with a few comments on the tax consequences of investing in an active business. If you purchase shares, and sell them for a capital gain, the profit flows in to your retirement account as any other investment – tax free to a ROTH or tax deferred in a traditional IRA. Likewise, if you lend money to a business, the interest earned passes up to your retirement account tax preferred.

If you invest in a joint venture, mutual fund, or partnership, such that you receive distributions of profits or income, rather than capital gains, your tax picture becomes more complex. Obviously, the IRS won’t let these profits go in to your retirement completely untaxed.

In other words, when you invest in a business by purchasing shares, the value of those shares go up or down based on the net income of the business. The business is earning money, paying corporate tax on its net profits, and then distributing out any after tax gains as dividends or stock appreciation. Thus, the IRS gets its cut first, then the investors benefit.

When a business operates as a partnership, untaxed net profits flow through to its members on Form K-1 to be taxed on the partner level rather than the partnership / entity level. If a retirement account were allowed to receive flow-through profits, then it would be possible to defer or eliminate tax on those profits all together.

Note: It is not possible to operate a business in the U.S. untaxed, but it is possible offshore.

To prevent this, the IRS invented “Unrelated Business Income Tax” or UBIT. In essence, UBIT is a tax at the corporate rate of 35% on profits in a retirement account on income which is not related to the accounts primary purpose of investing.  Income from an active business that is not capital gains, but ordinary income, mean the IRA is operating a business and are thus these profits are UBI and taxed at 35%.

So long as you can live with the tax consequences, your IRA may invest in partnerships, LLCs, and mutual funds (but not S-Corps). To prevent a reporting mess at the IRA level, you should form a U.S. UBIT Blocker corporation, make the investment and pay the tax from that entity, and pass through “related” income or investment returns to the retirement account.

If you invest in an offshore business, which is not taxable in the United States, then you can eliminate UBIT entirely by forming an offshore UBIT Blocker. This is where IRA tax law gets really interesting.

Let’s say you want to invest in a business partnership in Panama, will own 30% of that structure, and operating profits will be passed to you without being taxed by that country. If you form an offshore IRA LLC, an offshore UBIT Blocker corporation, and make the investment from this corporation, you can eliminate UBIT.

This is because the active business profits are earned by an offshore UBIT Blocker are free from corporate level tax. If that entity were a U.S. corporation, its profits would be taxed at 35%. Because it is an offshore corporation, formed in a country with no corporate tax (such as Belize or Nevis), no tax is due.

The UBIT Blocker now passes up these profits to the LLC as dividends. Because dividends are not unrelated income, but rather investment returns, they are not taxable…and UBIT has been effectively blocked.

To be clear, I am referring to an IRA making an investment in to a business that is outside of the United States, has no US source income, and is generating active business returns with an office and staff based in Panama. I am not taking about an offshore structure investing in a business or partnership located in the United States, or a business based in America that is utilizing a foreign holding company.

I hope you have found this article interesting. If you have questions on forming U.S. or offshore IRA LLCs and/or UBIT Blocker structures, please contact me at info@premieroffshore.com. I will be happy to work with you to design a structure that maximizes privacy and protection while still in compliance with IRS retirement account regulations.