Research, News and Legal Services for the Offshore Entrepreneur

tax deductions
Christian Reeves

Standard Deduction Amounts, Tax Exemptions, and Other Applicable Taxes

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Standard tax deductions are flat amounts of money that the tax system of the United States lets you deduct, plain and simple. Tax deductions allow an individual and a corporation to subtract applicable expenses to reduce the amount of taxes they have to pay. 

These tax deductions need to include some kind of proof to the IRS that they indeed apply for a deduction. Standard deduction amounts are expenses that are not subject to federal income tax, no questions asked. 

As an individual or corporation who pays yearly taxes you have the option to make tax deductions or to use standard deduction amounts to pay fewer taxes, but you can never choose both options. 

It would be smart and beneficial for you to make sure if you qualify for the federal standard deduction as some taxpayers are not allowed to apply for this. If you are married but you and your spouse file separate taxes and itemize deductions when you file your annual tax report then you will not be able to realize the standard deduction. 

Another situation in which an individual would not be able to make a standard deduction is if you file joint taxes with your spouse and he/she was a non-resident at any moment during the tax year.

It is simpler and much faster to make a standard deduction amount than to reduce taxes. You have to make an in-depth analysis of your fiscal situation and decide which option best fits your needs and will make you pay less in tax.

For 2020, the standard deduction amount increases to $12,400 from the $12,200 of 2019. The $12,400 is only applicable for individual taxpayers and for married couples who file their taxes separately. 

Heads of household have a standard deduction amount set for $18,650 for 2020. Married couples who file jointly have a standard deduction amount of $24,800, the same goes for surviving spouses.

You will also see that the standard deduction amount for taxpayers who are blind increased to $1,300. The $1,300 is an addition to the category that these blind taxpayers already fall under when paying their taxes. 

Unmarried taxpayers also have an additional standard deduction amount of $1,650. Individuals who are listed as dependents by other taxpayers cannot deduct an amount greater than $1,100 or $350 plus the earned income of the individual. This amount should not exceed the normal standard deduction amount. 

Just like last year, there will be no personal exemption amount for 2020. Standard deduction amounts are not the only tactic that a taxpayer can use to reduce taxes, there are other tax exemptions that he can take part in. 

Alternative Minimum Tax Exemptions is the amount that a taxpayer can deduct from the taxable income before calculating its liability. This amount depends on which tax bracket the taxpayer belongs to. 

For an individual taxpayer born in the United States the exemption amount is $72,900. For married couples who file their taxes jointly the number is $113,400, the same goes for surviving spouses. 

Married couples who file separately have an alternative minimum tax exemption of $56,700. Trusts and estates have a tax exemption limit of $25,400. It should be noted that trusts and estates operate differently depending on your situation so the amount may vary.

I mentioned two of the most popular options you have as a taxpayer to pay less taxes. But you might also know that regarding your situation you might also have to pay additional taxes that the ones you are used to.

One of these taxes that you might have to pay is the kiddie tax. The kiddie tax’s purpose is to tax unearned income of a child at a marginal rate of what the parent is already paying that year in taxes. 

It does not matter if the child is or can be claimed as a dependent on the parent’s tax return, the kiddie tax needs to be paid. Children under the age of 19 and college students under the age of 24 are subjects of this tax. 

When I mention unearned income I am talking about income from assets that are not wages or salary. Unearned income that will have to be paid under the kiddie tax is dividends and interests obtained by the child. 

As you can see there are a number of tactics that you can use to pay less in taxes. I just mentioned two of the most famous ones, but depending on your situation you may apply for more. 

I hope you’ve found this article on standard deduction amounts, tax exemptions, and the kiddie tax to be helpful. For more information, or for assistance in tax matters contact us at info@premieroffshore.com or call us at (619) 483-1708

How to Open a Maquiladora in Mexico
Christian Reeves

How to Open a Maquiladora in Mexico

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My previous post was on how to start a general business in Mexico. In this section, I’ll focus on how to open a Maquiladora in Mexico. These Maquiladoras have huge economic importance for Mexico and the United States. Maquiladoras provide for hundreds of thousands of jobs for residents of border cities (on both sides of the border) and throughout Mexico. At one point in time, they helped to stabilize Mexico-USA relations.

Because of the massive deportations that occurred at the end of the Bracero Program in 1964 and Operation Wetback, a large number of factories were established along the US-Mexico border called maquiladoras to provide jobs for these newly relocated Mexicans.

The maquiladoras functioned as American assembly plants set up in Mexico’s border towns to provide jobs and a steady income for the deported. At the same time, they increased Mexico’s global exports and cemented the United States as its most important trading ally.

Maquiladoras made American companies competitive in global trade because Mexico’s wages were substantially lower than in the United States. The Maquiladora program strengthened the relationship between the United States and Mexico which at this point in time was quite strained.

Even though Maquiladoras have become ingrained in the lives of many Mexican and American citizens, many Americans fail to understand the economic advantage that opening an “offshore” assembly or repair plant in Mexico. 

  • Some refer to these plants as being offshore, as outside of the United States. The more modern definition is “near short” to leverage their proximity and ease of operation compared to more distant competitors like China and India. 

The IMMEX program allows US Companies to temporary import raw materials into Mexico for the preparation, repair, transformation of goods to be later exported to the United States as a final product. With this program, you make imports without paying the general import tax, value-added tax, and other compensatory payments. Then you export those finished products to the United States with no import duties or red tape.

To obtain the IMMEX program it is necessary to perform certain procedures fulfilling certain requirements, the applicant must have:

  • Advanced electronic signature certificate (SAT)
  • Federal taxpayer registration
  • Your tax domicile must be active and registered in the federal taxpayer registry.

In addition, the following documentation must be attached to the application for the procedure:

  1. Certified copy of the articles of incorporation of the company and, where appropriate, the modifications to it.
  2. Copy of the document that legally certifies the possession of the property where the operation of the IMMEX Program intends to take place, indicating the location of the property, attaching photographs of it. In the case of a lease or loan agreement, it must be proved that the contract establishes a minimum term of one year.
  3. Contract of maquila, orders of purchase that prove the existence of the project.
  4. Power of attorney (original or certified copy and simple copy); or exhibit a copy of the Unique Registry of Accredited Persons (RUPA).
  5. A written document by means of which the production process or the services which will fall under the guidelines of the program are detailed.
  6. A written document in which the detailed description of the production process or service is provided that includes the installed capacity of the plant to process the goods to be imported or to perform the objectives of the program. 
  7. Letter of conformity from the company or companies that will carry out the sub-manufacturing process where they express, under penalty of perjury and agree to joint and several liabilities for tax on temporarily imported goods (original).
  8. Additionally, for the IMMEX Business Controller Program modality, you must show:
  • Acts of Assembly stating the shareholding of the controlling company and the controlled companies (original and copy).
  • Certified entries in the shareholders’ registry book (copy)
  • The documentation referred to in points 1, 2 and 5 of this section, in addition to presenting a copy of the tax identification card. This documentation must be submitted to the controller and to each of the controlled companies.
  • The maquila contracts that each controlled company has with the controlling company or a maquila contract in which the obligations contracted must be established, both by the controlling company and by the controlled companies in relation to the objectives of the requested program, duly recorded before a Notary (original and copy)
  • Authorization as a certified company (copy), granted by the Ministry of Finance and Public Credit.
  1. Additionally for the modality of IMMEX Program for the use of a Third Party:
  • Letter of conformity from the company or companies that will carry out the process of tertiarization, where they manifest under protest, to tell the truth, the joint and several liability on temporarily imported goods (original).
  • The company or companies requesting the program under the Tertiarization modality must have the authorization as a certified company granted by the Ministry of Finance and Public Credit.
  1. If your maquiladora will operate in the textile sector other requests have to be met.
Setting up a business in Mexico
Christian Reeves

How to Open a Business in Mexico

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After the Panama Papers, and because it became impossible to deal with banks in Panama, I moved Premier to Tijuana, Mexico in 2017. While the move was challenging, both from a quality of life and a business perspective, things are now running smoothly. 

Costs are down significantly compared in Panama, the availability of English speaking and well-educated workers is much better here, and our proximity to the United States and the ability to take meetings in Los Angeles and San Diego has improved sales. Our bottom line has grown significantly since the move and it was well worth the learning curve.

There are two groups that set up shop in Mexico. First, those who will open a physical office with employees in Mexico. Second, those that need a Mexican company and virtual office because they’re selling into Mexico. 

The second group is mostly US and Chinese companies selling through Amazon and other online platforms in Mexico. All of these websites now require a Mexican tax ID or RFC & SAT. To get these numbers you will need a Mexican corporation, a physical address (virtual office), and a local representative (local director / legal representative of the company). 

The first group covers a very wide range of clients. For example, entrepreneurs such as myself who moved to Mexico for lower costs and a better quality of life (to be on the fun side of the wall). Then there are the manufacturers or maquiladoras that move to Mexico for the trade benefits available when importing into the United States. Also, we get calls from all manner of business, such as tourism agencies, restaurants, clubs, service businesses, etc. 

So, without any more ado, here is how to set up a company or other business structure in Mexico. 

Opening a business is quite different in Mexico than it is in the United States. For instance, you rely entirely on a Notario to get the process started. A Notario in Mexico is not comparable to a Notary in the United States. The main difference being the importance and the power that a Notario held in Mexico. You will need to know this and other crucial details of you want to open a Corporation in Mexico. 

Opening a business in Mexico can be a complicated task. Even though in recent years Mexican Legislation has fastened the process, there is still a lot that needs to be done. Your company needs to have a stable planned structure before any of the governmental permits are requested. 

To register a business before the corresponding instances in Mexico it is necessary to carry out 7 or 8 procedures in different government institutions, which will take an approximate period of 8 days. The cost of making this record is 17.8% of the per capita income in Mexico, around 8,200 pesos.

In Mexico, as in many countries in Latin America, you will need the intervention of a Public Notary or Notario. The Notario is in charge of creating the Acta Constitutiva or Constitutive Act.
Basically, through this notarial act, the name and business of the new commercial entity is established, and at the same time, the business model is defined. There are a number of different business models in Mexico. 

The six types of companies or mercantile organizations in Mexico, to be analyzed are: Sociedad en nombre colectivo, Sociedad en Comandita Simple (S. en C.), Sociedad en Comandita por Acciones (S. en C. por A.), Sociedad de Limited Liability (S. de RL), Sociedad Anónima (SA), and Sociedad Cooperativa (SC). We will give a detailed description of each one in a different article. 

The steps you need to follow to open a business in Mexico are as follows: 

  1. Present a Request to the Ministry of Economicos (SE). The first step in creating a corporation is to submit a request to the Ministry of Economics where five possible corporate names in order of preference for the company. This is done to ensure that there is no company already established in the country or abroad with the same corporate name.
  2. Creation of the Acta Constitutiva (Constitutive Act). Once the Ministry of Economics gives the approval or delivers the proposals of available company names, the Constitutive Act must be drafted. This document is the one that gives life and which stipulates all the general and basic aspects of the company: company name, objective, type of company, administration, and control thereof, duration, etc. Once the company is created, the Constitutive Certificate must be notarized before a Notario.
  3. Registering the Business Address. You must register the address of your business. This can either be in the place where you are doing business and not just a registered agent for service of process. This address can be a full office or a virtual office. 
  4. Register before the Tax Administration Service (SAT). When the Constitutive Act is completely created and certified, the next step is a registration with the Tax Administration Service. The Tax Administration service is the equivalent of the IRS in the United States. From this register, the Tax Identification Number is obtained, which contains the Federal Taxpayer Identification Number (RFC).
  5. Register before the Public Registry of Property and Commerce. The next step is to appear before the Public Registry of Property and Commerce where the company and the location where the business will operate will be registered, as well as its purposes, objectives and commercial goals. For this process, the presentation of the Constitutive Act, the RFC, and the power of attorney that allows the legal representative to carry out the procedures of the company will be required. The power of attorney is also given by the Notario.
  6. Register before the Mexican Institute of Social Security (IMSS). When all of the above has been completed, the next step is to register before the Mexican Institute of Social Security. Even if it is a company in which only the employer exists as the only worker, it will be necessary for him to make his personal contributions to his Social Security accounts. Also, if you do not complete this process in time, you may be given a fine by the IMSS. 
  7. Only Applicable to Businesses that are Open to the Public. This step only applies to businesses that are going to be open to the public like a restaurant or a retail store, if you are opening an office, a call center, or a manufacturing business then you don’t have to worry about this step. Before you open your business to the public you are going to have to notify the government in order to obtain a municipal business license. At this step, you must also secure any other type of license that you might need in order to start operating. For example, if you are opening a business that is going to be making hazardous materials like chemicals you are going to have to apply for a number of distinct licenses. The same goes if you are opening a restaurant.
  8. Registering Employees. You must register all of your employees with the IMSS (Mexican Social Security Institute) and with INFONAVIT (Mexican Housing Fund). This is required by law. You must show in their paycheck the amount of money that is going to these two funds along with the local state taxes.
  9. Foreign Investment Registry if Applicable. This step only applies if one of the owners is a foreigner who does not have a permanent resident status. If this is the case then you must also register the business with the Registro Nacional de Inversión Extranjera. The government office that keeps track of all foreign investment coming into Mexico. This can be done by the Mexican national who you gave power of attorney to.
  10. Registration before any other applicable governmental institutions. Depending on the commercial activity that your corporation will be participating in, it may be required to register before different organisms, the most common being: Ministry of Health, Secretariat of Ecology and Environment, Mexican Institute of Intellectual Property, etc. 

It is highly advisable that when opening a corporation in Mexico you hire a group of experts. The process might seem long, but we can help you cut through the red tape and get up and running in the most efficient manner possible. 

tax rates 2020
Christian Reeves

IRS Releases Tax Rate Tables 2020 – Part 2

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Taxes are dreaded by a lot of Americans as they see them as this burden that needs to be tended to or it will cause mayhem, but I don’t believe they should be viewed like this. I may sound like a college professor telling his students to don’t wait until the last minute to study for the big test, but the same concept applies for taxes. 

Most Americans do not even know what tax bracket they fall under. I mentioned in the last article the taxes you have to pay as a couple, but even if you are married you have the option to pay for separate taxes filing separately.  

IRS professionals strongly advise couples to file their taxes jointly as there are many benefits and tax returns you can obtain from this, but there are situations when it is better for married couples to file separately such as: 

  • When you or your spouse have a large amount of out of pocket medical expenses
  • When both spouses work and earn approximately the same amount of money
  • Filing separately also cuts the deductions for IRA contributions and eliminates child tax credits among other tax breaks

Filing separately may look similar to filing jointly but do not get the both of them combined. If you and your spouse earn separately less than $9,875 you have to pay ten percent of your taxable income. 

Couples who separately earn between $9,876 and $40,125 have to pay $987.50 plus 12% of the amount over $9,875. The next tax bracket includes earnings between $40,126 and $85,525 which the amount to be paid is equal to $4,617.50 plus 22% of the amount over $40,125.

Going higher in the tax bracket, earning anywhere between $85,526 and $163,300 will lead you to pay $14,605.50 plus 24% of the amount over $85,525 in taxes. $163,301 to $207,350 is the next tax bracket which those who fall under this one has the pay the amount of $33,271.50 plus 32% of the amount over $163,300. 

As you can tell the amount differentiating the tax brackets is much lower than in those where the married couple files jointly. If you and your spouse earn $207,351 to $311,025 separately you will have to pay $47,367.50 plus 35% of the amount over $207,350. 

Finally, if your annual earnings is any amount above $311,026 the taxable income that you and your spouse has to pay is $83,653.75 plus 37% of the amount over $311,025. This is the final tax bracket for spouses filing separate tax reports. 

Another type of tax bracket that you might fall under depending on your situation is head of household. As head of household you file as an individual and you must meet certain requirements such as: 

  • Be unmarried or considered unmarried at the end of the year
  • Have paid more than half the cost of keeping up a home for the tax year
  • Have a qualifying child or dependent 

The tax bracket for head of household is as follows, if you earn below $14,100 dollars you get taxed 10% of your income. Following the first stage of the head of household income is for taxpayers who make anywhere between $14,101 and $53,700 who have to pay $1,410 plus 12% of the amount over $14,100. 

As you can see the difference between the amount of money in each stage of the tax bracket is quite far apart if you compare them to the other three that I have mentioned in this and the last article. 

A head of household who earns the amount of $53,701 to $85,500 has to pay $6,162 plus 22% of the amount over $53,700. If you earn anywhere between $85,501 and $163,300 then you have to pay $13,158 plus 24% of the amount over $85,500. 

Following those amounts, taxpayers who make $163,301 to $207,350 have to pay $31,830 plus 32% of the amount over $163,300. The next column of the tax bracket is for Americans whose income is a number between $207,351 and $518,400. If you fall under this column then you have to pay $45,926 plus 35% of the amount over $207,350. 

In the last column of the head of household bracket you will find that the last amount is $518,401 in order to calculate how much money you will have to pay if you are in this category, then you must add $154,793.50 plus 37% of the amount over $518,400. 

It is important to take into consideration that if you are a head of household who is receiving financial assistance toward your expenses from a parent or third party you can still qualify for this bracket as long as you prove that you are paying for 50% of your bills with your own capital.

Divorced parents can still fall under this category if your child lived in your home for more than half of the year. You can still file under head of household if the other parent has the right to claim the child as a dependent.

Filing as a head of household or as a separate married couple has a lot of layers and can get quite complicated at times. Please feel free to send us a message and we will help you through this complicated process. 

I hope you’ve found this article on the tax rate tables of 2020 to be helpful. For more information, or for assistance in tax matters contact us at info@banklicense.pro or call us at (619) 483-1708

tax rates
Christian Reeves

IRS Releases Tax Rate Tables 2020 – Part 1

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It’s that time of the year when the IRS releases its annual inflation adjustments. These adjustments calculate tax projections for the upcoming year and give taxpayers an estimate of what is to come regarding tax returns.

They include tax rate schedules, tax tables, and cost of living adjustments. It is important to mention that these are not the numbers and tables that you will use to prepare your taxes for 2019, but the ones that you will use to prepare for your 2020 tax returns in 2021. 

If you are not expecting any major changes in the next year then you should take these tax considerations at full, but if you are planning on getting married or starting a family then you can adjust these projections to best fit your needs and have a more accurate estimate of your tax payments. 

You will find the seven different tax brackets featured in 2020 which are: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. You may also find a zero percent tax bracket, but that is a whole different story. 

For the average American who earns an income below ten thousand dollars (0-$9,875) the amount of tax that they will have to pay is 10%. This is in cases in which the taxpayer only works based on commission or has a part-time job. 

The most common tax bracket includes all taxpayers who earn anywhere from $9,876 to $40,125. The amount of tax that they will have to pay equals $987.50 plus 12% of the amount over $9,875. 

Next is for taxpayers who earn $40,126  to $85,525. In order to calculate how much you would have to pay in taxes, you must calculate $4,617.50 plus 22% of the amount over $40,125. Not that confusing or complicated if you think about it. 

You will see that the more money you earn the more you pay in taxes, that is how the fiscal system of the United States works and there is nothing you can do about it. If you earn anything from $85,526 to $163,300 you have to calculate $14,605.50 plus 24% of the amount over $85,525.

Moving up, if you are one of those fortunate Americans who earn the high volume income of $163,301 – $207,350 to figure out how much taxes you pay you will have to find the sum of $33,271.50 plus 32% of the amount over $163,300.

As you can tell the numbers continue to go up. Earning an income from $207,351 to $518,400 leads you to pay a total amount of taxes of $47,367.50 plus 35% of the amount over $207,350 US dollars. 

Finally, if you are a high earning income American the amount of taxes that you will have to pay is $156,235 plus 37% of the amount over $518,400. That is the highest amount of taxes that you will have to pay as an American. 

The numbers and the information that I gave you right now was only for individual taxpaying Americans. The situation is different for married individuals filing joint returns and surviving spouses. 

If the taxable income of you and your spouse is somewhere between zero and $19,750 you have to pay 10% on taxable income. When your earnings are $19,751 to $80,250 the amount that will be paid is $1,975 plus 12% of the amount over $19,750. 

Spouses earning $80,251 to $171,050 have to calculate $9,235 plus 22% of the amount over $80,250. An income of $171,051 to $326,600 will pay $29,211 plus 24% of the amount over $171,050. 

$326,601 to $414,700 has to figure out their taxes by adding up $66,543 plus 32% of the amount over $326,600. High earning couples who make anywhere from $414,701 to $622,050 have to pay $94,735 plus 35% of the amount over $414,700. 

For those high earning couples who make a combined amount of more than $622,051 the amount that they have to pay equals $167,307.50 plus 37% of the amount over $518,400. Hopefully, you are part of this tax bracket. 

There are many ways in which the amount of taxes that you have to pay may vary. A list of many factors to consider that may change how much you pay or in which tax bracket you fall under. 

Every taxpayer is in a very unique situation tax-wise, ad there are a ton of factors to consider before your accountant or you puts you in your corresponding tax bracket. Being 100% transparent is necessary for all matters involving taxes. 

After all, every taxpayer has the right to find ways to pay the least amount of taxes possible. This might sound a tad illicit, but you must remember that there is a sentence in a proper tax document that includes that very phrase.

If you need help with any topic involving your taxes and ways in which you may reduce the percentage that you pay please feel free to contact us. We will be your trusted guide in these matters.

I hope you’ve found this article on the tax rate tables of 2020 to be helpful. For more information, or for assistance in tax matters contact us at info@premieroffshore.com or call us at (619) 483-1708

trust and estate tax
Christian Reeves

Trust and Estate Tax Bracket 2020

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Before I begin to explain the amount of money that is included in the tax bracket for trusts and estates for the year 2020 I will explain a few things about what it entails as I believe that many Americans just see this listed on their tax sheet and have never considered if they can take advantage of it. 

In simplest terms, a trust is a fiduciary relationship between three different parties in which the head of the trust transfers property or assets to a second party for the benefit of the third party or beneficiary. 

An estate, as defined by texts of law, is the amount of money a person has accumulated whether he is alive or dead. It is the sum of all of the assets, property, legal rights, and any other source of income he has or is still accumulating. 

Trusts and estates have to pay taxes on the amount of income that they earn. Even if the person who owns the trust or estate is dead, taxes have to be paid. Any and all income must be reported to the proper authorities by the person who is controlling the trust or the estate. 

Same as in individuals and married couples who file annual tax reports, so do trusts and estates. They pay different taxes depending on the amount of money that they report on a yearly basis. 

In many cases, money that you inherit or are given through a trust will never have to pay taxes, such as when you are given stocks by a family member. You don’t have to pay taxes on those stocks until you sell them. 

Same goes for real estate, nothing is paid in taxes until it is sold. You have the option of paying income tax on interest right now or postponing the bill until you cash in the real estate or the bonds that you might have inherited. 

A trust needs to file a return if it has a gross income of more than $600 year during the full tax year or if there is any taxable income. Another reason why you might need to file a return on a trust is if there is a nonresident alien beneficiary. 

An estate needs to file a return if it also has a gross income of $600 or more or if a person in the estate is a nonresident alien beneficiary. The category where you will find trusts and estates is the K-1, 1041 income report. 

Income taxes are only paid if the assets inside the trust or estate are distributed among different parties. Capital gains and losses stay in the trust as they are part of the whole, this can be arranged to be distributed but it needs to be mentioned in the constitution of the trust. 

You must also explain in detail how the trust must be divided and report all income on the 1041. The amount each person gets must be shown. It is important that every one of these dividends is shown to the IRS. 

Trusts and estates also have a tax bracket on how their taxes work. As they function in a completely different way than regular individual taxpayers and married couples they have different columns depending on the amount of taxable income. 

If the taxable income in your trust or estate is under $2,600 then you are taxed for 10%. You can see that the amount that is taxed for trusts and estates is much lower than those in the other tax brackets. 

Taxable income that you get from your trust that is anywhere between $2,601 and $9,450 is taxed by calculating $260 plus 24% of the amount over $2,600. The next column is for people who hold trusts and estates and have a taxable income of $9,451 to $12,950, you will have to pay $1,904 plus 35% of the amount over $9,450. 

Finally, the last column of the tax bracket for people who are in trusts or in an estate which is for those who make more than $12,951 have to calculate $3,129 plus 37% of the amount over $12,950.

By these numbers alone you will see how beneficial it is for your tax planning to have a trust or an estate. While other tax brackets reach their final column with $518,000 and a 37% income tax, trust reach it with $12,750. 

For joint married couples the amount is $612,350 divided into two if they are filing separate reports. Few Americans know that they can use trusts and estates for lowering their taxable income, among other things. 

Trusts and estates can be used to benefit your children. It is a huge misconception that trusts and estates are only for the rich. There is a lot that goes into establishing a trust or an estate so don’t hesitate to send us a message so we can help you establish the trust or estate that best fits your needs. 

I hope you’ve found this article on trusts and estates and their tax bracket for 2020 to be helpful. For more information, or for assistance in international tax

How to invest your IRA in foreign real estate
Christian Reeves

How to invest your IRA in foreign real estate

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In this post, we’ll look at how to invest your IRA in foreign real estate. That is real property outside of the United States, including a rental property, commercial property, raw land, and non-traditional high yield investments such as timber. Here’s everything you need to know to invest your IRA in foreign real estate.

First, let’s consider which IRA and 401K accounts can be invested in foreign real estate. Only a “vested” account can be invested in foreign real estate. A retirement account typically becomes vested when it moves from a previous employer to a new custodian… when you leave a job.

That is to say, a vested account is an account from a previous employer. When you left that job, the account left with you and is now under your control. A vested account can be moved to a US custodian that specializes in foreign real estate or into an offshore IRA LLC.

There are cases where a portion of your retirement account will vest if you’ve been with the same employer for many years. If you’ve been with the same company for a decade or so, you might want to discuss this with your human resources office.

There are also cases when a Defined Benefit Plan can be invested in foreign real estate. If you can convert your DB plan to an IRA, then it can be invested outside of the United States. You should ask your plan administrator if you can convert to an IRA.

Now that you know which of your retirement accounts have vested, here are the two methods that allow you to invest your IRA into foreign real estate:

  1. Move your retirement account to a US self directed IRA custodian that is experienced in foreign real estate investments, or
  2. Form an offshore IRA LLC and invest your retirement account into that LLC.

The first of these options has minimal costs while the offshore IRA LLC gives you maximum control over your retirement account.

Because your IRA has vested, you can move it to any licensed custodian in the United States. Yes, you must always have a US custodian, even if all of your investments are held abroad.

So, to invest in foreign real estate with minimal costs, you move your IRA from your current custodian to one that allows for investments in foreign real estate.We call these self directed accounts or SDIRAs.

I’d say 95% of custodians don’t allow for foreign investments. It takes effort to find a good SDIRA custodian experienced in these matters (we can introduce you to one at no cost – info@premieroffshore.com)

Fyi… the reason most custodians don’t allow for foreign real estate investments is that they make most of their money selling investments. When you buy foreign real estate with your self directed IRA, your custodian doesn’t make a commission. Thus, most custodians will try to dissuade you from investing abroad.

In contrast, self directed custodians that allow for foreign real estate in your IRA charge a monthly fee. Your costs are fixed and you keep 100% of the profits from your investments.

The second method of investing your IRA in foreign real estate is to form an offshore IRA LLC. In this structure, we form an international Limited Liability Company for you in a zero tax jurisdiction such as Belize, Cook Islands, Nevis, etc. We then open a bank account and appoint you as the administrator of that LLC.

Once the offshore IRA LLC is incorporated an the bank account is opened, your US custodian invests your retirement account into this LLC. From here, you’re the signor on the account and in total control. You send the wires and write the checks.

Because an offshore IRA LLC puts you in control, it’s best for those that want to manage an active investment account. For example, if you want to invest in cryptocurrency, gold, or trade stocks – in addition to buying foreign real estate – then an offshore IRA LLC is the way to go.

To put this another way, I recommend the offshore IRA LLC to active traders and those who want to hold crypto in their account. Because it costs about $3,500 to setup an offshore IRA LLC, it’s not cost effective for those with smaller accounts and those who plan to make only one or two foreign investments.

Lastly, there are a number of non-traditional high yield investments found outside of the United States open to IRA investors. The most popular are crypto and timber. Timber is interesting for many reasons. Because of its holding period an stable demand curve, some crypto investors are buying this asset as a hedge against volatility.

The reason I like timer is that you can realize a sold return AND get residency in a foreign country with your IRA. Invest $22,000 in Panama’s Friendly Nations Reforestation Visa and receive residency. After 5 years of residency you can apply for citizenship and a second passport.
I hope you’ve found this article on how to invest your IRA in foreign real estate to be helpful. For more information in forming an offshore IRA LLC or to be introduced to a custodian that’s experienced in foreign real estate transaction, please contact me at info@premieroffshore.com or call us at (619) 483-1708. We’ll be happy to help you to structure your international investments.

How to Live Tax Free as an American
Christian Reeves

How to Live Tax Free as an American

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Here’s how to live tax-free as an American. If you’re willing to live, work, and invest abroad, it’s possible to live tax-free as an American – legally and without watching over your shoulder for the tax man.

First, note that this article is for US persons willing to live and work outside of the United States. It’s definitely NOT for those living in the US that have offshore accounts. If you want to live tax free as an American, you must move you and your business out of the United States!

Second, this article is focused on US persons. That is, US citizens and green card holders. Only the United States taxes its citizens on our worldwide income. Thus, only US persons need to go to these extremes to live tax free.

For example, a Canadian citizen can move to Panama, establish residency there, and live tax free. Simple enough. No need for complex structures or advanced planning described here.

If a US citizen does the same, they will pay US tax on capital gains and business income. Unless that US person follows the suggestions of this article, they’ll be stuck paying US tax while living in Panama.

Third, this post is about how to legally live tax free as an American. To accomplish this will require a lot of work and commitment on your part. It will also require you to hire a CPA or an international tax expert to prepare a plethora of tax forms required to keep you, the US expat, in compliance. For more, see: Offshore Filing Requirements.

Finally, unlike most articles on the web, this post takes President Trump’s tax plan into account. Trump did away with retained earnings in a foreign corporation, which really hurts medium sized businesses operated by US citizens abroad. For more on this, see: Use of an offshore corporation in 2018.

So, with all of that said, here’s how to live tax free as an American.

The premise of the US tax code is that US persons (citizens and green card holders) pay US tax on their worldwide income. No matter where you live, Uncle Sam wants his cut.

The first exception to this is the Foreign Tax Credit. You get a dollar for dollar credit for tax payments to foreign countries.

If you’re living in France with a 45% rate, and your US rate is 35%, you won’t pay tax to the United States. The Foreign Tax Credit eliminates double tax on your income, and, because France’s personal income tax rate is higher than the US rate, you pay zero to Uncle Sam.

If you were living in Argentina rather than France, you would pay a 9% rate to your local government. Thus, the amount owed to the United States would be 35% – 9% = 26%. If no other exception applies, you’ll pay the US 26% of your ordinary income to Uncle Sam for the right to hold a US passport or green card.

The only remaining exception to this after Trump did away with retained earnings is the Foreign Earned Income Exclusion.

If you qualify for the Foreign Earned Income Exclusion, you can exclude up to $104,100 of salary or business income from your US return in 2018. If a husband and wife are both working in the business, you can exclude a combined $208,200 from Federal income tax.

To qualify for the FEIE you must be 1) out of the United States for 330 out of any 365 day period, or 2) a legal resident of a foreign country for a calendar year.

Of these, the 330 day test is the easiest to qualify for but the most problematic in practice. Everyone tries to maximize their days in the US and the IRS loves to audit those using this version of the FEIE. Because the FEIE is all or nothing, if you miss the 330 days by even one day, you lose the entire exclusion.

Thus, I recommend the residency test whenever possible. Build a “home base” in a foreign country and get a residency visa to qualify for the FEIE without worrying about your US days so much. Of course, this means you must move to a country that will give you residency.

While selecting a country for residency is a very personal decision, I suggest you look for one with a zero tax rate and an eazy residency program. For example, Panama doesn’t tax foreign sourced income (income earned from abroad). Also, you can get residency in Panama with an investment of only $22,000. Finally, you can use your US IRA or other retirement account to get residency in Panama. For more on this, see: Best Panama Residency by Investment Program.

So, with the FEIE, you can earn $100,000 (single) or $200,000 (combined) from a business or in salary tax free. Capital gains are still taxable as earned with only the Foreign Tax Credit available to avoid double tax.

What if your business nets well over $200,000 and/or you have significant capital gains? What if your business nets $1 million? Then the only way to live tax free as an American is to move to the US territory of Puerto Rico.

If you move to Puerto Rico, spend at least 183 days a year on the island, and qualify for Act 20 and 22, you can live nearly tax free. Yes, you can net $1 million or more from a business operated from Puerto Rico, and pay very little in tax. To make it better, you’ll pay zero in capital gains.

Here’s how to live tax free as an American in Puerto Rico.

Because Puerto Rico is a US territory, it has unique tax laws. US tax laws apply to all US citizens living abroad. The ONLY exception to this are US citizens living in the US territories. Puerto Rico can create whatever tax laws it wants for its residents and these laws supersede US tax law.

A resident of Puerto Rico is a US citizen or green card holder that moves to the island, makes it their home base, and spends at least 183 days a year there. Only those legally allowed to live and work in the United States can move to Puerto Rico and qualify for these programs. All US immigration laws apply in the territories.

Under Act 22, a resident of Puerto Rico will pay zero tax on capital gains from assets purchased after you move to the island. If you buy and sell cryptocurrencies and stocks while a resident of Puerto Rico, you pay ZERO in tax to the United States.

Note that his tax holiday applies ONLY to assets acquired after you move to the island. No, you don’t get buy stocks and crypto while in the US, hold them for a few years, move to Puerto Rico for a few months, and sell them at zero tax. Those gains would be taxable in the United States and would not qualify for Act 22.

Then there’s Act 20. This is basically the inverse of the Foreign Earned Income Exclusion. Move to Puerto Rico and pay 4% corporate tax on business profits. Dividends from an Act 20 business to a resident of Puerto Rico are tax free… so, this 4% rate is all you will ever pay.

And you will never pay US tax on these capital gains or these business profits. Even if you move back to the United States in a few years, you will not pay US tax on the earnings taxed in Puerto Rico while you were a resident of the island. The only tax a resident of Puerto Rico pays on net business profits from an Act 20 business is 4% in Puerto Rico (and zero on capital gains and dividends).

Business profits is income after you take out a fair market salary. If you would ordinarily earn $100,000 for the work you’re doing, then you must take a salary of $100,000 from your Act 20 business. You’ll pay ordinary rates on this salary and then the excess will be taxed at 4%. This is why I call Puerto Rico’s Act 20 the inverse of the Foreign Earned Income Exclusion.

Let’s say your reasonable salary is $100,000 and your net profits are $1 million. You pay 30% on $100,000 in personal income tax to Puerto Rico and 4% on $900,000 under Act 20 for a total of $66,000 in tax. Of course, this is an oversimplification, but you get the idea.

Now consider the FEIE. Earn $1 million offshore while qualifying for the Foreign Earned Income Exclusion and pay zero US tax on your salary of $100,000. Then you’ll pay about 30% on $900,000 because Trump did away with the ability to retain earnings offshore. Total tax paid using the FEIE is about $270,000 on $1 million in net business profits.

For those earning in excess of the Foreign Earned Income Exclusion, or active traders with significant capital gains, Puerto Rico’s Act 20 and 22 are far better tax deals than the Foreign Earned Income Exclusion.

For those netting $100,000 (single) to $200,000 (joint) from a business, living abroad in a country like Panama is the best tax choice. You probably need to reach about $500,000 net before Puerto Rico makes sense.

I hope you’ve found this article on how to live tax-free as an American helpful. For more on setting up an offshore business or qualifying for Puerto Rico’s Act 20 and 22, please contact us at info@premieroffshore.com or call us at (619) 483-1708.

IRA Romney
Christian Reeves

What we can learn from Mitt Romney’s IRA

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Mitt Romney is expected to win the race for a Senate seat in Utah and could end up becoming one of the most powerful players in the United States Senate. Mr. Romney is a former governor of Massachusetts and ran for president in 2012 but lost to Barack Obama. With all of that said, the most interesting thing about Mr. Romney is his IRA account.

Estimates of Mr. Romney’s IRA account are as high as $101.6 million depending on who you ask. No matter the exact number, let’s agree that this is damned impressive considering the maximum contributions to a traditional IRA is relatively small.

According to the IRS website, for 2015, 2016, 2017 and 2018, your total contributions to all of your traditional and Roth IRAs cannot be more than $5,500 ($6,500 if you’re age 50 or older). Plus, your ROTH contribution is limited by your filing status and your income. We can assume Mr. Romney was well over this income level.

Because he didn’t qualify for a ROTH IRA, Mr. Romney used an ordinary IRA or simplified employee pension (SEP) IRA, which means he’ll have pay ordinary income tax on the gains, starting when he reaches 70 ½.

So, how the heck did Romney’s IRA account reach $100M?

While at Bain Capital, the investment management firm he founded, Romney made investments into startup companies that he thought would take off. He knew that Bain was making major investments into these pre-IPO companies, and, if they succeeded, he could make a fortune post IPO. He put a few thousand down knowing that Bain was investing millions, and he had all of Bains research.

You could have had the same returns buying Bitcoin in your IRA back in 2013. An investment of $100 would have gotten you 1 coin. That coin would have been worth nearly $19,000 at the peak and about $7,000 today. An investment of $5,000 (the contribution limit) would have earned you $94 million had you timed the market right.

The benefits of making the investment with a traditional IRA are 1) using the pre-tax money, and 2) no tax in trades until you reach 70.5 years of age. At that time, you pay ordinary income rates, which are about 37%. 3) tax deferral on all gains and use of your capital throughout the years.

Had you used savings rather than an IRA to buy that Bitcoin, you would have paid long-term capital gains when you sold your Bitcoin on December 16, 2017. This would have been at about 20%.

Had you made the investment through a ROTH IRA, you would pay income tax on your full salary, with no deduction for the retirement account. Then, the crypto would appreciate tax-deferred (as described above) and you would pay zero tax when you sold the Bitcoin. Obviously, if you qualify for a ROTH, this would be the tax-efficient vehicle for high yield investments.

It’s also been reported that Romney used offshore IRA LLCs and UBIT blockers to protect and enhance his IRA returns. Both of these have been used for decades by very high net-worth IRA investors.

An IRA LLC allows you to move some or all of your retirement account offshore. Once that’s done, you can invest in real estate, hard assets, high yield foreign stocks, most physical gold, and just about anything else you like. The most popular investments for high net-worth persons is offshore master/feeder funds.

Moving your IRA offshore should open up your account to higher returns from foreign markets. It will also put you in control of the account. You become the investment manager of your IRA – the Bain Capital if you will – you select the investments and write the checks.

An offshore IRA LLC is especially valuable to those who wish to invest in foreign real estate. Only you will be willing to travel and learn the country. Only you will spend the time and money to find the best opportunities abroad. So, if you’re going to make multiple foreign investments, you should be the investment manager of your retirement account.

If you’ll make only one or two investments, consider using an offshore self-directed account. In these, the custodian makes the investment for you and you save the $3,500 setup costs of an offshore IRA LLC. If you will make multiple investments or want control, then go with an LLC. For more on these differences, see: Self Directed IRA or Offshore IRA LLC?

And, once you have your IRA offshore, you may be able to use it to gain residency in a country like Panama. Invest $22,000 from your IRA into Panama’s friendly nation reforestation visa program, pay legal and other fees from your personal savings, and you can gain residency in Panama. After 5 years of residency, you can apply for citizenship.

For more ideas, see: Best IRA Investments for 2018

The other IRA tool Romney reportedly used is a UBIT blocker.  This one will require a bit of explanation.

When you earn ordinary income in an IRA from a business (not dividends), or make money using leverage, the profits generated are called Unrelated Business Income. UBI is taxed at ordinary rates in the US as earned, which is about 35%.

So, if you buy a rental property in the US, and half the money comes from your IRA and half from a non-recourse mortgage, about half your rental income and your gain when you sell the property will be taxed at 35%. The other 50% will flow into your IRA account tax deferred.

Enter into this same transaction offshore, and add a UBIT blocker corporation to your IRA LLC, and you pay zero tax. UBI is converted to passive income and blocked from Uncle Sam.

I note that these tax benefits for IRAs are ONLY available outside of the United States. Using a blocker corporation in the United States, or with US real estate, subjects you to tax at the corporate level. See: How to invest your IRA into offshore hedge funds and active businesses.

I hope you’ve found this article on what we can learn from Mitt Romney’s IRA to be helpful. For more information on moving your retirement account offshore, please contact me at info@premieroffshore.com or call us at (619) 483-1708.

Federal FinTech bank licenses
Christian Reeves

US Regulators to Issue First Federal FinTech Bank Licenses

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US Federal regulators have begun issuing Federal FinTech bank licenses on a very limited basis to the most qualified applicants. I suggest that only the very largest FinTechs will be approved for the Federal FinTech bank licenses, at least in the next year or two. The purpose of the Federal FinTech bank license to allow companies like PayPal and eBay to get a national license rather than separate licenses in every state.

With a Federal FinTech bank license, the company will be allowed to paychecks, lend money, and hold deposits. This license is limited in scope and specialized on FinTechs. The stated purpose is to give more choices to consumers and recognize the value of FinTech businesses in banking.

For more on the logic behind these Federal FinTech bank licenses, see the US Department of Treasury report.

This Federal FinTech bank license gives top firms a path into the banking industry. FinTechs have limited options in the US, and many have had to partner with big banks. Being able to apply for the new Federal FinTech bank licenses will provide these companies with an opportunity to provide a full suite of online banking services to their clients

For example, Square is likely to be an early adopter of the Federal FinTech bank license. Major companies like this, with experience in compliance, KYC and AML are top candidates for a banking license.

I also note that Federal audits and compliance of these FinTech banks will be intense. They will be watched very closely to ensure the security of client funds. Regulation will be significantly more stringent than larger established banks.

So that’s the new Federal FinTech bank license. What if your company is not named Google, Alphabet, or PayPal? Is there a US FinTech bank license you can apply for? Yes, there is, the International Financial Entity license from the US territory of Puerto Rico.

A bank licensed as International Financial Entity in Puerto Rico can conduct all manner of banking business. The only limitation is that you can’t accept clients from Puerto Rico. To put it another way, you can do business with any person or company outside of Puerto Rico.

An International Financial Entity license in Puerto Rico is like the little brother of the Federal FinTech bank license. It’s more akin to a state bank charter and not a Federal charter and a Federal bank holding company is not required.

As such, an International Financial Entity in Puerto Rico is not a member of the Federal Reserve system, is not regulated by the Fed, and Federal Deposit Insurance does not apply. As there is no equivalent of FDIC in Puerto Rico, these banks do not offer deposit insurance.

These banks are referred to in the code as International Financial Entities. This is because the IFE statute can be used for many purposes. You might form a brokerage, cryptocurrency exchange, family office, hedge fund management company, or a bank. If you’ll offer accounts to the general public, you will be permitted to use the word “bank” in your name.

These international banks from Puerto Rico are going to be far more popular over the next two years compared to the Federal FinTech bank licenses. Puerto Rico is issuing 25 licenses a year and I’d expect to see 2 to 5 Federal FinTech bank licenses over the next calendar year.

Puerto Rico has a benefit that no state, nor the Federal Government can match. Form an international bank in Puerto Rico, and operate that International Financial Entity from Puerto and pay only 4% in taxes. Yes, only 4% total taxes. No Federal taxes and no other expenses so long as those operating the bank are residents of Puerto Rico or non-US persons living abroad.

For example, a group of 4 US citizens moves from New York to Puerto Rico and forms an International Financial Entity. Dividends from the IFE to those shareholders are tax-free. This would compare to a combined Federal and New York rate of about 40% on ordinary income from a Federal FinTech bank licensed business.

Likewise, dividends to foreign shareholders (who are not US citizens, green card holders, nor residents) are tax-free. The only tax paid on those corporate profits after salaries and other expenses is 4%. There is no withholding tax on dividends to foreign persons.

And an International Financial Entity in Puerto Rico can be formed at a fraction of the cost of a Federal FinTech bank license. Minimum corporate capital is $550,000, with $250,000 of this being paid-in capital and $300,000 being a CD held at a bank in Puerto Rico. We generally recommend you increase capital to $2.5 million over two years. For more, see: Lowest Cost Offshore Bank License is Puerto Rico.

The reason the US territory of Puerto Rico offers this International Financial Entity license is to bring jobs to the island. Thus, you’re required to have a minimum of 5 employees in Puerto Rico. These employees must be residents of Puerto Rico, which means they must be US citizens or otherwise permitted to work in the United States. That is to say, US employment and immigration laws apply to the territory just as they do to any state.

For more on building an international bank in Puerto Rico or elsewhere, see: The 8 Components of an Offshore Bank License

If you’re excited about the topic of international banks and Federal FinTech bank licenses, you might find my 300-page book interesting. See: Offshore Bank License Guide (Amazon Kindle edition).

I hope you’ve found this article on Federal FinTech bank licenses to be helpful. For more information and a quote to set up an IFE in Puerto Rico or an offshore bank in another jurisdiction, you can reach me at info@premieroffshore.com or call us at (619) 483-1708.

international bank license st lucia
Christian Reeves

International Bank License in St. Lucia

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Here is everything you need to know about forming an international bank in St. Luca. I will summarize the due diligence and capital requirements that need to be met in order to build an international bank in St. Lucia.

The top three international banking jurisdictions in 2018 are Puerto Rico, St. Lucia and Dominica. Countries like Caymans and Belize have fallen off the list because of difficulties in obtaining new licenses.

For my book on international bank licenses, see Offshore Bank License Guide, 2017 (Amazon Kindle)

For an introduction to Puerto Rico, see: Lowest Cost Offshore Bank License is Puerto Rico

The first question prospective international bank license clients ask is about capital. The minimum capital in St. Lucia is $1 million compared to Puerto Rico at $550,000. We generally recommend $5 million in capital from any offshore jurisdiction to cover the requirements of a correspondent account. In Puerto Rico we recommend $2.5 million  

The second question on international bank licenses in St. Lucia is usually about operations and employees. St. Lucia doesn’t have a minimum employee requirement. In general, you should have an office with some employees. Also, all data must be in St. Lucia and accessible to local regulators.

For your information, Puerto Rico requires a minimum of 5 employees on the island. Thus, for someone planning to operate from a foreign country, St. Lucia might have a lower operating overhead.

An International Bank License in St. Lucia is the International Banking Act. These are the official guidelines that regulate the licensing and operation of an international bank in St. Lucia. Basically, this is the bible that needs to be followed to properly maintain your bank.

Your lawyer should have the International Bank Act memorized to the point where he can recite any article verbatim. When you review the International Bank Act you will find many important key points that need to be looked at and addressed before you start operating your international bank in St. Lucia.

For example, Article 15 which mentions how audits will be performed.

“A licensee shall have its accounts audited, annually or at such other times as the Minister may require, by an auditor who shall conduct the audit in accordance with the international accounting standards.”

Your bank is subject to audits by local regulators and these may be performed at any given time without notice. It is vital to keep your affairs in order as your banking license may be revoked if you fail to comply.

Some of the actions that may cause the relevant authority to revoke your license includes:

  • Fail to comply with a request made of that person by the
    Minister or the Director.
  • Offer of any gratuity, bribe or any other inducement prevent or attempt to prevent the Minister, the Director or any officer in the Director’s department acting under the Director’s authority.
  • Carry on any banking business with a resident unless in connection with the rendering of international banking business services from Saint Lucia, or as provided in this Act or in any other law in force in Saint Lucia governing the operations and activities of the licensee.

It is also important to know that the authority regulating your bank is called a Minister and his involvement in the process is all around. A Minister is responsible for all matters involving international financial services.

Some major activities that the Minister overviews involving your international bank are:

Article 13 (1) A share in a licensee under this Act shall not be issued, and no issued shares shall be transferred or disposed of in any manner, without the prior approval of the Minister.

Article 19 Section 3 (c) the Minister may disclose to another regulatory authority outside Saint Lucia information concerning the affairs of a licensee where the disclosure pertains to actions in violation of any law or with respect to the failure of a licensee to comply with generally accepted principles relating to the international banking business.

The Minister also has the authority to:

  • Revoke the license.
  • Require the substitution of any director or officer of the licensee.
  • At the expense of the licensee, appoint a person to assume control of the licensee’s affairs who shall, with the necessary changes, have all the powers of a person appointed as a receiver or manager of a company.
  • Require such action to be taken by the licensee as the Minister considers necessary.

Other important information that you should know regarding your bank is:

Article 54 (2) A company licensed under this Act, or the dividends, royalties, interest, foreign securities, funds, gains or assets generated or managed by a licensee in the course of its international banking business, shall not be subject to the provisions of the Exchange Control Act, or to any other exchange or currency control legislation in force in Saint Lucia.

You will find all of the application forms necessary to apply for an international banking license in the document. You will also find all of the regulations you have to comply with, they may not be as excessive and controlling as in other countries but still need to be noted.

I hope you’ve found this article on the international banking license in St.Lucia to be helpful. For more information, or for assistance in starting a bank in Puerto Rico or St. Lucia, contact us at info@premieroffshore.com or call us at (619) 483-1708.

The IRS to Seize 362,000 US Passports
Christian Reeves

The IRS to Seize 362,000 US Passports

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The IRS plans to seize 362,000 US passports by refusing to renew passports of anyone with a substantial tax debt and now controls who is allowed to travel abroad. In this article, we’ll look at who is affected by this newfound authority and what you can do to protect yourself from the IRS.

Giving the IRS authority over your passport means that the taxman has the right to determine who travels outside of the country. Only those who have paid unto Caesar what he claims they owe shall be granted the privilege of international travel.

This represents a major change in how the United States government looks at the passports it issues. Americans have thought of a US passport as a birthright… or a right conveyed upon the select few who complete the immigration process. The passport tells the world that we are American citizens and gives us freedom of movement.

This all changed when the IRS asserted control over who is allowed a passport. As of today, a US passport is no longer a right, it’s a privilege. Only those whom the IRS deems worthy may travel. Only those who have paid their taxes are allowed to live and work outside of the country. Only those with clean tax accounts may visit family abroad.

Rest assured that the IRS will use your passport as a weapon to collect whatever taxes they believe you owe. If your passport is frozen because of a tax debt, there’s only one way to get it back. You must pay your debt in full.

Sure, you still have all the rights and protections you had before when battling the IRS. If you wish to dispute the amount owed, you’re free to do so. You can fight it out with the revenue officer, appeals, and finally the US Tax Court or in Federal Court.

But, this will take time. In my experience, an easy tax dispute case takes 6 months. A complex case, especially one involving a large amount of money, can drag on for years. Go to court and you’re looking at 3 to 4 years from the Notice of Deficiency to a resolution.

During this time, your passport will remain frozen. If you’re a US expat living and working abroad, can you really afford to return to the US for months or years to fight it out? Or will you be forced to pay up to get your passport back?

And what about us expats when the IRS begins revoking current passports? So far, the Service has only frozen passports, which means they refuse to renew a passport which has been lost or has expired. But the law also allows the IRS to revoke the passport of anyone who owes the IRS a substantial amount (more than $51,000).

If you’re an American abroad, and your only passport is revoked, you’ll be forced to return to the United States to settle your debt.

In most cases, expats learn of the loss of their passport when they attempt to enter a country and are refused. If this happens, you will be held in “airport jail” until the next flight to the United States. You will then be forcibly placed on a plane and sent home.

Yes, you will be the first fight to anywhere in the US. Whatever happens when you land, and how you pay your expenses once there, is your problem. If you have no family or friends to take you in, best of luck. When your only passport is revoked, the airline is required by law to return you to your home country for free, so they can give a damn where you’re dropped off.

You have no right to appeal or to an attorney. Because you were not allowed to “enter” the country, you have no legal rights. You are not being deported, you’re just being refused entry. The ONLY option at this point is the first flight back to your home country.

And I expect this to become standard practice by US agencies. Now that the government is treating your passport as a privilege rather than a right, I expect other agencies to take notice and get in on the money grab. What about expats with student loan debt, back child support, state taxes, or any number of other debts payable to government agencies?

Here’s How to Know if Your Passport’s Frozen

Basically, anyone who owes $51,000 or more to the IRS will have their passports frozen. This includes tax. interest and penalties. Thus, it’s very possible for a debt to have started out at $20,000 or so and to have grown to more than $51,000 with interest and penalties over a few years.

Also, any expat with a penalty for failing to report their foreign bank account (to file the FBAR form) or any of the offshore reporting forms (5471, 3520, etc.) is likely over the $50,000 limit. These penalties are often $50,000 not including taxes due.

Likewise, anyone who hasn’t filed their US returns should be worried. If the IRS computers have any information on you, they will create what is called a Substitute for Return on your behalf. These computer-generated returns create a tax debt in the system. This automated debt, plus interest and penalties, will then be used to freeze or rescind your passport and your travel privileges.

Quite a few expats end up in debt to the IRS computers because they don’t file their returns The biggest concern is with expats who have unfiled returns and a US brokerage account. The expat earned a small amount of money abroad or maybe was retired. He also had a small gain or loss in his US brokerage account.

The bottom line is that he didn’t think the gains were significant enough to bother filing a tax return… and he would be wrong, very wrong.

Your brokerage reports only sales to the IRS. That means IRS computers see only half of the transaction, the sale. They don’t know how much you paid for the stock and don’t know that you lost money unless you file a return.

You may have sold $1 million in stock for which you paid $1.2 million. You really lost $200,000, but the IRS computers calculate your tax due on a gain of $1 million! This happens all the time, especially with volume traders. A day trader could have used the same $100,000 in cash to generate millions in sales and still lost money at the end of the year.

In these cases, the expat doesn’t file a return and doesn’t receive any of the letters the IRS sends to his last known domestic address. Then the IRS computers take the sale data and create a wildly inaccurate Substitute for Return and a massive tax bill.

A few years pass and the expat mails in his US passport for renewal. Instead of getting a new passport back, he receives a letter saying is passport renewal is rejected and that he must resolve his tax debt in full before he applies again.

As I said above, 362,000 Americans have had their passports frozen and renewals rejected. So far, we’ve only seen renewal rejections. God help us expats when the IRS begins to revoke passports to force us home.

Per the IRS website, If you meet one of the following criteria, your passport won’t be revoked nor your passport renewal denied:

  • Being paid timely with an IRS-approved installment agreement
  • Being paid timely with an offer in compromise accepted by the IRS, or a settlement agreement entered with the Justice Department
  • For which a collection due process hearing is timely requested regarding a levy to collect the debt
  • For which collection has been suspended because a request for innocent spouse relief under IRC § 6015 has been made

Additionally, a passport won’t be at risk for anyone:

  • Who is in bankruptcy
  • Who is identified by the IRS as a victim of tax-related identity theft
  • Whose account the IRS has determined is currently not collectible due to hardship
  • Who is located within a federally declared disaster area
  • Who has a request pending with the IRS for an installment agreement
  • Who has a pending offer in compromise with the IRS
  • Who has an IRS accepted adjustment that will satisfy the debt in full

What Can You do to Protect Yourself

First, don’t lose your passport! If you owe money to the IRS. You won’t be receiving a new passport until your debt is paid in full. Be very careful with your travel document.

Second, move your investments and IRA accounts out of the United States to prevent them from being used to create an automated tax debt. Form offshore structures to hold accounts and maximize both privacy and asset protection. This also protects the accounts from being seized by the IRS.

Third, file your delinquent returns to get right with the IRS and continue filing each and every year going forward. Be sure to report the structures and accounts I suggested you create in #2 above. Even if your gains are small, all US expats should file their returns to prevent the IRS computers for doing it for them.

Fourth, take steps to protect your status as an expat while you have a valid passport. You can do this by a) securing a residency visa in the country where you live, and/or 2) by purchasing or otherwise acquiring a second passport.

A second passport gives you freedom of movement should you lose your US passport. With a second passport, you can leave the United States and travel to any country that grants you entry without a visa. Thus, the more visa-free countries you have, the more valuable the passport.

For example, you can purchase a passport from a country like Dominica for about $125,000. This will give you visa-free access to 122 countries. This second passport program can be completed in a few months

If you want an EU passport, consider Bulgaria. Purchase just over $1 million in government bonds and receive residency immediately and citizenship in about 18 months. This passport will give you visa-free access to 169 countries and territories.

In contrast, residency allows you to live in a particular country and to “earn” a second passport over a number of years. Once you have permanent residency, you won’t be forced out if you lose your passport. You won’t be able to travel, but you can’t be taken back to the US to pay up… you can negotiate from a stronger position and settle your tax debt from abroad on your terms.

The easiest country for a US citizen to obtain residency is Panama. Invest $20,000 in Panama’s reforestation visa program and get residency. You can apply for citizenship and a passport after you’ve been a resident for 5 years.

Keep in mind that you must have a valid US passport to apply for a second passport, citizenship or residency. Once your US passport has expired or has been revoked, you’re stuck. You will need to take action well in advance to protect your right to travel.

Fifth, the only country you can enter without a passport from the United States is Mexico. Any time you travel to a foreign country by air or sea, you must present a valid passport. So, if you fly into Mexico, you must have a passport.

The only exception is when you drive into Mexico. No passport is required and no checks are performed. Then, once you’re in Mexico, you can take a domestic flight to any city in the country using only your valid ID (such as a US driver’s license).

So, anyone who loses their passport can travel throughout Mexico so long as they enter at a land crossing.

The above on Mexico is based on years of personal experience and not a statement of the law. You should have a passport with you, valid or otherwise, but, once you’re in, you can travel throughout the country on your driver’s license.

I hope you’ve found this article to be helpful. For more information on a second residency or second passport, or to be connected with an expat tax expert, please contact me at info@premieroffshore.com or call us at (619) 483-1708.

The Best European Union Second Passport Program in 2018
Christian Reeves

The Best European Union Second Passport Program in 2018

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The best European Union second passport program in 2018 is Bulgaria. This program often takes a backseat to Portugal’s Golden Visa, but Bulgaria offers far more value. Plus, I expect it the value of the Bulgarian passport to increase in the coming years. Here’s everything you need to know about the best European Union second passport program in 2018.

I’m often asked if Bulgaria is a member of the EU. Yes, Bulgaria and Romania joined the European Union in 2007. This expansion is known as “the fifth wave of enlargement of the European Union” which went on from 2004 through 2007. And, possibly, more importantly, Bulgaria is in the process of joining the Schengen Region. Once that process is complete, the value of its second passport will increase dramatically.

Why will Schengen membership increase the value of Bulgaria’s European Union second passport program? The Schengen region is an area without internal borders, an area within which citizens, many non-EU nationals, business people, and tourists, can freely travel without being subjected to border checks. For travel and business purposes, the Schengen region is one multi-nation state made up of the most powerful members of the European Union.  

List of countries in the Schengen area:

  • Austria
  • Belgium
  • Czech Republic
  • Denmark
  • Estonia
  • Finland
  • France
  • Germany
  • Greece
  • Hungary
  • Iceland
  • Italy
  • Latvia
  • Liechtenstein
  • Lithuania
  • Luxembourg
  • Malta
  • Netherlands
  • Norway
  • Poland
  • Portugal
  • Slovakia
  • Slovenia
  • Spain
  • Sweden
  • Switzerland


And a second passport from Bulgaria is already a valuable travel document. Bulgarian citizens have visa-free or visa on arrival access to 169 countries and territories, ranking the Bulgarian passport 16th in terms of travel freedom (tied with the Croatian, Hong Kong and Romanian passports).

When Bulgaria is admitted to the Schengen region, I expect more countries to offer visa-free travel to Bulgaria, thereby putting its passport on par with Portugal. Portuguese citizens had visa-free or visa on arrival access to 186 countries and territories, ranking the Portuguese passport 4th in terms of travel freedom (tied with the passports of Austria, Luxembourg, Netherlands, Norway, the United Kingdom, and the United States).

  • For more on Portugal, which might be right for you if you wish to purchase real estate rather than bonds, see Portugal’s Golden Visa.

And there’s an economic reason that I say the best European Union second passport program in 2018 is Bulgaria. There’s no need to invest in real estate or make a “donation” to the government to get your passport. You can invest in government bonds that are guaranteed. This investment is returned after 5.5 years. Depending on the program selected, you may or may not earn interest on the bonds.

In order to get the best European Union second passport, you invest 512,000 € in government bonds. This gets you a temporary residency visa immediately and a permanent residency visa after 6 months.  

After you’ve held the permanent residency visa for about 6 months, so one year total since you made the initial investment, you buy another 512,000 € in government bonds. This gets citizenship and a second passport 6 months after you purchase the second round and 18 months since you made your first investment.

It may be possible, depending on your situation, to finance up to 50% of this bond purchase. However, I’ll tell you upfront that the interest and handling charges for financed programs are quite high. The vast majority of our clients make their own financial arrangements and simply invest 1,024,000 € in government bonds over two years to receive their second passports.

If you only wanted residency in Bulgaria, then you could invest 512,000 € (make only one investment). You “upgrade” your permanent residency status to citizenship and a second passport in year two with the second investment.

Theoretically, you could invest 512,000 € and get residency. Then you could apply for citizenship after 60 months under Bulgaria’s original laws (those enacted before the fast track program). We have only handled fast track applications.

And you’re not required to open an account in Bulgaria or send money to the government. You can buy Bulgarian government bonds on the Berlin, Frankfurt, Stuttgart or Luxembourg stock exchanges. The entire transaction is transparent and available on multiple global exchanges.

I hope you’ve found this article on why Bulgaria the best European Union second passport program in 2018 to be helpful. For more information on the fast track program, or citizenship in another country (such as Portugal, Panama or St. Lucia), please contact me at info@premieroffshore.com or call us at (619) 483-1708. All inquiries are confidential.

Use of an offshore corporation in 2018
Christian Reeves

Use of an offshore corporation in 2018

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This article deals with the proper use of an offshore corporation in 2018. President Trump’s tax had a major impact on the use of offshore corporations. If you’re operating a business through an offshore corporation in 2018, you need to understand these changes.

First, let me define what I mean by an offshore corporation. This is an entity formed in a zero tax country such as Belize, Cook Islands, Nevis, etc. It’s an international business corporation that is incorporated in a country that won’t tax your profits and usually in a country different from the one where you live.

Even if you’re living in Belize, you probably would not form your corporation in Belize. You would want an “offshore” entity to protect your assets from local issues and creditors. So, you would incorporate in Nevis.

This is all to say that an offshore corporation is:

  1. In a zero tax country,
  2. That provides maximum privacy and asset protection, and
  3. In a country other than where you live.

There are two uses of an offshore corporation in 2018. You can use the structure to protect your personal after-tax assets/savings or you can operate an international business. The use of the corporation for asset protection has not change and has been the same for decades. The big changes under President Trump apply to those operating a business offshore.

When you form an offshore corporation for asset protection, you transfer your portable and liquid assets to the corporation. You then set up brokerage and crypto accounts in the name of the corporation and trade those accounts.

One of the most common uses of an offshore corporation is to hold foreign real estate. You pay the expenses of the property and receive rent into that corporation. Finally, you pay local taxes from the entity and are left with your net rental profits and capital gains.

Whether you’re trading stocks and crypto, or investing in real estate, all of the profits of your passive activities are going to be taxed in the United States as earned. It doesn’t matter where you live… in the states or abroad… so long as you hold a US passport you must pay Uncle Sam on your passive income earned in an offshore corporation in 2018.

If you’re holding passive income in an offshore corporation in 2018, you probably need to file IRS form 5471 and report your foreign bank account. Some will convert their offshore corporation to a disregarded entity (using Form 8832) and file Form 8858 rather than 5471.

Considering there’s no tax benefit to holding passive investments offshore, the above is straightforward. You get asset protection and your tax rate remains the same with an offshore corporation in 2018.

Operating a business offshore in 2018 is much more complicated. Here are my assumptions for this section:

  1. You, the owner operator of the business, are living and working abroad.
  2. You qualify for the Foreign Earned Income Exclusion.
  3. Your profits are ordinary business income and not passive income or capital gains.
  4. You’re operating your business through an offshore corporation formed in a zero tax jurisdiction.

If you don’t meet all of these criteria, the profits of your international business will be taxed in the United States. The tax benefits of offshore corporations apply to those living and working abroad.

Note: I am not considering partnerships where US person’s own 50% or less of the business. That means, I’m assuming your offshore corporation is a CFC (a topic for another day).

With all of that said, the big change under President Trump is that offshore corporations owned by US persons no longer get to retain earnings offshore. You’re not allowed to hold earnings and profits in an offshore corporation tax deferred.

This means that the primary tax benefit to operating a business offshore is the Foreign Earned Income Exclusion. You get to take out up to $104,100 per year in salary tax free. If both a husband and wife are working in the business, you can take out a combined $208,200 free of Federal Income Tax.

The other often overlooked tax benefit of operating a business offshore is that you don’t pay self employment tax or payroll / social taxes on the income. If you were operating this business in the United States, you would pay about 15% in self employment or other taxes on your salary. When you’re living abroad, qualify for the FEIE, and operate through a foreign corporation, you can eliminate these taxes.

If you net more than $208,200, this excess over the FEIE is now taxable in the United States as earned. If your offshore corporation has $500,000 in profits, you and your spouse would take out $200,000 tax free using the FEIE and pay US tax on $300,000.

I hope you’ve found this article on the use of an offshore corporation in 2018 to be helpful. For more information, or to set up such an entity, please email us at info@premieroffshore.com or call us at (619) 483-1708.

Offshore Security Tokens in 2018
Christian Reeves

Offshore Security Tokens in 2018

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I expect the offshore security token to be the hot investment for 2018. As smaller ICOs are pushed out of the United States, the best of the best will restructure and issue their security tokens offshore. Here’s what you need to know about offshore security tokens in 2018.

First, allow me to define what I mean by an offshore security token. There are two types of tokens, a security token, and a use token.

A security token is a token issued by a company that acts like a share of stock. It gives you some level of ownership in the company and/or a right to the future earnings and profits of the business. Whether a token is a security or not is defined by the Howie Test.

A use token is a coin that doesn’t give the holder a right to the profits of the company and doesn’t act like a share of stock. A use token is meant to be used on the network.

A popular example of a utility token is the BON Token, issued during Bonpay Token Sale. The BON utility token is designed to work only in Bonpay ecosystem and product line. You use BON to pay for services on the network and it does not have any qualities usually attributed to a share of stock.

Another example of a utility token would be if UBER had issued an ICO. The UBER token would give the buyer the right to a certain number of rides or miles on the network. It would not be linked to the profits of the company.

This is all to say, a security token gives the holder an ownership right in the company while a utility token offers only certain functions inside the company’s platform. Security tokens are regulated by most governments while utility tokens are not.

When a security token is sold in the United States, it must follow all the same rules as when a stock is sold. All ICOs of security tokens in the United States must go through the same process as Initial Public Offerings.

As a result, the cost of issuing an ICO in the US has gone up exponentially. You now must spend hundreds of thousands of dollars, or even millions of dollars, to issue an ICO or IPO in the land of the free.

This cost is usually paid by early rounds of fundraising. Angel investors, venture capitalists and other early stage investors invest in the company, taking the best shares and getting the best deals. What’s left is the picked over carcass of a company which is then sold to the general public.

The purpose of the ICO was to give the people access to new and early stage companies. To allow you and I to be the venture capitalists and get in on the best deals at a very early stage. This has been taken away, and returned to the old guard by the SEC.

For more, see What SEC Regulation Means to ICOs in the United States

When a US firm doesn’t want to issue a full IPO type security token, they can do what is called a Reg D offering. This allows them to sell their tokens to “accredited investors” only. An accredited investor is someone worth at least $1,000,000, excluding the value of their primary residence, or have income at least $200,000 each year for the last two years (or $300,000 combined income if married) and have the expectation to make the same amount going forward.

However, a Reg D offering has a major downside to US investors. The accredited investor can’t sell their token for at least 1 year. While non-US investors can trade and sell as they wish, US investors must HODL. This is a huge program for multinational ICOs.

This lockup period puts US investors at a major disadvantage to foreign buyers. This is such a big problem as to make issuing a security token in the United States under Reg D nearly worthless.

As a result, most security tokens are moving offshore. They’re setting up in Cayman Islands and elsewhere. They’re being sold to non-US persons and offshore structures only. We Americans are being locked out of the ICO market.

You can still get in on these ICOs by forming an offshore structure. Most ICOs allow foreign companies owned by US persons, so long as you sign the subscription documents while out of the country.

To get in on these offerings, you can form a company in Belize, Cook Islands, or Nevis. You can also move your IRA offshore, and into an offshore IRA LLC, to buy foreign security tokens in your retirement account.

For more on IRAs, see Best IRA Investments for 2018 and Here’s how to take your IRA offshore in 6 steps.

You’ll need to do some work to find quality international ICOs. These foreign companies are prohibited from marketing in the United States. Thus, you will need to attend international conferences or get an introduction from a foreign investment advisor with whom you have a relationship.

I hope you’ve found this article on offshore security tokens for 2018 to be helpful. For more information on forming an international company or on moving your retirement account offshore, please contact us at info@premieroffshore.com or call us at (619) 483-1708.

The IRS will end the Offshore Voluntary Disclosure Program
Christian Reeves

The IRS will end the Offshore Voluntary Disclosure Program

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The IRS will end the Offshore Voluntary Disclosure Program on September 28, 2018. If you haven’t come forward by that time, you’re out of luck. In fact, the IRS has already begun to ramp down the 2014 Offshore Voluntary Disclosure Program and it’s becoming more difficult to get cases through.

From the IRS website, “Taxpayers have had several years to come into compliance with U.S. tax laws under this program,” said Acting IRS Commissioner David Kautter. “All along, we have been clear that we would close the program at the appropriate time, and we have reached that point. Those who still wish to come forward have time to do so.”

And the Offshore Voluntary Disclosure Program has been a real cash cow for the Service. Since 2009, more than 56,000 Americans have used the program, paying $11.1 billion in back taxes, interest and penalties to keep the IRS from pressing criminal charges.

Of this number, about 18,000 people came forward in 2011. The number of taxpayers using the Offshore Voluntary Disclosure Program has steadily declined with only 600 applications in 2017.

What I call the Mini Offshore Voluntary Disclosure Program brought in another 65,000 Americans living abroad. Properly termed the Streamlined Filing Compliance Program was focused on American expats. Those who might not have known of their US filing obligations and want to get back into the US system.

It appears that most Americans have fallen in line and paid over to Caesar what he claims as his. This, and Foreign Account Tax Compliance Act (FATCA) have made the Offshore Voluntary Disclosure Program obsolete. The government has taken all it can from Americans and is now looking to new sources.

The Offshore Voluntary Disclosure Program, like the attack on crypto traders, was based on fear. The US IRS charged a few people in each big city and each state with crimes for having an unreported account. These criminal prosecutions got the Service all the free press they wanted and, as a result, thousands of people came forward voluntarily.

The Offshore Voluntary Disclosure Program was the most efficient and cost-effective marketing campaign in history. And it seems that the IRS is going to deploy the same army against crypto traders in 2018.

See Top two max privacy options to plant your flag offshore

The bottom line is, if you have an unreported offshore bank account or undisclosed assets, you must file for the Offshore Voluntary Disclosure Program now. Time’s up… no more delay and no more debate. It’s time to come clean or accept the risks.

From the IRS website: “Complete offshore voluntary disclosures conforming to the requirements of 2014 OVDP FAQ 24 must be received or postmarked by September 28, 2018, and may not be partial, incomplete, or placeholder submissions. Practitioners and taxpayers must ensure complete submissions by the deadline to request to participate in the 2014 OVDP.”

Note that, US expats and citizens living abroad should probably use the Streamlined Program and not the Offshore Voluntary Disclosure Program. This article considers ONLY the Offshore Voluntary Disclosure Program.

The purpose of the Offshore Voluntary Disclosure Program is to allow US resident taxpayers to come forward, report their foreign accounts, avoid criminal penalties, and reduce civil fines. Those who come forward will pay the tax plus interest on unreported foreign income.

In addition, they’ll pay an accuracy penalty of 20% and a 27.5% offshore penalty. See IRS FAQ 8 for a detailed calculation. In the example, coming forward cost the taxpayer $553,000 vs being liable for well over $4 million had the IRS been forced to track him down.

These taxes and penalties are calculated on the last 8 tax years for which the filing date of the return has passed. For example, if you were to file an OVDP in July 2018, you would amend and pay taxes for 2017, 2016, 2015, 2014, 2013, 2012, 2011, and 2010.

This is to say, you are to amend your personal income tax returns for these years. You will add on to the return any foreign income, such as interest, rental, business, etc. You will also add on any missing foreign entity forms, such as the Form 5471 and 3520. Finally, you will prepare an FBAR form reporting ALL foreign accounts.

Once all of this is ready, your tax preparer and a representative will prepare an OVDP application that includes a letter of explanation of the facts and circumstances of your situation. Again, all of this must be mailed by September 28, 2018.

I hope you’ve found this article on the ending of the Offshore Voluntary Disclosure Program to be helpful. For more information and to be introduced to an expert who can assist you with an OVDP or Streamlined Program, please contact us at info@premieroffshore.com or call us at (619) 483-1708  for a confidential consultation.

Ready to take your IRA offshore?
Christian Reeves

Ready to take your IRA offshore?

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Are you ready to take your IRA offshore? Do you want to invest your retirement savings outside of the United States? Do you want to protect your savings by moving it out of the reach of civil creditors? Do you want to trade crypto on foreign exchanges? Here’s what you need to know to take your IRA offshore.

You can move an IRA offshore once the account has vested. A vested retirement account is generally one from a previous employer. Each time you change jobs, you take your IRA with you and it vests. These accounts can be moved offshore at any time.

In some cases, an IRA with a current employer can be moved offshore. If you’ve been at the same job for many years, some of your retirement accounts may have vested. You should discuss this with your HR department.

Finally, certain types of Defined Benefit Plans can be converted to IRAs. If this was written into your DB plan, you can make the conversion and then take the resulting IRA offshore. You’ll need to discuss this with your plan administrator.

There are two ways to take a vested IRA offshore. You can make international investments through a US custodian or you can transfer your retirement account into an offshore IRA LLC.

Investing your IRA offshore through a US custodian is referred to as creating a self directed retirement account. You tell the custodian what to invest in and they generally agree to make those investments.

Most US custodians do not allow offshore investments. If you want to invest your IRA offshore through a self directed account, you need to search out those custodians that support international transfers.

Because of the low costs of moving to a self directed account, these are best suited to the following: 1) those with less than $80,000 they want to move abroad or protect, 2) those who don’t mind having a US custodian incharge of their account, 3) clients that will make one or two investments offshore, and 4) persons who will not actively trade the international component of their retirement account.

The second option to take your IRA offshore is to form an offshore IRA LLC. In this case, you move your entire retirement account out of the United States and in to the Limited Liability Company. That is, your custodian makes one and only one investment – they invest your IRA into your LLC. From here, what happens to the account is totally on you.

When you set up an offshore IRA LLC, you become the investment manager of your account. You make the investments and all of the decisions for the account. You become responsible to ensure all IRA rules are followed and you must always act in the best interest of the account.

Because it costs about $3,500 to setup an offshore IRA LLC, I suggest that only those with at least $80,000 should go this route. Of course, this is not a rule, just a suggestion. I’ve had many clients over the years setup LLCs for $25,000 or so because they had multiple reasons to invest abroad.

Note that a husband and wife can use the same LLC. Also, all of your IRA accounts can be combined in to the same LLC structure.

In addition to the amount to invest, an offshore IRA LLC is best suited to those who will 1) actively trade their accounts, 2) make multiple investments, 3) will invest in crypto or other advanced products where time to trade is important, and 4) those seeking asset protection and to control their own accounts.

Again, when you setup a self directed account, the custodian is the ultimate authority. They make the final investment decision. They are also the ones who sign documents and they can reverse or revoke the transaction when possible.

An offshore LLC puts the account totally under your control. You write the checks and you make the wire transfers. 100% of the gains and losses are on you and you alone.

The process to move to a self directed custodian is simple enough. You just need to find one that allows for international investments and fill in the paperwork. There should be no tax issues around a transfer (you don’t need to do a roll-over with all that complexity). I can connect you with an international custodian if you drop me a note to info@premieroffshore.com

Creating an offshore IRA is more complex and should only be undertaken by those willing to put in the time to manage their account. You can form an offshore IRA in the following steps:

  1. Move your account to a US custodian that allows for offshore IRA LLCs, which is not necessarily the same as a custodian that allows for self directed foreign transfers.
  2. Incorporate an international LLC in a zero tax country such as Belize, Nevis, Cook Islands, etc.
  3. Make yourself, the beneficial owner of the IRA, the manager of the LLC.
  4. Open an offshore bank account in the name of the LLC and set you up as the signatory on the account.
  5. Instruct the custodian to transfer the balance of your IRA account(s) into the LLC bank account.

From here, you’re in total control of the account. You make the transfers and sign any agreements on behalf of the LLC. Note that the LLC is owned by your retirement account and you‘re the manager of the LLC. This is a structure very specific to offshore IRA accounts and must be incorporated by someone experienced in these formations.  

I hope you’ve found this article on taking your IRA offshore to be helpful. For more information on setting up this structure, please contact me at info@premieroffshore.com or call us at (619) 483-1708.

Best IRA Investments for 2018
Christian Reeves

Best IRA Investments for 2018

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The best IRA investments for 2018 are all offshore. If you want higher returns in your retirement account, you need to invest offshore. If you want to move some of your IRA out of the United States, you need to invest your account offshore. With that in mind, here are the best IRA investments for 2018.

To start, let me note that you can only place a vested retirement account offshore. A vested account is usually one from a previous employer. If you can move the account from one custodian to another, it’s vested. If you can’t move the account because it’s held at your current employer’s custodian, it’s not vested.

Second, keep in mind that most custodians don’t want you to invest your IRA offshore. They want you to buy their mutual funds, annuities, and whatever else they make a nice commission on. When you invest offshore, your custodian makes zero on the buy/sell. They make nada on your gains and get no management fees.

With that in mind, here are the best IRA investments for 2018:

  1. Foreign real estate in countries with low capital gains rates,
  2. International ICOs,
  3. Crypto trades at foreign exchanges with better rates (difference in bid /ask),
  4. Investments that lead to foreign residency, and
  5. Leveraged investments no available in the United States.

The most popular international IRA investment for 2018 is real estate. Foreign real estate offers a higher yield compared to the United States and is a relatively low-risk investment. While other offshore IRA investments are higher risk with massive upsides (such as crypto below), real estate is true to the IRA mantra of steady and conservative.

Foreign real estate is the best IRA investment in 2018 for those willing to put in the time, effort, and expense to find deals. Yes, returns are higher abroad if you find the right area and the correct tax structure. But, finding these deals means hitting the streets to learn the target country, the city, and finally the neighborhood.

And the best IRA investment for 2018 will usually be in a country with a low capital gains rate. Because you won’t pay tax on the gain in the United States, you don’t care about the foreign tax credit. Therefore, you want to invest in a country that will minimize your worldwide tax costs.

When you invest non-IRA funds, you pay 20% to the US on long-term gains. If you invest in a country with a 20% capital gains rate, you pay zero to the US because the Foreign tax credit gives you a dollar for dollar credit on your US return. When you invest in a country with a 10% rate, you pay 10% to that country and 10% to the US.

When you invest using your IRA, your US rate is basically zero and the foreign tax credit doesn’t apply (in most cases). Thus, you want to buy in a zero tax country like Belize or a low tax country like Colombia (capital gains rate is 10% but the tax on rental income is 33%). For more, see: Where to Buy International Real Estate.

See also: Which Countries Tax Worldwide Income?

The second most popular category of foreign IRA investments for 2018 is cryptocurrency and ICOs. The United States has forced US exchanges to report all sales, creating a tax nightmare for many. Also, the US SEC is pushing the majority of ICOs offshore. If you want to get in on the ground floor of an ICO, before all the vulture capitalists have picked it clean, then you need to invest offshore.

For these reasons, the best IRA investments for those looking to get into crypto, smaller coins, and most ICOs, are offshore in 2018. For more see: Take your IRA offshore and invest in cryptocurrency.

The third most popular investment for your IRA is one that can be paired with residency or citizenship. In some countries, you can gain residency with an investment. If that investment can be held by your IRA, you can use retirement funds to secure residency.

However, you need to be careful. You can make the investment using IRA money. Then you need to pay all costs associated with the residency application with personal savings (not IRA money). If you were to pay for residency with IRA funds, this would be an improper benefit.

For example, you can get residency in Panama with a real estate investment of at least $350,000 or an investment in an authorized reforestation plantation of $20,000. For more on this, see Best Panama Residency by Investment Program.

The fourth best IRA investment for 2018 is only for very sophisticated IRA investors. It is any leveraged purchase or foreign real estate with a mortgage. This is because these investments are only possible outside of the United States.

When you invest your IRA in the US using leverage or a mortgage, you must pay Unrelated Business Income Tax at about 35%. That is to say, all gains from leverage or a mortgage are taxed at 35% before being passed through to your retirement account.

For example, you buy a house in California using your IRA. 50% of the money comes from your IRA and 50% from a non-recourse loan (the only type of loan an IRA can accept). When you sell that home, half the capital gain will be taxed at 35% and half will flow into your IRA tax-free.

When you invest using a mortgage or leverage (maybe in a crypto account) outside of the United States, you can block and avoid this tax. Set up a UBIT blocker corporation along with an offshore IRA LLC and eliminate UBIT in your international IRA transactions.

I hope you’ve found this article on why the best IRA investments for 2018 are all offshore to be helpful. For more on converting your retirement account to a self-directed IRA or forming an offshore IRA LLC, please contact us at info@premieroffshore.com or call us at (619) 483-1708.

design

Filme sexuale

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Filmele sexuale au fost de multă vreme un element de bază al industriei americane de divertisment, dar nu toate filmele sexuale sunt egale. Unele sunt pur și simplu mai riscante decât altele, dar cu siguranță există unele grozave care merită vizionate. Să aruncăm o privire la unele dintre preferatele noastre. Probabil că vă veți bucura de acestea la fel de mult ca și mine. Fie că sunteți în căutarea unui clasic sau ceva care este puțin diferit, aceste filme cu siguranță vă vor face să întorci paginile romanelor tale de dragoste preferate.

Majoritatea filmelor sexuale nu recunosc faptul că sexul are partea lui de umor, iar cele mai bune recunosc acest lucru și îl fac mai amuzant. Dacă ai de gând să faci un film despre sex, atunci ar trebui să-l iei în serios, dar nu-l lua prea în serios. În schimb, încercați să găsiți echilibrul potrivit între un subiect serios și ceva umor. Până la urmă, este alegerea ta.

Un film sexual bun are un nivel ridicat de tensiune sexuală. Sexul dintr-un film sexual poate fi foarte întunecat, răsucit sau chiar foarte bizar. S-ar putea să găsiți chiar scene care sunt incredibil de obscene și șocante. Aceste scene sunt adesea foarte provocatoare și pot face spectatorii să-și dorească să arunce o a doua privire. Cu toate acestea, nu ar trebui să vă așteptați să vizionați un film sexual dacă nu vă place violența.

Istoria  https://filmeporno.tube are multe exemple. De exemplu, în epoca pre-Cod, femeile erau adesea arătate în fotografii publicitare și au provocat indignarea publicului. În Baby Face, Barbara Stanwyck a dormit până în vârful unei bănci din New York. Și nu este de mirare că femeile par să fie publicul principal al filmelor senzaționale. Pe lângă filmele sexuale, ei sunt, de asemenea, principalii cititori ai tabloidelor, a foilor de scandal, a revistelor strălucitoare și a cărților erotice. Femeile sunt atât de fierbinți, încât fac un bărbat să pară sănătos prin comparație.

Real Sex Films examinează o mișcare cinematografică internațională controversată. Aceste filme prezintă violență sexuală de mare impact și au generat controverse aprinse. Diverse țări au interzis filmul pentru cenzură. Arhiepiscopul portughezului a condamnat filmul. De atunci, filmul a fost interzis în Portugalia. Cu toate acestea, controversa în jurul acestuia nu și-a diminuat impactul. Este încă un film important în lume. Următoarele sunt doar câteva dintre cele mai controversate filme de sex.

American Pie este un alt clasic care a deschis calea pentru filme sexuale mai realiste. Deși filmul nu a fost inovator, a reînviat genul comediei sexuale. Nu a fost primul film care a abordat acest subiect, dar a devenit mainstream. În timp ce bugetul lui American Pie a fost relativ scăzut – aproximativ 100 de milioane de dolari – nu a făcut confuzie între gustul nebun și moralitatea. De fapt, a făcut un profit de douăzeci de ori la box office, o dovadă a calității materialului.

Una dintre cele mai sublimate scene de sex din istoria filmului este în Casino Royale. Aș spune că această secvență este mai bună decât trenul în tunelul din North by Northwest sau scena de șah din The Thomas Crown Affair. În timp ce Bond abia este conștient, el se aruncă prin scaunul scaunului fără scaun. Într-un fel, este simbolul sexului în filme. Sublimarea din acest film este atât de puternică încât a schimbat felul în care bărbații văd sexul.

Un alt clasic este In the Realm of the Senses. Este un alt film japonez care tratează industria sexului într-un mod foarte diferit. Intriga sa este un thriller întortocheat, din epoca Freud, care explorează partea psihosexuală a înaltei societăți. Îi joacă pe Nicole Kidman și Tom Cruise în rolul unor showgirls. Are loc într-o piscină din Sin City. În timp ce apa era elegantă, palmierii adevărați erau falși și iluminați de lumini de neon.

Haiducul este un bun exemplu de film sexual cu un subtext extrem de întunecat. Printre numeroasele sale genuri, acest film este un clasic pentru că are o gamă atât de largă de conținut. Este un film extrem de erotic și unul dintre puținele care exprimă un subtext suspect și decadent. Nu lipsesc filmele din genul sexual și este important să vizionați câteva filme diferite pentru a înțelege nuanțele lor.

Există câteva diferențe între filmele sexuale și filmele pornografice.

Filmele pornografice, pe de altă parte, sunt de obicei mai explicite și descriu scene de sex. În timp ce filmele sexuale softcore sunt mai puțin explicite decât filmele pornografice, ele prezintă de obicei scene de sex. În mod similar, filmele erotice sunt clasificate drept „erotice”, deși este posibil să nu aibă merit artistic. Unele dintre aceste filme pot conține nuditate sau o lipsă de conținut sexual.

Where to Start a Cryptocurrency Exchange
Christian Reeves

Where to Start a Cryptocurrency Exchange – Crypto Friendly Countries

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In this article, I will focus on where to start a cryptocurrency exchange in 2018. That is, where to incorporate a new cryptocurrency exchange. Which countries are friendly to startup cryptocurrency exchanges and why you should consider each based on your business model.

Countries are not listed in any particular order. You should select your jurisdiction of operation based on your long-term objectives, business model, and target markets. You should also consider whether you wish to have a formal license or not.

I’m starting from the position that regulation is good for cryptocurrency in 2018. Banks are pushing out crypto exchanges and crypto investors because of concerns about compliance. If a bank is confident that an exchange is will run a clean and compliant business, and follow the same AML and KYC procedures as an FX or brokerage firm, they are more likely to open accounts for you.

It may be possible to start a crypto exchange in 2018 without a license. But, by 2019 or 2020, I expect everyone will be licensed and regulated. Some software vendors include licensing in their turnkey package. I suggest you buy your core software from a company that can provide this service if and when it becomes necessary.

Some of my comments below are speculative. They come from meeting with experts in various countries and with regulators around the world. But, in some cases, no licenses have been issued and thus the government’s resolve has not been tested.

For example, the lowest cost jurisdiction for a licensed exchange appears to be Belize. However, no licenses have yet been issued. I am hopeful that these will be made available. But, until one is approved, I’m just speculating.

Estonia is also low cost. Plus, this country is a very tech savvy with their e-residency program. The problem is that the banks in Estonia won’t open an account for an Estonia licensed exchange if that exchange is owned by foreigners. So, how valuable is the license?

For more information on how to start an international or offshore cryptocurrency exchange, please see: How to Build an International Cryptocurrency Exchange.

Without any more adieu, here are my thoughts on where to start a cryptocurrency exchange and the best countries from which to operate that exchange.

Mexico

Mexico is one of the more interesting jurisdictions to start a cryptocurrency exchange in 2018. This country of 140,000 million has a few exchanges in operation and is just beginning to regulate.

The exchanges in Mexico are currently self-regulating with reasonable KYC and AML procedures in place. The more a client deposits into their account, the more the exchange will want to know about them.

A client can play around with the system with a few dollars. This usually required a Mexican phone number. Once they connect to a local bank account or begin making sizable withdrawals, they will need to prove their identity.

And Mexico has the most efficient cash transaction system in the world for cryptocurrency… yes, in the world!

Users can walk into any of 140,000 convenience stores in Mexico and make a cash withdrawal or deposit into their cryptocurrency account. Take cash and a code to the cashier and your deposit will show on your account in minutes. Buy a debit card from the store, convert your BTC to Pesos, and transfer those pesos into your card. You can then take a cash withdrawal or use the card just about anywhere.

We expect this period of self-regulation of cryptocurrency exchanges to last 6 to 12 months. It might be longer depending on what happens in the Presidential elections this year. Legislation to regulate exchanges has been passed but not implemented yet.

Like many countries, the Mexican Central Bank announced that bitcoin and cryptocurrencies are not considered currencies and are not backed by the government nor laws. However, the government also said that crypto is not illegal and that they’ll allow self-regulated exchanges to operate while laws are being implemented.

The government also said they won’t step in to regulate ICOs. They warned consumers to avoid high-risk investments, but haven’t yet taken steps to protect consumers. The government hinted that ICOs could be regulated and only available only to accredited investors in the future.

When new laws and regulations are implemented, which they will be, expect formal compliance and some level of corporate capital to be required. New firms should be working closely with local counsel to build up reserves and put AML and KYC systems in place before applying for a license.

Chile

Everyone’s been talking about Chile as a great cryptocurrency center… as the next chilecon valley. And, that was true until April of 2018. Over the last few days, all the banks in Chile have closed the accounts of exchanges, ICOs, and anyone doing business in crypto. Both commercial banks and government banks have closed the accounts of exchanges.

Most blame the loss of banking services on a lack of clear regulation of cryptocurrency exchanges in Chile. If and when regulations are passed, as they have been in Mexico, look for business to return and banking to be made available.

  • Regulations have been passed in Mexico. They have not been implemented by the regulators yet. Thus, exchanges are in a period of self-regulation.

In my opinion, much of these problems come from a lack of regulation. The banks and government regulators don’t know what to do, so they take extreme steps to reduce their risks. Banks close accounts because the risk to the bank exceeds the value of the account. Risk comes from uncertainty. So, regulation in Chile will reduce or eliminate the risk.

Cayman Islands

The Cayman Islands are the jurisdiction for cryptocurrency investment funds. Cayman has long been a leader in large sophisticated hedge funds and it continues in that reputation today. If you plan to raise a $100 million dollar fund, Cayman is the place to do it.

Cayman has also been the country of choice for some of the largest ICOs. However, this has lead to a glut of ICOs and underfunded low-quality projects hoping to take root in the islands. I suggest that only the very best funded and highest quality ICOs should consider Cayman. See: The Offshore ICO Scam and Cayman Islands Corporations.

The same can be said for anyone attempting to launch an exchange in Cayman. The licensing process will be intense and you must have a solid compliance program and a team on the island. I estimate this license will cost $150,000 and take 6 to 12 months.

Some will find it easier to operate in Cayman as a crypto brokerage rather than a crypto exchange. Exchanges exchange money from one currency to another, as in exchanging a Bitcoin for $7,000 USD. Brokerages enable traders to place long or short bets on the BTC/USD price. For an example of such a brokerage, see: www.Xenia.com.

Belize

It appears that regulators in Belize might allow an exchange to operate under a money management license. This license is issued by the International Financial Services Commission in Belize or the IFSC.  

Corporate capital for this license is $50,000 and the cost is between $18,000 and $25,000 with filing fees. Annual fees, including the local agent, are about $5,000.

You will also need a 5-year business plan, resumes and police reports for all shareholders, officers and directors, and proper KYC and AML procedural manuals. The applicant must prove to the regulators that they have the experience and expertise to run a clean and compliant cryptocurrency exchange from Belize.

No exchange has been approved in Belize yet, but this could become the path forward. Then again, regulators might shut this door in the next few months.

Costa Rica

Historically, Costa Rica has been open to new high tech businesses. For example, Costa Rica was the center of the online gaming industry in the early 2000s. Just about every sportsbook and casino was based in Costa Rica for a time.

Also, San Jose, Costa Rica has a number of Bitcoin ATM machines and vendors that accept crypto. And Costa Rica has its own cryptocurrency, Pura.

The primary exchange selling to residents of Costa Rica is SatoshiTango. They have banking Portugal and provide services throughout Latin America.

Like Mexico, the Costa Rican Central Bank issued a statement that bitcoin and cryptocurrencies are not considered currencies and are not backed by the government. However, cryptocurrencies are not illegal.

Costa Rica does not offer a cryptocurrency license and no legislation is pending. San Jose would be an interesting low-cost city from which to operate a self-regulated exchange. You might combine operations in Costa Rica with a license from Estonia and use 3rd party providers or OTC / CTC systems to fund accounts and trade currencies until you can negotiate a correspondent bank account.

Estonia

Estonia is one of the lower cost licensing jurisdictions. You should expect to pay 10,000 to 20,000 euros for a cryptocurrency exchange license from Estonia.

An application can be in English or Russian. Criminal history reports and background information must be provided by all officers, shareholders, and directors. Also, you must provide a detailed business plan, KYC documents, AML system, and financial statements.

Also, Estonia is a member of the European Union. This means that businesses incorporated and operated from Estonia are portable throughout the Union. Note that I’m talking about business operated from Estonia, not those operated abroad through the e-residency program.

If the business is to be operated from outside of Estonia, and most of the owners are foreigners, it will be impossible to get a bank account in Estonia. While you will get a license from Estonia, you won’t get a bank account.

Malta

Like Luxembourg, Malta made a splash by issuing a license to a big name, Binance. Malta has been working hard to bring stability to the industry ever since.

Malta’s government launched the Malta Digital Innovation Authority in February 2018 in order to provide legal clarity for companies developing Blockchain technologies, cryptocurrencies, and Initial Coin Offerings (ICO). Whenever the government is working to facilitate an industry, it’s a country you should consider.

That is to say, Malta’s government is reportedly developing a broad national strategy that will see the government embrace bitcoin and blockchain innovation to promote and adopt the technology.

Like Costa Rica, Malta was a leader in online gambling. They passed the first legislation in 2004 and have been a major player in Europe since then. Malta hopes to duplicate this success in crypto by offering the most efficient legal framework in the region.

At this time, and because Bitcoin is not deemed to be a regulated instrument under MiFID, companies dealing in Bitcoin are not required to apply for a license with the Malta Financial Services Authority (MFSA). However, the rapid growth of the industry will likely to necessitate greater regulatory oversight in the mid to near term. Expect Malta to issue licensing procedures soon.

For pending and planned legislation in Malta, see Malta Becoming a Crypto Hub.

Switzerland

The bottom line is that Switzerland is the best cryptocurrency jurisdiction in Europe. If you have an unlimited budget, and you don’t mind paying about 12 to 18% in corporate tax, you want to be in Switzerland. If you want to run a top tier exchange that markets into the European Union, you should be in Switzerland or Malta.

Switzerland and the United States dominated ICOs in 2017. Swiss ICOs raised $550 million vs the United States at $580 million from January to October of 2017. The next largest was Singapore at $184 million.

Switzerland has two popular coins. The Swisscoin, which is a token focused on Swiss investors and SwissRealCoin, which is a token based on Swiss real estate. There have also been crypto banks and crypto wealth management firms opening in Switzerland.

Bottom line, Switzerland is dominating financial services in and around cryptocurrencies and blockchain.

If you wish to set up in Switzerland, I suggest you open in Crypto Valley, which is in the city of Zug. This canton has the lowest taxes in the country and has been a bastion for offshore corporations for decades.

The Crypto Valley Association is an independent, government-supported association much like LHoFT in Luxembourg. It was “established to take full advantage of Switzerland’s strengths to build the world’s leading blockchain and cryptographic technologies ecosystem.”

As a general rule, all companies in Switzerland performing financial activities are required to receive an authorization for their operations from the Swiss Financial Market Supervisory Authority (FINMA). However, cryptocurrency businesses are not currently required to register with FINMA because crypto is not seen as a “currency.” We expect companies to be required to register soon.

Companies performing bitcoin transactions must still comply with specific regulations provided by the Swiss Anti-Money Laundering Act. Therefore, exchanges in Switzerland are self-regulating much like those in Mexico awaiting formal regulation, but failure to follow AML rules can result in major penalties.

Most exchanges are seeking banking relationships in Europe these days. Even those focused on Latin America and Asia are banking in the EU. In order to get a quality bank account, crypto exchanges are forming Swiss corporations in Zug, setting up an office there, complying with Swiss rules, and then applying for banking in Europe.

Keep in mind that these Swiss companies will need to continue to comply with Swiss laws to keep their bank accounts. This means they’ll need to keep up with new laws and secure a license if one becomes available.

Some ICOs are regulated in Switzerland and must register. Those  who sell an asset token, and not a utility or payment token, are regulated. This is because an asset token is considered a security in Switzerland. See: Guidelines for initial coin offerings (ICOs) Published 16 February 2018, a PDF download from the Swiss regulator finma.

For more on Switzerland, see Switzerland embraces cryptocurrency culture from the Financial Times.

We’ll be happy to assist you with an ICO or to set up a cryptocurrency exchange in Switzerland with banking in Europe. For a quote and more information, please contact us at info@premieroffshore.com or call us at (619) 550-2743.

Luxembourg

The two international top-tier crypto jurisdictions in Europe are Switzerland and Luxembourg. Exchanges in Luxembourg are governed by the CSSF and must follow the same strict rules as other non-bank financial institutions. Cryptocurrency exchanges in Luxembourg are referred to as electronic money institutions.

With Bitstamp moving to Luxembourg back in 2016, this country cemented its place as a top crypto nation in the European Union. Since then, a number of high profile exchanges, such as BitFlyer, have moved to Luxembourg.

Cryptocurrency exchanges in Luxembourg operate under the payments institutions license and report under the electronic money institutions statutes. In most cases, your minimum capital will be 350,000 euros.

“Electronic money” is defined in Luxembourg as something of monetary value representing a claim against the issuer which is:

  • stored in electronic format, including on magnetic media, and
  • issued against the remittance of funds with the goal of making payments, and
  • accepted by an individual or organization other than the issuer of the electronic money.

In addition to issuing electronic money, these companies may supply payment services, grant loans (under certain conditions) linked to payment services, supply operational services, and other services closely linked to the issuing of electronic money or to the supply of payment services, manage payment systems, and undertake commercial activity.

In our experience, setting up a licensed exchange in Luxembourg is an expensive endeavor requiring many months. Typical legal costs are $150,000, including your promotor / project lead, an attorney in Luxembourg, and securing the support of LHoFT.

Japan

Japan has the most advanced crypto laws on the planet. If you want to operate from a top tier country with a strong demand for bitcoin, and the most advanced laws, then consider Japan.

As I said above, I consider regulation a positive force in the industry. It gives crypto exchanges and, possibly, more importantly, banks, confidence in how to deal with the industry. It creates a level playing field on which everyone can compete. It ensures only compliant and well-run cryptocurrency exchanges are allowed to operate in the country.

The Revised Payment Services Act took effect on April 1, 2017. Since that time, Japan has had the most complete regulations for cryptocurrency transactions. These laws are administered by the Financial Services Authority (FSA).

The minimal capital amount is JPY 10 million ($93,500 USD), but more than JPY 50 million (about $500,000 USD) is recommended. Strict KYC and AML policies must be in place, you must have an external auditor, and a physical office is required.

And, keep in mind that these regulations apply to anyone running an exchange from Japan and anyone selling into Japan. Firms selling into Japan without a license have been shut down and sanctioned. For example, Binance secured a license in Malta after being warned by Japan for operating without a license.

Expect Japan to be used as a model by major markets as compliance and regulation rolls through the industry.

Australia

Australia licensed three cryptocurrency exchanges since new regulations came into effect April 3, 2018. All exchanges operating in the country have until May 14, 2018, to get in compliance and be approved for a license.

After spending several years battling a confusing and at times contradictory regulatory landscape, exchanges doing business in Australia can now take advantage of an official program like those available in Japan and South Korea. A formal licensing scheme should make banking easier and eliminates the risk of inadvertently running afoul of government KYC and AML policies.

Exchanges operating in Australia now must comply with the following:=

  • customer identification and due diligence
  • adopting and maintaining an AML/CTF program—this includes identifying, managing and lessening money laundering and terrorism financing risk
  • suspicious matter reporting
  • reporting of cash transactions of $10,000 or more.
  • record keeping

In order to apply for a license, applicants must have an office in Australia, an auditor, business plan, and complete compliance systems in place. Only those with a solid team and expert compliance systems will be granted a cryptocurrency license in Australia.

The license required to operate a crypto exchange in Australia is the Financial Services License. In most cases, capital required will be $50,000 plus a 5% reserve based on the size of your exchange. Various ratios apply after $100 million in assets and capital reserves shall not exceed $100 million. It appears that most applicants should have $10 million before they file an application. See Pro Forma PF 209 (a PDF file).

Philippines

The Philippines issued two cryptocurrency exchange licenses in August of 2017 and has been active in the industry since that time. Exchanges wanting to offer services throughout Southeast Asia are usually setting up shop in the Philippines or Thailand. The more advanced regulations are in the Philippines.

Cryptocurrency exchanges in the Philippines are governed by Circular 944, 2017. There are currently 29 applications pending with the central bank. How many actually want to sell into the Philippines is unclear.

BSP Governor Nestor Espenilla, Jr. suggested they “have an open-minded approach to fintech (financial technology). This means that we take a very active role in ensuring that our policies provide opportunities for innovation.”

“Today, there are two virtual currency exchangers registered with the BSP and several more are under evaluation,” the central banker emphasized.

Many of the exchanges moving to the Philippines are from China. They’re not focused on the local market, which is only about $8.8 million per month. They’re looking at the region, possibly including Chinese clients who have found a way to get around the great firewall.

Thailand

Bangkok was shaping up to be a cryptocurrency center of Southeast Asia. Exchanges were opening there and being welcomed by the banks.

Then it all went south. Banks turned against cryptocurrency and began stuttering accounts. This began with the government bank and the rest followed suit.

My guess is that the fragile government of Thailand saw risk in allowing a means of exchange which they didn’t control. For this reason, I expect the exchanges to be forced out of Thailand.

Singapore

Singapore is one of the last major banking centers that allow for unregulated or self-regulated cryptocurrency exchanges. As of February 2018, the government warned of the risks of cryptocurrency but said it would not regulate the industry.

Then, in March, the government indicated they might take steps to protect investors. Experts think that Singapore will go the way of Switzerland and require KYC, AML and compliance standards for cryptocurrency exchanges. They might not require a license, but they will require record keeping and standards of care.

Of the exchanges opening in Asia, those looking for a low cost and low overhead solution are focusing on the Philippines. Those looking for better banking and to be within a major financial center, are opening in Singapore.

Gibraltar

Gibraltar is hoping to become the headquarters of all things blockchain. It appears that most legislation is aimed at the technology behind cryptocurrency and ICOs and not the tokens or currencies themselves. Thus, you might say that Gibraltar is taking a longer-term view by focusing on the underlying technology and using its portability into the EU to add value.=

A notification on the regulator’s website states that as from January 1, 2018, any use of distributed ledger technology for storing or transmitting value belonging to others will need to be authorized by the Commission. By the way, the following entries: “Initial Application Assessment Fee”, “Application Fee”, “Supplementary Fees”, “Annual Fees”, “Further Fees”, populate a list tucked in between the “Principles” and the “Frequently Asked Questions” sections.

Gibraltar hopes to take some ICO business away from Switzerland and offers lower cost and more definitive regulation that its much larger neighbor. For more, see it’s Statement on Initial Coin Offerings.

Belarus

Belarus issued regulations on December 8, 2017 and this law took effect on March 28, 2018. See: Questions and answers on Decree No. 8. This law creates a tax holiday and a FinTech campus called High Technology Park (HTP) for blockchain and crypto businesses.

Any member of the park may run an ICO without restriction. In addition, they may issue ICOs on behalf of others. Most of these ICOs are intended for offshore and EU investors.

A cryptocurrency exchange registered at HTP should have capital of $100,000 to $500,000 in a local bank. The amount will depend on the size of your operation.

Most interesting and unique, HTP companies can act as investment funds and perform cryptocurrency investing legally and with banking support. No need to incorporate your fund in a high-cost jurisdiction such as Cayman if you’re operating from Belarus.

The negative with Belarus compared to Malta is that Belarus is not a member of the European Union. Malta is a member state and its businesses may be “ported” throughout the EU.

The benefit of Belarus over Estonia is that banks in Belarus accept cryptocurrency exchanges. You’ll get an exchange license in Estonia, but not a bank account.  

See also Belarus To Become World’s Best Jurisdiction For Cryptocurrencies, ICOs And Smart Contracts.

Conclusion

I hope you’ve found this article on where to start a cryptocurrency exchange to be helpful. For assistance building a new international exchange, please contact us at info@premieroffshore.com or call us at (619) 483-1708. We’ll be happy to assist with licensing, compliance, software, and a turnkey solution for your cryptocurrency exchange.